MSCI MSCI Inc

By Chong Koh Ping 

MSCI Inc. will strip its indexes of stocks in seven Chinese companies that the U.S. government says help China's military, including the country's largest chip maker and a major producer of surveillance equipment.

The move, which will take effect by the close of business on Jan. 5, follows similar actions by other benchmark providers including FTSE Russell and S&P Dow Jones Indices. It will affect 10 securities that trade in either Hong Kong, Shanghai or Shenzhen.

Last month, President Trump signed an executive order barring Americans from investing in 31 Chinese companies that the U.S. Defense Department says supply and otherwise support China's military, intelligence and security services.

In a statement after U.S. markets closed Tuesday, MSCI said its list only includes securities issued by companies explicitly named in the order, but not those from subsidiaries or affiliated companies.

That means some of the largest stocks that could potentially have been affected by the order--such as China Mobile Ltd., which has a roughly $117 billion market value--have been spared, and the overall impact on indexes will be limited. FTSE Russell and S&P Dow Jones took a similar approach.

MSCI said the affected stocks made up 0.04% of its All Country World Investable Market Index and 0.28% of the emerging-markets equivalent. They include Semiconductor Manufacturing International Corp., China's largest chip manufacturer, and Hangzhou Hikvision Digital Technology Co., a Shenzhen-listed surveillance specialist.

MSCI said it had heard from more than 100 market participants, and respondents said it would be hard for international institutional investors to invest in these 10 stocks.

"In particular, non-U.S. market participants noted that the extensive presence of U.S. entities, such as commercial banks, broker-dealers, and custodians, within their chain of financial intermediaries would significantly limit their ability to transact in the impacted securities, " it said.

On Wednesday in Hong Kong, shares in China Communications Construction Co., China Railway Construction Corp. and CRRC Corp., three of the named stocks, fell more than 1% by midday, while the city's Hang Seng Index added 0.8%. The same companies' Shanghai-listed shares inched down by less than 0.3%.

MSCI will finalize its list on Dec. 30, meaning it could expand if U.S. authorities name any other companies between now and Dec. 29.

Write to Chong Koh Ping at chong.kohping@wsj.com

(END) Dow Jones Newswires

December 16, 2020 01:13 ET (06:13 GMT)

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