SINGAPORE (Reuters) – Index providers MSCI Inc, FTSE Russell and S&P Dow Jones Indices said they would cut three Chinese telecom companies from benchmark, part of a growing fallout from a US investment ban that affected their share prices.
The eliminations of China Mobile, China Telecom and China Unicom Hong Kong add to a number of Chinese companies already in decline from indices due to the ban and will force index monitoring funds to sell their shares.
The companies have large numbers of passive investors, and the announcements wiped a total of $ 5.6 billion off the value of their Hong Kong-traded shares on Friday.
“If you are a passive index provider, of course, you have to get out of the way,” said Kay Van Petersen, global macro strategist at Saxo Capital Markets in Singapore.
“And of course if you are active and you know that index providers are going to have to get out of the way, you won’t just be sitting while something is being sold off.”
The root of the index deletions from a November order from US President Donald Trump banning Americans from investing in Chinese companies that the US believes has links to the Chinese military.
They also come in the wake of the New York Stock Exchange’s decision – after some reversals – to remove American depository receipts traded in the United States on January 11.
China says the US’s behavior towards telecommunications companies is shortsighted
MSCI said it would remove the three companies from its Chinese indices on January 8 and the FTSE Russell said they would be cut from its Global Equity Index series and China A Inclusion indices on January 11.
The S&P Dow Jones indices will remove the three companies’ Hong Kong-traded shares as well as fixed income securities of China Telecom and China United Network Communications Co Ltd on January 12.
China Telecom and China Unicom Hong Kong said Thursday that they expected the NYSE delisting to affect their share prices. China Mobile said it reserves the right to protect its interests.
The Chinese foreign ministry said it was firmly opposed to what it called the abuse of US power to oppress Chinese companies.
“This will undermine the interests and national image of the United States,” Ministry spokesman Hua Chunying said at a regular briefing.
The NYSE cancellations and revocations came after the US Treasury clarified the scope of the ban.
The fund managers say the impact on the market may be short-lived as non-US investors are likely to step in and buy the shares.
Chipmaker SMIC, for example, has risen by more than 35% in two weeks despite being covered by the ban and removed from indices.
But the potential widening of the scope of the rules has kept some investors nervous, particularly after news that the ban could be extended to include tech giants Alibaba and Tencent.
Goldman Sachs has estimated that around $ 77.5 billion in Chinese offshore bonds could be restricted.
China Mobile shares closed 4% lower at the lowest level since 2006 and China Telecom shares fell 3% to a 12-year low, while China Unicom closed 0.9% lower after taking reduced heavy losses. All three stocks have lost more than 20% since Trump’s November order.
($ 1 = 7.7529 Hong Kong dollars)
Additional reporting by Andrew Galbraith and Samuel Shen in Shanghai and Cate Cadell in Beijing; Editing by Christopher Cushing, Jacqueline Wong and Edwina Gibbs