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The Trump administration has designated 35 companies as having ties to the Chinese military and barred Americans from investing in those companies. Photo: AFP

FTSE Russell to remove eight Chinese companies from its global stock benchmarks beginning December 21 after US blacklisting

  • Hikvision, China Railway Construction and six others to be removed from global stock benchmarks beginning December 21
  • Trump administration has blacklisted 35 Chinese companies over ties to Chinese military
FTSE Russell said that it would remove eight Chinese companies from several of its global stock benchmarks after the Trump administration accused the companies of having ties to the Chinese military and barred US investors from trading or owning their shares.

The index provider, an arm of the London Stock Exchange Group, said it would remove the companies, including China Railway Construction Corporation, surveillance camera maker Hangzhou Hikvision and supercomputer manufacturer Dawning Information or Sugon, from its FTSE Global Equity Index Series (GEIS), its FTSE China A Inclusion indices and associated indices beginning on December 21, following its quarterly index review.

“Sanctioned companies will only be considered for re-inclusion in standard FTSE Russell indexes after a period of 12 months from the date of sanctions being removed,” the index provider said in a market notice issued early Saturday after US markets closed.

The earliest any of the companies could be assessed for inclusion in the FTSE Global Equity Index Series, for example, would be when the index provider conducts its semi-annual review in September 2022 if sanctions were removed by the end of March next year, the index provider said.

The blacklisting promises to turn the new year into a potentially volatile start for money managers as both stock and bond index compilers adjust their benchmarks. JPMorgan Chase has taken initial steps to deal with more than US$41 billion worth of dollar- and euro-denominated debt issued by sanctioned Chinese companies and their units in the bank’s emerging-market bond indices, it said in a November 17 report.

The companies to be removed from the FTSE Russell indices are: China Communications Construction Company, China Spacesat, China Nuclear Engineering & Construction Corporation, Hangzhou Hikvision, CRRC, Dawning Information (Sugon), China National Chemical Engineering Group and China Railway Construction.

The removal followed a consultation with subscribers, FTSE Russell said.

The eight have a combined market capitalisation of US$143.1 billion at the close of trading on Friday, according to Bloomberg data. There are 1,021 Chinese companies in the FTSE All World Index, a benchmark of 3,974 large and mid-cap stocks within the GEIS family, with a 5.16 per cent weight, according to its November 30 fact sheet.

US President Donald Trump signed an executive order on November 12 that designated 31 companies as being owned or controlled by the Chinese military and prohibited Americans from investing in those firms beginning on January 11 next year, just days before US President-elect Joe Biden is set to take office.
On Thursday, the Trump administration added another four companies to the blacklist, including China’s top chip maker Semiconductor Manufacturing International Corporation and oil giant China National Offshore Oil Corporation or CNOOC.

The Department of State on Friday separately terminated five programmes “disguised” as cultural exchanges with the US, which are fully funded and operated by the Chinese government as “soft power propaganda tools.”

FTSE Russell said it would remove additional constituents if they were added to US sanctions lists by the Office of Foreign Assets Control, an arm of the US Treasury Department.

MSCI and Nasdaq also are understood to be evaluating whether to remove designated companies from their indices and could make an announcement in the coming days.

The removal announcement comes as US-Sino relations have become increasingly frayed in recent years over a variety of issues, including trade, technology and Hong Kong’s autonomy.

It also comes against the backdrop of Beijing moving to further open its financial markets to foreign investment and Chinese sovereign debt is being included in global bond indices.
On Wednesday, the US House of Representatives passed legislation that, if signed into law by US President Donald Trump, would force Chinese companies to delist from American bourses within three years if they fail to comply with US audit oversight rules.
Earlier this year, the US State Department asked American colleges and universities to divest their holdings of Chinese companies from their more than US$600 billion in endowments.
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