MSCI drops seven Chinese companies from its indices

The index provider MSCI said it would drop seven companies that the US government has labelled as having ties to the Chinese military from its indices, after President Donald Trump barred US investors from holding stakes in such businesses.

MSCI said the seven companies — which included SMIC, China’s biggest chipmaker — would be removed from its global equity indices at the end of the trading day on January 5. The businesses will be dropped from MSCI’s popular emerging markets indices.

The decision has been keenly anticipated, given MSCI indices are the benchmark for many money managers who specialise in emerging markets. More than $12tn is invested in funds benchmarked to one of the company’s thousands of indices, according to MSCI.

Other large index providers including FTSE Russell, Nasdaq and S&P Global Dow Jones Indices have taken similar action to comply with an executive order signed by Mr Trump last month.

The order prohibited new transactions in shares of Chinese businesses that the Pentagon alleges have ties to the Chinese military from January 11 and gives existing shareholders until November 2021 to divest their holdings.

The White House applauded Tuesday’s move by MSCI. “For years American investors have unknowingly financed Chinese Communist military companies, which help the [People’s Liberation Army] threaten US and allied service members,” said John Ullyot, the National Security Council spokesman. “Under President Trump’s leadership, this is coming to an end.” 

The companies MSCI had decided to remove include China Railway Construction Corporation, China Communications Construction Company and Hikvision, a surveillance camera company that supplies some of the equipment used in detention camps in the Xinjiang region where the Chinese government has held an estimated 1m ethnically Muslim Uighurs. The locomotive manufacturer CRRC, the computer server maker Dawning Information Industry Group and the satellite manufacturer China Spacesat will also be cut.

MSCI said it had only removed companies explicitly named in the executive order and not subsidiaries or affiliated companies. The seven companies trade in China and Hong Kong…