TheChek News Flow

Fall in recorded Chinese holdings highlights Beijing’s push to diversify its reserves away from America

China’s recorded holdings of Treasuries have fallen below those of the UK for the first time since the start of the century, underlining an ongoing shift in Beijing’s management of its foreign reserves.

The value of China’s Treasury holdings as recorded by US banks and custodians fell to $765bn at the end of March, down from $784bn in the previous month, while those of the UK rose by almost $30bn to $779bn, according to data published late on Friday.

The crossover makes the UK the second-largest foreign holder of US Treasuries after Japan. It is the first time the UK’s holdings have been higher than the Chinese since October 2000 and is the latest sign that China is seeking to gradually diversify away from US assets.

“China has been selling slowly but steadily; this is a warning to the US” said Alicia García-Herrero, chief economist for Asia-Pacific at Natixis. “The warning has been there for years, it’s not sudden — the US should have acted on this well before”.

The data will come as a cautionary sign for the US administration following news that Moody’s has followed Fitch and S&P in stripping the world’s largest economy of its triple-A credit rating, citing its growing debt and deficit.

Beijing has been gradually reducing its holdings of US treasuries from a peak of more than $1.3tn in 2011, diversifying into other assets including US agency bonds and gold. Some of the fall in the value of China’s holdings could also reflect market moves.

Analysts believe China also holds a growing proportion of its US assets through third party custodians, including Euroclear in Belgium and Clearstream in Luxembourg, which obscures the true level of its holdings. Luxembourg’s Treasury holdings by value were flat in March while Belgium’s increased by $7.4bn from February.

China’s enormous Treasury pile is the result of a multi-decade trade surplus with the US that President Donald Trump is now seeking to reduce. But officials in the US administration have also expressed concern over foreign selling of Treasuries, which pushes yields up and makes debt refinancing more expensive.

The proportion of China’s Treasury holdings that were in short term bills, the most liquid securities that could be most easily sold off in a crunch, in March hit its highest level since 2009.

“Based on the visible data, there is no doubt that China has shortened the maturity of its US portfolio”, said Brad Setser, a senior fellow at the Council on Foreign Relations and former US Treasury official. 

The rise of the UK’s recorded holdings does not reflect its own reserves. Rather, analysts say it reflects London’s role as a domicile for international capital.

Holders in Europe include insurers, banks and custodians. Some hedge funds hold Treasury securities and arbitrage by selling futures or swaps — positions known colloquially as “basis trades”.

Setser said the UK number “likely [reflects] an increase in Treasuries held by global banks, the availability of custodial services in London and potentially some of the activity of hedge funds”.

Analysts said that the data, which only shows moves until the end of March, did not reflect any action taken by China after Trump’s so-called “liberation day” escalation of his trade war.

“It is possible that China could have made significant changes in its reserve management in the last six weeks that will only become clear with more time,” said Setser.

European stocks have been the surprise success story of 2025, and banks the surprise within Europe. The iShares MSCI Europe Financials exchange-traded fund has soared by a third this year, boosted by a 9% jump in the euro versus the dollar. U.S. peers have advanced 5%.

Further gains could be tougher. “The catch-up has happened,” says Emmanuel Cau, head of European equity strategy at Barclays Investment Bank. “The market may need some time to adjust now.”

But with dozens of bank names on offer in a sector Balkanized by national boundaries, there’s still plenty of room for stock-picking.

European financials were a big winner from postpandemic global inflation. It forced the European Central Bank to yank up interest rates after 14 years near zero, which meant banks could at long last earn net interest income. Massive spending promises from Germany’s new chancellor, Friedrich Merz, added fuel to the bullish fire this year.

European banks are still not expensive arithmetically. They trade around book value on average, compared with two times in the U.S. Price/earnings ratios are running 40% below other European stocks, says Andrew Stimpson, head of European bank research at Keefe, Bruyette & Woods. Previous rallies have peaked at a 20% discount. “We’re still at low multiples,” he concludes. “There’s definitely more room to go.”

The sector’s mojo was still working through first-quarter earnings, reported over the past few weeks. Almost 90% of the 38 houses that UBS covers beat profit expectations, reports Jason Napier, head of European banks research.

Shadows loom, however. Europe’s economy isn’t exactly on fire. Both the European Union and United Kingdom expect gross-domestic-product growth of about 1% this year.

The ECB is loosening again, slashing its key deposit rate from 4% to 2.25% over the past year. A descent to 1.5%, at the low end of market expectations, would “make life a little trickier for the banks,” Stimpson says.

