JPMorgan to exclude new debt from sanctioned Chinese firms in bond indexes after Trump’s executive order

JPMorgan says its indexes include 72 securities linked to sanctioned Chinese companies
Family of Asian credit indexes or JACI is expected to be most impacted with a combined weight of 3.7 per cent

JPMorgan Chase

Bloomberg

Published: 4:33pm, 18 Nov 2020

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JPMorgan Chase’s global debt indexes will exclude new bonds issued by Chinese companies that fall under sanctions announced last week by Donald Trump’s administration, according to a note the lender sent to clients on Tuesday.

The decision applies to new debt, taps or re-openings by impacted issuers, JPMorgan said in the note. Existing bonds of sanctioned companies will remain in the indexes for now. The US bank will re-evaluate their eligibility “once there is more clarity on the impact to benchmark replication.”

JPMorgan said its indexes include 72 securities linked to sanctioned companies, adding that the family of Asian credit benchmarks known as JACI is expected to be most impacted with all sanctioned firms with a combined weight of 3.7 per cent.

The bank declined to comment further when contacted by Bloomberg on Wednesday.

Trump on November 12 signed an executive order barring American investments in Chinese firms owned or controlled by the military, his latest bid to pressure Beijing over what he views as abusive business practices.

Trump’s executive order on November 12 bans investment in Chinese firms deemed to have ties with the military. Photo: AP

JPMorgan’s move underscores how the sanctions could have an impact beyond the US by prompting index-tracking investors around the world to avoid new bonds from sanctioned issuers or potentially pare their existing holdings. Major index providers such as FTSE Russell has recently decided to add Chinese sovereign bonds to some of its benchmarks from September next year.

US slaps sanctions on 33 Chinese companies and institutions, dialling up the tension amid the lowest point in US-China relations

Spreads on some of China National Chemical Corp.s dollar bonds widened to the most since May after Trump’s executive order. They narrowed on Wednesday on the bank’s decision to retain them pending review.

The US Department of Defense added the oil firm to a list of 11 companies which it claimed have links to the Chinese military in late August. Chinese firms on the full list includes 16 issuers and their subsidiaries, according to JPMorgan’s note.

It is unclear if international broker-dealers will be considered as US persons, and whether they will be able to transact in securities of sanctioned firms when the bank comes into effect from January 11, even if it is to facilitate investors divesting their existing holdings, JPMorgan said.

Liquidity in bonds of sanctioned companies could be “significantly impaired” as a result, the bank added.

Additional reporting by SCMP

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