S&P indices to drop 21 Chinese companies
Published: Dec 10, 2020 08:13 PM

A view of Hikvision's stand during the Shanghai Security Expo held in May. Photo: VCG

S&P Dow Jones Indices, a division of US financial services conglomerate S&P Global, announced on Thursday the impending removal of 21 Chinese companies from its equity and fixed-income indices, becoming the second index provider this month to translate a Trump executive order targeting Chinese securities into a trigger for expulsion.

The latest move exemplifies a US-initiated attempt to restrict capital flows into Chinese securities as part of a broader decoupling with China, an industry observer said, noting that the financial clampdown on Chinese companies may have underestimated the range of fundraising conduits increasingly accessible to premium Chinese corporations.

The New York-based index provider revealed on Thursday that the securities of 10 Chinese companies - including video surveillance manufacturer Hikvision and Chinese major chipmaker Semiconductor Manufacturing International Corp (SMIC) - will be removed from S&P DJI equity indices on December 21.

SMIC is also among 18 Chinese issuers whose securities will be culled from the index provider's fixed-income indices before January 1. 

The executive order that US President Donald Trump signed in mid-November comes into effect on January 11, prohibiting transactions in certain Chinese securities allegedly linked to the Chinese military.

Neither Hikvision nor SMIC responded to a request for comment as of press time. 

The index announcement was apparently affected by the Trump administration's executive order, and it was yet another example of the US' abuse of the concept of national security to crack down on Chinese firms, Chinese Foreign Ministry Spokeswoman Hua Chunying said on Thursday, noting that the US' fabrication of lies and rumors, and its move to baselessly besiege and block Chinese companies, would ultimately prove to be against the US' own interests.

Earlier this month, London-based index provider FTSE Russell decided to drop eight Chinese companies claimed by the Trump administration as being tied to the Chinese military from its indices, effective on December 21. Hikvision and SMIC were on the removed list.

The financial crackdown on Chinese companies indicates an escalation of decoupling between China and the US that emerged from trade tensions, said Raymond Deng, investment strategist CIO of consumer investment and insurance products at DBS Bank.

The removal of the companies from global indices would inevitably restrict capital flows into the affected securities, Deng told the Global Times on Thursday. 

In a statement released on December 4, SMIC said that following its addition to a list of Chinese military entities compiled by the US Defense Department, all US persons won't be allowed to purchase its securities for 60 days beginning December 4. Additionally, after 365 days from that point, all US persons will be banned from dealings in SMIC's securities. 

Deng noted that even if "The Holding Foreign Companies Accountable Act" that could block Chinese listings from the US market eventually comes into force, Chinese companies will still have alternative listing venues - either in the Chinese mainland market and Hong Kong, or European and Southeast Asian markets, where Chinese listings are hugely welcome.