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  • Date of publication: 08 January 2021
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  • Chinese telecoms lose $ 5.6bn in value as index vendors ditch them


    SINGAPORE (Reuters) - MSCI Inc, FTSE Russell and S&P Dow Jones Indices said they would cut benchmarks for three Chinese telecoms, part of the growing impact of the U.S. investment ban that hit their share prices hard.

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The exclusion of China Mobile, China Telecom and China Unicom Hong Kong will add to the fact that many Chinese firms have already been delisted from the indices due to the ban and force the index tracking funds to sell their shares.

The firms have a large number of passive investors, and Friday's announcements depreciated the value of their Hong Kong-traded shares by $ 5.6 billion.

“If you are 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 proactive and you know that index providers will have to get out of the way, you're not going to just sit around while something is being sold."

The removal of the index stems from a November decree by US President Donald Trump, which prohibits Americans from investing in Chinese companies that the United States considers to be related to the Chinese military.

They also followed a decision by the New York Stock Exchange - after some setback - to exclude the three firms' American Depositary Receipts traded in the United States on January 11.

MSCI said it will remove the three companies from its Chinese indices on January 8, while FTSE Russell said they will be excluded from the Global Equity Index series and China A Inclusion Indices on January 11.

On January 12, the S&P Dow Jones Index excludes the Hong Kong-traded shares of three companies, as well as the fixed income securities of China Telecom and China United Network Communications Co Ltd.

China Telecom and China Unicom Hong Kong said Thursday in statements that they expect the NYSE delisting to hit their share prices. China Mobile said it reserves the right to protect its interests.

The Chinese Foreign Ministry has said it strongly opposes that it says the US is abusing its power to suppress Chinese companies.

“It will undermine the interests and national image of the United States,” Ministry spokeswoman Hua Chuning said at a regular briefing.

Exceptions and exclusions from the NYSE listing occurred after the US Treasury clarified the scope of the ban.

Fund managers say the impact on the market could be short-lived as foreign investors are more likely to step in and buy the stock.

For example, chipmaker SMIC jumped more than 35% in two weeks despite being banned and removed from the indices.

But the possibility of expanding the scope of the rules is making some investors nervous - especially after news that the ban could be extended to cover tech giants Alibaba and Tencent.

Goldman Sachs estimates that about $ 77.5 billion of Chinese offshore bonds could face restrictions.

China Mobile fell 4% to its lowest level since 2006, China Telecom fell 3% to a 12-year low, and China Unicom fell 0.9% after falling sharply. Shares in all three companies fell more than 20% after Trump's November executive order.