Major Index Providers Drop Securities of Chinese Firms from Benchmarks

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Early this month, S&P Dow Jones Indices decided to drop securities from 21 Chinese companies, including Hangzhou Hikvision Digital Technology Co. (“Hikvision”), Semiconductor Manufacturing International Corp. (“SMIC”) and CRRC Corp. (“CRRC”), from its benchmark indices. This action comes after a Trump administration executive order that limits U.S. investment in the securities of certain Chinese companies. Securities of 10 Chinese companies dropped by S&P Dow Jones Indices will be deemed ineligible to trade on S&P’s equity indices before market open on December 21, 2020. Securities of 11 other Chinese companies were removed from S&P’s fix income indices prior to market open on December 1, 2020.

The Trump administration executive order from November 12, 2020 prohibits U.S. investments in securities of Chinese companies that are “owned or controlled by” the Chinese military as the US-China trade tension escalates. The administration has blacklisted 35 Chinese companies over ties to Chinese military.

MSCI Inc. (Morgan Stanley Capital International) is now the third index provider to remove securities of certain Chinese companies from its benchmarks. Securities of Chinese companies removed by MSCI from its indices also included Hikvision, SMIC and CRRC. The removal by MSCI will take effect on at closing on January 5, 2021. It is expected that MSCI will publish its final list at the end of December so as to reflect any additional Chinese firms that may be sanctioned by the U.S.

MSCI is an investment research firm that provide stock indexes and is known for its benchmark indexes, including the MSCI Emerging Market Index and MSCI Frontier Market Index.

In addition to S&P and MSCI, London’s FTSE Russell, the index provider and an arm of the London Stock Exchange Group, will also remove the securities of eight companies with ties to Chinese military, from several of its global stock benchmarks starting on December 21, 2020. The securities removed are of companies sanctioned or blacklisted by the U.S. government for ties to the Chinese military.

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