MSCI removes Chinese firms from indexes following US pressure

MSCI, one of the world’s largest index providers, announced yesterday that it is removing 10 Chinese listings from its Global Investable Market Indexes (GIMI) following consultation on how an executive order signed in November would impact the ‘investability’ of the named firms.

It says in a statement that ‘after conducting an extensive outreach with the global investment community, [MSCI will] delete the securities of the Chinese companies referenced in the US Executive Order 13959 dated November 12, 2020.’ The 10 names – which actually make up seven companies as some see shares in both Hong Kong and mainland China affected – will be deleted as of the close of business on January 5, 2021 and MSCI stresses that the list includes only securities issued by the companies explicitly named in the executive order – not any subsidiaries or affiliated companies.

In November, US President Donald Trump signed an executive order banning US companies and individuals from investing in companies that the White House says aid China’s military.

‘Based on feedback from more than 100 US and non-US market participants, the order may have a significant impact on the investment processes of global investors,’ says MSCI in its statement. ‘Consultation participants highlighted that the ramifications of the order would effectively challenge the investability of the impacted securities from the perspective of international institutional investors. 

‘In particular, non-US market participants noted that the extensive presence of US 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.’

The seven companies MSCI plans to delete from its global investable market indexes are: 
– China Communication Construction, an infrastructure developer 
– China Spacesat, a satellite manufacturer
– CRRC and China Railway Construction, two railway manufacturers 
– Dawning Information Industry, a supercomputer company
– Hikvision, a video surveillance firm
– SMIC, a chipmaker.

MSCI says the decision is based on feedback from the investment community and that it is being made ‘to ensure that its indexes remain investable and continue to represent the performance of the opportunity set available to international institutional investors.’ It adds that the affected listings represent a tiny fraction of a percent of the major MSCI indexes.

The move follows similar decisions from S&P Dow Jones Indices, FTSE Russell and US-based trading app Robinhood in recent weeks, though MSCI plans to launch versions of the indexes that will see the deleted names in place. ‘These indexes and parallel versions of current custom indexes will be available upon request,’ it says.

The list is not necessarily final, warns MSCI, explaining that any modifications made by the Office of Foreign Assets Control ‘or any other relevant US authority’ by 4.00 pm ET on December 29, 2020, will also be deleted from the MSCI GlMI. Any updates received after that point ‘will be evaluated and implemented at a date to be determined’ and MSCI says it will announce the final list of security deletions on December 30, 2020.