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ETFs halt purchases of blacklisted China stocks

Blackrock and State Street Global Advisors (SSGA) will make no new investments in three Chinese telecommunication companies included in the US sanctioned list.
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The world’s largest managers of ETFs responded this week to the addition of China Mobile, China Telecom and China Unicom to the list of  companies already sanctioned by an executive order of the US government, by telling investors they will not make any further purchases of their stocks.

The sanctions target Chinese companies that the US believes are affiliated with or supporting the Chinese military; the initial list of 35 companies was published on 12 November 2020.

Blackrock, which managed $7.81trn of assets at the end of September, released a statement saying that the decision affected the Hong Kong-listed iShares Core CSI 300 ETF and iShares Core Hang Seng Index ETF, which are sub-funds of the iShares Asia Trust.

“Based on the manager’s current interpretation of the Executive Order and the Frequently Asked Questions issued by The Office of Foreign Assets Control of the US Department of the Treasury, the Executive Order is applicable to the funds managed by the Manager to the extent that such funds hold securities of entities that are identified by the United States government as sanctioned entities as at 11 January 2021,” said the statement.

Blackrock reportedly announced similar actions on five US-listed iShares.

“Blackrock is taking all necessary actions to follow benchmarks and to ensure compliance with applicable laws and regulations,” a Blackrock spokeswoman told FSA.


Meanwhile, SSGA told the Hong Kong stock exchange that it would not make any further stock purchases of sanctioned companies for its $13bn Hong Kong Tracker Fund (TraHK) and advised that it was “no longer appropriate for US persons to invest in”.

However, “TraHK will continue to hold its existing shareholdings in the sanctioned securities given that these securities currently remain in the Hang Seng Index…[but] this approach could change depending on future developments,” said the statement.

The fund has a 2.6% weighting to China Mobile and 0.27% weighting to China Unicom, according to data supplied by SSGA. Although it has no exposure to China Telecom, it has a 1.14% allocation to China National Offshore Oil Corporation, which was on the original sanctioned list.

The TraHK, Hong Kong’s biggest exchange-traded index fund, was created 21 years ago to dispose of the government’s equity holdings accumulated through market intervention during the Asian financial crisis in 1998.

The fund has generated a cumulative return of 293% since launch, according to FE Fundinfo. However, performance was flat last year, compared with a rise of 16.83% by the MSCI All Country World Index and 29.67% by the MSCI China index in US dollar terms.

Carrie Lam, Hong Kong’s chief executive, told the South China Morning Post yesterday that Hong Kong’s financial regulator has the power to change the manager of the TraHK to safeguard the interests of retail investors and pensioners facing potential losses after the US sanctioned certain Chinese companies.

Part of the Mark Allen Group.