Cheaper money should, in theory, spur more borrowing. That’s constrained for the moment by President Donald Trump’s only recently paused trade wars. The EU is a prime target, racking up a $200 billion-plus goods trade surplus with the U.S. last year and a series of rhetorical insults from the White House. (“The European Union,” Trump said, “was formed in order to screw the United States.”)

That has left corporate borrowers across the Continent cautious at best, says Johann Scholtz, European bank analyst at Morningstar. “It’s hard to see what is going to drive bank earnings from these levels,” he says. “None of the banks have lowered guidance to anticipate tariffs.”

Scholtz still sees value in one top-10 European bank, BNP Paribas, whose shares have struggled to recover from a punishing 2024. “Markets saw Paribas as a proxy for shorting France,” he says.

He and other investors are mostly combing second-tier names across the financial archipelago. Barclays’ Cau is tilting toward the U.K., favoring High Street mainstays Lloyds Banking Group and NatWest Group.

Stimpson is focusing on “some of the most profitable names in the sector, which give defensive qualities.” That list includes AIB Group, or Allied Irish Banks; Italy’s Intesa Sanpaolo; and Belgium-based KBC Group.

European banks are on solid ground. Nonperforming loan ratios in the euro area have dwindled below 2% from more than 7% a decade ago. “The banks have loads of capital,” Stimpson comments. “The missing bit is the growth element.”

They can’t keep performing like growth stocks without growth forever, though.

The shares were a tariff winner, and that won’t change even with the China trade deal.

In a market that has felt like a horror show for much of 2025, Netflix has been one of the few feel-good stories in town.

The video streamer looks like the rare sort of stock that can outperform no matter what happens on the trade front. Its shares, at a recent $1,173.25, have jumped 25% since April 2, when President Donald Trump’s tariff plans sparked a brutal and broad selloff, while the S&P 500 index is up 4.1% over the same period. On Thursday, Netflix was less than $1 billion away from closing with a market value of $500 billion for the first time.

It isn’t hard to see why Netflix has become one of the market’s go-to safe havens. It imports content, not goods, so there’s little risk of the White House’s reciprocal levies driving up its costs. Shares dipped just 2% the day Trump threatened to impose 100% import duties on foreign movies, as investors realized that the company could mitigate much of the earnings impact by either shifting production to the U.S. or raising its prices.

The stock also has a pedigree as a name that can outperform in times of macroeconomic uncertainty, racking up double-digit gains during the Covid-19 pandemic as widespread lockdowns led to users plowing through smash-hit series like Tiger King and The Last Dance.

But while other perceived havens like gold could struggle now that the Trump administration has brokered a deal with China to cut most tariffs for 90 days, Netflix ought to be able to build on its strong run this year.

The only real mark against the stock right now is valuation. Due to the recent rally, shares aren’t cheap—they currently fetch about 43 times future earnings, meaning they’re trading at a significant premium to both the benchmark S&P 500, at 21 times, and the Magnificent Seven group of megacap tech names it’s often compared with, at 27 times.

Still, Netflix has averaged a price/earnings ratio of 52 over the past five years, so judging by recent history it isn’t expensive. Over that time the stock has gone from “a loss-making challenger where everyone was skeptical about how much it’s spending on content to a reliable, profitable compounder,” Ben James, a strategist at the Edinburgh-based investment management firm Baillie Gifford’s U.S. growth fund, tells Barron’s. The firm holds a little more than 4 million shares, a position that’s valued at about $4.5 billion.

The bull case hinges on the idea that the streamer will be able to grow earnings at a fast enough rate to maintain the stock’s recent momentum. James argues that operating margins, currently at 27%, could nearly double by the end of 2030.

He says that over the past decade, Netflix has managed to engineer a self-sustaining cycle of growth in which more subscribers means more money to spend on content, which in turn attracts even more users. The streamer has already done the hard work, pouring money into creating a vast library of films and movies.

“It’s invested so much in its own content that it’s built a flywheel that will be key to growing its margins,” James says. “When we first invested in 2015, its margins were about 4.5%, and our forecast was they would reach 50% within 10 to 15 years. So it’s over halfway there, and we still think it can get there.”

Executives are targeting a $1 trillion market capitalization by the end of 2030, The Wall Street Journal reported last month, up from $484 billion right now. Even at Netflix’s current lofty valuation, it would be all set to hit the 13-figure threshold if it could manage the necessary margin growth.

