January 23, 2022

S&P Dow Jones Indices Excludes Chinese Companies From Indices As Directed By US Government

S&P Dow Jones Indices’s CEO on Passive Investing, ETFs, Investment Strategy

S&P Dow Jones Indices Excludes Chinese Companies From Indices As Directed By US Government

S&P Dow Jones Indices Excludes Chinese Companies From Indices As Directed By US Government

S&P Dow Jones Indices on Thursday became the second major index provider to exclude some Chinese companies from its index products in line with the Trump administration.

Order of the outgoing US President Donald Trump, released in November, aims to deter investment companies, pension funds and other US companies from buying shares in Chinese companies designated by the US Department of Defense as related to the Chinese military.

S&P DJI said it will remove mainland-listed A-shares, Hong Kong-listed H-shares and American Depositary Receipts (ADRs) of ten companies, including Hangzhou Hikvision Digital Technology Co Ltd and Semiconductor Manufacturing International Corp (SMIC), from all stock indices until December 21.

The company said it will also exclude securities issued by 18 Chinese companies from its fixed income indices through January 1..

«Order … could affect the ability of market participants to copy stock and fixed income indices S&P DJI containing securities covered by the order», – said in a statement S&P DJI.

Hikvision spokeswoman named decision to harass firm «unreasonable».

«We strongly protested when Hikvision was included in this list in June because, as we have stated repeatedly, Hikvision is not “Chinese military company”», – she said.

SMIC did not provide prompt comment to Reuters.

FTSE Russell said last week that it will remove eight Chinese companies from its products starting November 2021 in accordance with a U.S. executive order that prohibits U.S. investors from buying securities of blacklisted firms..

The actions of index providers to comply with the US directive effectively bar passive investors from accessing the stocks and bonds it affects and could cast doubt on investors’ assumptions that the administration Joe Biden would mean a warmer relationship with China.

«This is important, and more importantly, the Biden administration will not necessarily reverse it.», – said Kay Van Petersen, global macro strategy from Saxo Capital Markets, Singapore. – This is causing more excitement, and it raises possible questions: what about Alibaba, which is listed in the US … What if it were the other way around? How will people like it? And no one talks about this yet».

President-elect Biden has said he will not immediately repeal existing tariffs set by the Trump administration against China, and a law that is tough on Chinese business and trade practices tends to enjoy wide bipartisan support in Washington..

Last week, the US House of Representatives unanimously passed legislation to withdraw Chinese companies from the US stock exchanges if they do not thoroughly comply with US audit rules..

Kiyoshi Ishigane, the chief fund manager of Mitsubishi UFJ Kokusai Asset Management in Tokyo, said that S&P, «will have to sell».

«This goes beyond the usual yearly index changes.», – said Ishigane. – Once passive funds start to sell, active funds will tend to do the same».

China strongly opposes the exclusion of Chinese firms from the indices due to the US government decree, spokeswoman for the Foreign Ministry said Hua chuning.

«This is another example of how the United States uses state power to suppress Chinese companies.», – she said at the daily briefing on Thursday.

«We believe this endless lie and this suppression of Chinese firms will ultimately work against US interests», – highlighted the representative of the Chinese Ministry of Finance.

Hikvision shares in Shenzhen ignored the news and closed up 2.95% on Thursday. SMIC Shanghai closed 1.08% higher, Hong Kong shares unchanged that day.

«Although the share of foreigners in A-shares is growing, it remains relatively small, totaling 4-5%, said Max Luo, Director of Asset Allocation, UBS Asset Management in Shanghai. – We are closely monitoring these events, but we do not think that they will cause serious concern or panic in the Chinese markets».