Hong Kong’s original stock market tracker yesterday said it would make no new investments in firms listed by Washington as having links to China’s military as it also recommended Americans to no longer invest in the fund.
The announcement is the latest stark illustration of how tensions between the world’s two biggest economies are causing headaches for international firms in Hong Kong, which has long served as China’s gateway to global markets.
Outgoing US President Donald Trump in November issued an order banning Americans from investing in Chinese firms deemed to be supplying or supporting the Asian giant’s military.
Yesterday, the Tracker Fund of Hong Kong (TraHK) — which has about US$14 billion in assets — said it was complying with that order.
“In light of the Executive Order, TraHK will not make any new investments in a sanctioned entity with effect from 11 January 2021,” the company wrote in a statement to the stock exchange.
“TraHK is no longer appropriate for US persons to invest. You should consider whether this is an appropriate investment for you,” it added.
Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co also said they would delist about 500 structured products in Hong Kong to comply with the executive order.
TraHK was set up by the Hong Kong government following the 1998 Asian financial crash and is the territory’s biggest exchange-traded fund (ETF).
It is run by the Asian arm of State Street Global Advisors Asia Ltd, a massive US asset management firm.
TraHK is popular among the territory’s savers and is also the most actively traded in the secondary market. Its mandate is to mirror the performance of the Hang Seng Index.
Investors and businesses have been scrambling to respond to Trump’s often vaguely worded executive orders targeting China.
Last week, the New York Stock Exchange confirmed, after a dizzying few days of reversals and confusion, that it was delisting three state-owned Chinese telecom giants: China Mobile Ltd (中國移動), China Telecom Corp Ltd (中國電信) and China Unicom Hong Kong Ltd (中國聯通).
Trump also signed an executive order banning transactions involving Alipay (支付寶) and WeChat Pay (微信支付) and other apps linked to Chinese companies, drawing strong criticism from Beijing.
Over the weekend, China published new rules to protect its firms from “unjustified” foreign laws that would allow Chinese courts to punish global companies for complying with foreign restrictions and sanctions.
Hong Kong-based firms are finding themselves acutely vulnerable to the crossfire of these spiraling tensions and competing restrictions, while Hang Seng Indexes Co is facing increasing pressure to comply with the US ban on investments in Chinese companies that populate its benchmarks.
The index provider stands out as the only major compiler that has yet to remove sanctioned Chinese companies from its benchmarks.
The firm last week said it had no plans to do so, although it would monitor “market developments” closely.
US peers MSCI Inc and S&P Dow Jones Indices, as well as London-based FTSE Russell, have kicked out securities to comply with the US sanctions.
“Hang Seng Indexes has a tough decision to make,” said Paul Pong (龐寶林), a managing director at Pegasus Fund Managers Ltd.
He bought China Mobile shares during last week’s selloff.
“Local investors will want these stocks in their ETFs — China Mobile has a good dividend yield, for example. But others won’t be able to own Hang Seng ETFs if the sanctioned names remain in the indexes.”
Additional reporting by Bloomberg
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