FTSE Russell indexes poised to axe more China firms

London index provider has already excluded eight American-blacklisted companies over alleged military links and more could now follow after Washington clarified its ruling for US investors 

by Samuel Shen and Brenda Goh
FTSE Russell indexes poised to axe more China firms
Trump's executive order will now apply to investors in exchange-traded funds and index funds, as well as subsidiaries of Chinese companies designated as owned or controlled by the Chinese military.

Global index publisher FTSE Russell said it may delete more Chinese companies from its global benchmarks, after the Trump administration strengthened an executive order on Monday barring US investment in firms with alleged Chinese military backing.

The executive order, signed by President Donald Trump on November 12, triggered a rush by FTSE Russell, MSCI and S&P Dow Jones Indices to remove US-blacklisted Chinese companies from their indexes to keep their clients compliant, but the scope of the sanctions was seen as vague.

The US Treasury Department published guidance on Monday clarifying that the executive order would apply to investors in exchange-traded funds and index funds as well as subsidiaries of Chinese companies designated as owned or controlled by the Chinese military.

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FTSE Russell, which has announced the exclusion of nine Chinese companies from its global indexes in response to the executive order, said in a statement late on Monday that it is reviewing the US clarification and will make evaluation for "potential additional exclusions".

FTSE Russell reiterated it will publish an announcement on January 4 with any additional deletions being effective from January 7.

MSCI has announced the deletion of 10 securities issued by seven Chinese firms while S&P DJI said it would remove securities of 10 Chinese companies following Trump's executive order. 

MSCI had said it would also create a new and separate index series which does not reflect the changes and will distribute the tools to clients automatically.

SANCTIONS AND RULES

But on Monday, MSCI said in a statement it will now only distribute the new indexes upon request by clients, and reminded index users that they are "responsible for ensuring compliance" with applicable sanctions and rules.  

FTSE Russell has deleted eight US-blacklisted Chinese companies from its global indexes include Hangzhou Hikvision Digital Technology Co and China Railway Construction. It will remove Chinese chipmaker Semiconductor Manufacturing International Corp (SMIC) in January.

The Office of Foreign Assets Control (OFAC), the financial intelligence and enforcement agency of the US Treasury Department, also published a so-called ‘Communist Chinese Military Companies List’ on Monday that gives more precise information on the sanctioned Chinese firms and their securities. 

  • Reuters

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