The rollout of cheaper subscription plans could also help supercharge profit. Netflix unlocked a fresh revenue stream when it introduced ad-supported tiers in November 2022. Ads accounted for just 4% of revenue in 2024, but the company projects ad revenue to double this year, and its advertising president, Amy Reinhard, said Wednesday that the ad-supported tiers had added 24 million users over the past six months. James thinks the streamer will soon be able to leverage artificial intelligence to target users and make the tiers more profitable.

Live sports programming could also help the streamer reach untapped markets. It might seem like every household has a Netflix account, but there’s still plenty of room for the streamer to grow. For the fourth quarter of 2024, it reported 301.6 million subscribers globally. Three years ago, Chief Financial Officer Spencer Neumann estimated a total addressable market of between 700 million and 1 billion homes.

Netflix might not even be a pure-play streamer for much longer. In February the company opened its first restaurant, Netflix Bites in Las Vegas, where fans can tuck into dishes inspired by well-known films and TV shows. It’s also set to launch two experiential venues it’s dubbed Netflix Houses sometime later this year.

All that makes for a tempting growth story. Analysts polled by FactSet expect earnings before interest, taxes, depreciation and amortization, or Ebitda, to rise 26% this year, another 20% in 2026, and then another 18% in 2027.

Despite Netflix’s stellar gains this year, investors shouldn’t feel like they’ve missed the boat. Surging profit could quickly make the streamer look cheap again. Sometimes it’s worth paying a premium for that.

The painter’s work was celebrated by his fellow artists in Paris, but he eventually sought to live and work far away from conventional society.

Sue Prideaux’s gruesomely fascinating “Wild Thing” begins with four teeth in a well. Local inhabitants of Hiva Oa, in French Polynesia, found them in 2000 while restoring the nearby hut in which Paul Gauguin lived. Scientific analysis proved the teeth were indeed the famed painter’s.

When Gauguin died in 1903, he had been on Hiva Oa for two years. All his life he had been in pursuit of wild things. Born in Paris in 1848, he had spent several childhood years with his maternal family in Lima, Peru. For the rest of his life, he would belligerently call himself “a savage from Peru.”

Gauguin always considered himself an outsider. Even while thriving as a young Parisian stockbroker, his amateur painting defied rules. In early works such as “The Market Gardens of Vaugirard” (1879), he rejected the tight, smooth realism of Academic art and caught up with the variegated brushwork and unblended colors of his mentor, the Impressionist Camille Pissarro.

Several of the core Impressionists incubated the generation after theirs, even though the post-Impressionists were moving rapidly toward distinct and remarkably individual styles. The last of the Impressionist exhibitions, held in 1886 and financed in large part by Mary Cassatt, Edgar Degas and Berthe Morisot, launched not only the career of Gauguin but also Georges Seurat, with the latter’s monumental “A Sunday on La Grande Jatte” (1886). Degas would be one of Gauguin’s most stalwart collectors for the rest of his life. Post-Impressionism quickly delivered more than its fair share of images that have stayed in our collective imagination. By 1889, Vincent van Gogh, who had attended the 1886 exhibition and tried to become Gauguin’s friend, had painted “The Starry Night.”

Gauguin began formulating his own iconic post-Impressionism in Brittany, during the first of many escapes to places he believed to be primitive. He had grown increasingly alienated from industrialized European society. Though Brittany was a French province, it was considered to be so superstitiously Catholic as to verge on the pagan. In 1888 Gauguin painted one of the great masterpieces of Western art history, “Vision of the Sermon (Jacob Wrestling With the Angel).” Looming undulations of white Breton headdresses in the foreground direct their wearers’ gaze, along with ours, to an epic struggle between man and divinity in an alternate reality of glowing red (perhaps inspired by Brittany’s fields of buckwheat in the fall).

From there to Pablo Picasso and on to Jackson Pollock, it was one straight line. “Vision of the Sermon” unleashed color, line and space from the optical world we inhabit, and in its very title endowed that vision with a sacred aura. For almost a century, beginning with the Impressionists, each generation of painters looked at the degree of abstraction achieved by their elders and pushed further in the same direction. Today, we see how many types of Modernism have flourished around the world, but the self-consciously direct lineage of which Gauguin was a crucial part remains astoundingly inventive and productive.

Brittany turned out to be neither primordial enough nor affordable enough. After a financial crash terminated his stockbroking career, Gauguin, who never saved a franc, abandoned his wife and five children, borrowed money from friends, and taunted the art world by forswearing its Parisian sophistication in favor of a supposedly greater authenticity elsewhere. Unsatisfying trial runs in Panama and Martinique were followed by a serious move to Tahiti in 1891, with occasional stints back in Paris and Brittany.

