War, investing and ownership

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If you think you own Chinese stocks I have a bridge to sell you

lingua_ignota

The short answer: It depends. Governments can seize and freeze assets. Every country has their own laws for when/how/why you would do that, and those laws can be changed practically overnight if someone in government gets a bee in their bonnet about making it happen, and war usually brings a lot of bees in bonnets, but that’s not even the only thing that could raise issues. Consider that you can have: – 50+% American-owned businesses operating in foreign countries – American individuals and businesses who have minority stakes in foreign-owned/overseas-operating businesses – 50+% foreign-owned businesses operating in the U.S. which may have American shareholders – 100% domestic-owned companies whose entire business model depends on transacting with companies operating overseas that may also be foreign-owned – Multinational conglomerates that operate in both foreign and domestic markets under a single parent umbrella Any one of those entanglements could be upended by not just war, but diplomatic tensions or military conflict without a declared war, economy-wide reorganizations, changing regulatory environments, tariffs, trade agreements, etc. – In 1945, the Third Reich seized all enemy-owned assets in Germany (the U.S. did the same with enemy-owned assets here). Those assets were ultimately returned to their original owners after the war, but 1) that wouldn’t have happened if the other side had won, and 2) companies aren’t a fungible instrument, so the way they were managed by the Reich in the intervening time, and the effects of the war on the German economy, meant that the assets U.S. citizens had returned to them were in substantially different shape than what had been seized years before. – In 1960, Fidel Castro nationalized the Cuban economy and seized ownership of all industries without compensation. The U.S. retaliated with an economy-wide embargo that made it illegal for U.S. citizens to even *spend* money in the Cuban economy, let alone hold property. – In 1976, Hugo Chavez nationalized Venezuela’s oil industry but he didn’t outright seize the businesses. Venezuelan oil companies had always needed state-awarded concessions to do virtually anything oil-related – exploring, drilling, mining, refining, etc. and those concessions needed to be periodically renewed, and had always had a provision that if they were not renewed, the concession would revert to state ownership and no compensation would be given to the previous concession-holders. So Chavez let the concessions expire and revert back to the state, which effectively put every oil company out of business, and then popped up a state-owned replacement. – In the 1980s, Japan experienced an asset price bubble that was in large part caused by speculative foreign investments and the Japanese regulatory bodies choosing to stabilize the foreign currency exchange rate instead of stabilizing their own economy, and Black Monday 1987 in the U.S. market was a key catalyst that accelerated the Japanese bubble’s pop. When that happened, both Japanese people and foreign investors alike lost their shirts. – Since 1999 there has been a long and sordid fight over GMOs in the EU. First they were banned, it took the World Trade Organization 10 years to object by which point the ban had been overturned for a few years already, and 10 years after that the EU started granting member states the right to ban the production of GMO crops within their national borders while re-introducing a ban on gene-edited GMOs across the EU. – In the late 2010s, Trump and Xi decided to attack each other by taxing their own people, a.k.a. by implementing tariffs. This had a dramatic negative effect even on many wholly domestically companies whose business model relied on importing Chinese goods for which there was no available American supplier to step in to meet the need, and in many cases absorbing the cost of tariffs upended business models built on different price and profit margin assumptions. – In 2020, the Trump administration erected a bunch of red tape around U.S. companies selling software and equipment to SMIC, a major Chinese manufacturer of computer chips, due to national security concerns about SMIC’s coziness with China’s military. This had a big ripple effect on the global supply chain for computer chips, which was only compounded by the pandemic. Capitalism is generally not loyal to any national interest and there’s a tremendous amount of global power that is constantly at work trying to keep money flows open between nations without any regard for geopolitical concerns. More often than not, capitalism wins. Plenty of Americans got rich doing business in Afghanistan throughout our long war with them. But sometimes things go the other way. The details of how it plays out are complicated by how interconnected the global economy is and by the whims of strongmen in government, so it’s exceedingly difficult to predict.

emikoala

Well if the US did either, we’d all be dead in the nuclear fire. So, your stock would moon, just judging by how the market went over the past 2 years.

Red_Meridian

Most likely sanctions will force divestment before any formal war is declared. If formal war is declared abruptly then most likely you would have to wait until after the war to settle a claim of share/company ownership. (Considering only if the company still exists. Most likely it will not. So in that case you would lose 100%)

BigHairyDingo

**Economic Risks** It depends. I’m inclined to say the biggest risk is the fundamental impact war would have on the subject company’s business operations, which could range anywhere from expansion (entering a war might be good for *some* businesses) to collapse (losing a war tends to be bad for business), especially if you hosted the war on your own soil. There’s also the risk of nationalization and any economic consequences, particularly in strong-man countries like Russia and China. But it’s also happened in the U.S. **Administrative & Legal Risks** Wartime logistics concerning securities depositories is outside of my expertise (and perhaps this is unknowable in any event). But I believe shares of stock are largely recorded by central securities depositories, and are held and transacted through the name of “participants” or “members” (e.g., a bank, broker-dealer, or some other financial institution), which in turn keeps a registry of the end investor. I suppose certain international stocks could lose favor based on war-time sentiments, but it doesn’t stand to reason that holding “enemy” stock could somehow become criminalized. Practically speaking, how do you criminalize an entire financial system with book-entry record-keeping?

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