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US Index Providers Drop Chinese Telecom Firms Who Lose $5.6 Billion In Combined Value

US Index Providers Drop Chinese Telecom Firms Who Lose $5.6 Billion In Combined Value
A total of $5.6 billion was shaved off the value of their Hong Kong-traded shares for three Chinese telecom companies at the end of last week after the stocks of three companies were announced to be dropped off from their benchmarks by the index providers MSCI Inc, FTSE Russell and S&P Dow Jones Indices. This is a part of a widening fallout of a ban on United States investments on companies from China and elsewhere by the US administration.
The list of Chinese companies that have already been dropped off from indexes because of the ban was extended by the inclusion of three Chinese companies - China Mobile, China Telecom and China Unicom Hong Kong. The ban and the dropping of the stock will force the index tracking funds to sell their stock.
There is a large number of passive investors in the three Chinese companies in the latest inclusion of the ban.
“If you’re a passive index provider, of course, you need to get out of the way,” said Kay Van Petersen, global macro strategist at Saxo Capital Markets in Singapore.
“And obviously if you’re active and you know the index providers are going to have to get out of the way, you’re not going to just be sitting around while something is getting sold off.”
The latest bans are a result of a b executive order from the US President Donald Trump issued in November which mandated a ban on investments by Americans in Chinese companies that the US administration claims to be owned by or have close links to the Chinese military.
The latest round of delisting from the Indices follows a similar decision by the New York Stock Exchange which was taking after some dillydallying and the three Chinese firms’ were US traded American Depositary Receipts are to be delisted on January 11.
The three companies would be removed from its China indexes on January 8, MSCI said, while FTSE Russell said the three companies would be cut off from its Global Equity Index series and China A Inclusion indexes on January 11.
The Hong Kong-traded stocks of the three firms will be removed by it, S&P Dow Jones Indices said, in addition to the fixed income securities of China Telecom and China United Network Communications Co Ltd on January 12.
They expected the NYSE delisting to hit their stock prices, China Telecom and China Unicom Hong Kong said in statements last Thursday. It reserves its rights to protect its interests, China Mobile on the other hand said.
The move by the trump administration was strongly opposed by China’s foreign ministry, which said that the move was an abuse of its power by the United States to oppress Chinese companies.
“This will undermine the United States’ interests and national image,” ministry spokeswoman Hua Chunying told a regular briefing.
According to fund managers, the market impact of the ban on the companies could be temporary as the stocks could likely be purchased by non-US investors.

Christopher J. Mitchell

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