Deutsche Bank sees China clients eye shift to Europe from US

Chinese clients have reduced some of their Treasuries holdings in favor of European debt as President Donald Trump’s tariff deluge fuels an exodus from US assets, according to Deutsche Bank AG.

“We have observed some diversification away from US dollar in Chinese investors’ portfolios,” while their interest in other markets picked up, particularly in Europe, Lillian Tao, head of China macro and global emerging market sales, said in an interview.

European high-quality bonds, Japanese government bonds and gold are likely to be the potential choices for investors as alternatives to Treasuries, she said, speaking of Chinese commercial clients’ investments in overseas markets.

Dollar-denominated assets have taken a beating in recent weeks, with their status as haven assets increasingly coming into question following Trump’s all-out assault on global trade.

China’s status as the second-largest overseas holder of Treasuries has come into focus in recent weeks as analysts debate the nation’s role in the recent turmoil. US Treasury Secretary Scott Bessent this week rejected speculation that foreign nations were dumping their Treasuries holdings.

Several Chinese clients think the current market level of Treasury yields is very attractive after the selloff, Tao said. However, “they are also extremely cautious whether it is a good entry level or just a falling knife” as US policies turn more unpredictable, she said.

Amid rising volatility, “an increasing number of Chinese clients started looking at German bunds, Spain or Italy markets that they haven’t paid a lot of attention to before,” Tao said.

Some of the biggest names in finance are also positioning for more gains in Europe. Vanguard International favors short-dated bonds in the euro area with the central bank free to cut interest rates. Citigroup Inc. strategists recently downgraded US equities to neutral while maintaining a positive outlook on Europe and raised their euro forecast to $1.20.

The outlook for European markets has improved due to Germany’s approval of a landmark spending package and scope for more interest-rate cuts by the European Central Bank.

“Given the macro factors, it is a rethinking time for Chinese investors to reallocate into the more investable countries,” Tao said.