Gauguin’s motives can be debated, but he painted some aesthetically fantastic canvases, among them his 1892 “Manaò tupapaú (Spirit of the Dead Watching),” a hymn, in lush purples, brown and golden yellow, to naive eros (and whose nude subject was 13 years old). When he finally relocated to Hiva Oa, in the Marquesas Islands, Gauguin turned against the French colonial government and the Catholic church. He defended local friends from legal or clerical persecution with petitions and in court. He did not, as tales have commonly told, spread disease among unwitting local girls. (Analysis of his teeth discovered in Hiva Oa proved he did not have syphilis.)

This twist surprises. By the time we arrive at the last years of Gauguin’s life, Ms. Prideaux’s astringent sympathy has accustomed us to one violent or egotistical episode after another. When in 1888 Van Gogh slices off his ear in despair of keeping Gauguin’s friendship, we have come to expect nothing milder.

Gauguin’s artistic reputation has also taken a recent turn. A 2017-18 exhibition at the Art Institute of Chicago and the Grand Palais in Paris reoriented our attention away from his paintings and toward his sculptures, many made in carved wood and molded ceramic. Gauguin’s statues, panels and vessels, long overshadowed, now feel almost more original, skilled and, most unexpectedly, self-aware than his paintings. In one of Gauguin’s more rueful moments, influenced by the Moche Peruvian ceramics he collected, he fashioned a mug into an astute self-portrait, with blood-tinged glaze oozing down its sides, as if to say: May my enemies drink to their health in my savage skull.

Ms. Prideaux’s title invokes the title of the 1966 Troggs song, to which this biography bids me respond: “Your art makes my heart sing.” This is a biography for anyone who wants to know about the man behind some irrepressibly memorable art, about one of the most creatively magic moments of European history and about a vividly extreme version of a recurring human situation. Who among us has not heard of stars who leave the care of their parents to a quieter sibling, spouses who ignore their partners’ contributions to their career, parents who neglect their children to pursue their own dreams? Who gets credit for the works of genius? Who should? The accomplishments of the selfish are real.

Luring new backers into the sector has its attractions, but risks fragmenting the system further

England’s beleaguered water sector is pulling out all the stops to woo investors, guaranteeing revenues and capping risks. 

The water regulator Ofwat wants to attract £50bn of investments for new infrastructure projects. Rather than getting utilities to take on more debt — and adding the cost directly to customers’ bills — such projects are being put out to separate tender. That means third parties would design, build, finance and potentially operate this new infrastructure, and the costs would be recovered through a surcharge on customer bills that is outside the normal price review process.

Luring new backers into the UK’s troubled water sector has some attractions. The balance sheets of existing providers have already been rinsed. English utilities are already loaded up with £74bn of borrowings after paying out £83bn in dividends over the last three decades.

While water bills have fallen in real terms since 2010, since privatisation they have risen far faster than overall inflation: 363 per cent according to a parliamentary debate. Meanwhile investment has only dribbled in; newcomers will be taking on projects that represent 36 years of catch-up digging reservoirs and other infrastructure.

Incoming investors will be pitched — in some cases literally — into muddied waters. There are multiple regulators, including Ofwat, the Drinking Water Inspectorate the Consumer Council for Water and the Environment Agency. Also in the mix: angry consumers, equally unhappy creditors and well-paid water bosses. A review due to be completed soon by Sir Jon Cunliffe, chair of the independent water commission, stands to redraw the landscape.

With the water sector in such poor shape, tendering out specific projects to newcomers may not sound like a bad idea. The cost of the projects will still need to be added to bills. But the regulator’s hope must be that, by having bidders compete, it can lower the cost to consumers.

The main problem is that this sort of structure fragments the system further. Operationally, hiving off the ownership of specific assets may not be ideal when managing an integrated water system.

What’s more, those who win the tender process, at least under one of the pathways envisaged, will not be directly licensed by the regulator. They will instead be indirectly overseen through their agreement with the local utility, which will still hold the licence. Investors can tap into the financial wizardry of lawyers and bankers to structure contracts. But that still looks like a recipe for disputes.

Not least, outsourcing such key responsibilities to unlicensed providers is hard to square with the essential nature of the services in question. Water still needs to come out of the taps. Any major mishaps, and it’s to government and regulators that the public will inevitably turn.

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