Index Trading: S&P Dow Jones to Remove Chinese Companies from Their Indices
On Wednesday night, both the Dow Jones and FTSE Russell Indexes decided to exclude more Chinese companies from their stock markets. Such a decision was reached after a US administrative order prohibited domestic investment in companies allegedly related to the Chinese military.
The US index publisher has determined twenty-five Chinese firms that will be removed from the Index in the first week of August. FTSE Russel went a step ahead and announced that it will remove another twenty companies by the end of July. FTSE Russell stated that the decision was based on responses from their index users and shareholders.
This move is a result of the order signed by the US President earlier in June that enlarged the scope of the ban. The latest development can exacerbate problems for US-listed Chinese companies already battling Beijing’s aggressive attempts to control the technology departments and strengthen data security measures.
In the past ten years, the capital market has been a lucrative source of financing for Chinese companies. This is especially true for tech companies that want to compare their valuations with their publicly traded competitors and gain a lot of liquidity.
However, in the past week, China has taken tough actions with respect to cybersecurity issues against several companies trying to list in the US.
Just a few days after listing on the New York Stock Exchange at $4.4 billion Didi Global Inc became an obvious target. After China ordered the removal of the app from the online stores, Didi’s share price fell for the fourth successive day before it went public.
There are many aerospace companies’ stocks that will be excluded from S&P Dow Jones Indices and FTSE Russell. These companies include Avic Aviation High-Technology, Aerospace CH UAV, Avic Heavy Machinery, and other aerospace companies.
The FTSE additionally also included some Chinese shipbuilding conglomerates. These companies comprise China Shipbuilding Industry Corporation, Inner Mongolia First Machinery Group, and CSSC Offshore & Marine Engineering.
North Navigation Control Technology Co Ltd and Zhonghang Electronic Instruments Co Ltd were amongst some other companies listed by S&P Dow Jones.
The stocks are expected to be removed from FTSE Global China A Inclusion Indexes, FTSE GEIS, and other related indices.
Due to US Sanctions, FTSE Russell formerly banned from its indices some other Chinese companies. These Chinese companies were namely Hangzhou Hikvision Digital Technology Co., Ltd. and Semiconductors Manufacturing International Corp.
S&P Dow in accordance with the previous policy and executive order had at that time removed selected Chinese stocks. This included removing from its index the data processing technology company Luokung Technology Corp.
Manu Chinese tech companies continued to list on the US stock exchanges raising a considerable amount of capital in the US. In the first six months of this year itself, thirty-six companies in their initial offering generated a turnover of $12.6 billion. However, now these companies are caught amidst rising tensions between the two governments. The future of the stock market shall be determined by the course the two governments take.