Blacklisted Chinese Telecoms Carriers Cut From Stock Indexes

By Chong Koh Ping

Shares in China's three major telecommunications companies dropped in Hong Kong on Friday, after index compilers said they would remove the stocks from their benchmarks due to a U.S. government investment ban.

The removals come after a period of uncertainty about whether the shares would be covered by the ban, and flip flops by the New York Stock Exchange about whether to delist American depositary receipts issued by the three companies, China Mobile Ltd., China Telecom Corp. and China Unicom (Hong Kong) Ltd.

Guidance from the Treasury Department this week made it clear that the publicly traded units would be covered, as well as their closely held parent companies, which the U.S. government has already named as helping the Chinese military.

Shares in the trio, which have been on a roller-coaster ride recently, fell as much as 10 to 11% in early trading, before recovering some ground. By late morning in Hong Kong, shares of China Mobile, the largest of the three, stood 6% lower at 40.70 Hong Kong dollars, the equivalent of $5.25, a share, putting the stock on course for its lowest close in more than 14 years.

In statements on Thursday, MSCI Inc., S&P Dow Jones Indices and FTSE Russell all said they would remove either the Hong Kong stocks or the ADRs from their indexes in the coming days. S&P Dow Jones had already decided to remove the telecoms operators' ADRs, but had reversed course in tandem with NYSE.

The affected indexes include MSCI's key emerging markets benchmark, the FTSE China 50 Index, and the S&P ADR Index. MSCI said the stocks made up 0.5% of its Emerging Markets Investable Market Index.

The companies said they had strictly followed laws, regulations, market rules and regulatory requirements since their original listings, which took place between 1997 and 2002, and two of the three said the NYSE's multiple policy changes had hurt the companies and their shareholders.

In November, President Trump signed an executive order that bans Americans from investing in a list of companies the U.S. government says supply and support China's military, intelligence and security services.

Under the order, U.S. investors are banned from buying securities in blacklisted companies from Jan. 11, and have until Nov. 11 to shed their holdings. While the order doesn't formally require investors to sell out at this point, brokerages used by many individual investors have warned customers to cash out several days before the ban takes effect next week or have trouble selling or pricing the shares.

Some investors said the ban hurts U.S. shareholders, and they are concerned about whether other larger Chinese companies like Alibaba Group Holding Ltd. would also be blacklisted. The Wall Street Journal has reported that U.S. officials are considering adding Alibaba and Tencent Holdings Ltd. to the list.

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

(END) Dow Jones Newswires

January 08, 2021 00:44 ET (05:44 GMT)

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