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BlackRock and Goldman rush to comply with Trump blacklist in Hong Kong

Holdings in Chinese securities reviewed by US investment banks and funds

BlackRock will reevaluate the exchange-traded funds that track the benchmark Hang Seng Index, which includes companies on the U.S. no-investment list such as China Mobile, China Unicom Hong Kong and CNOOC.   © Reuters

HONG KONG -- From BlackRock to Goldman Sachs, U.S. financial institutions are revising their portfolios in Hong Kong as a ban on investments into military-linked Chinese companies took effect Monday.

BlackRock and State Street said they will reevaluate the exchange-traded funds that track the benchmark Hang Seng Index, which includes companies on the U.S. no-investment list such as China Mobile, China Unicom Hong Kong and CNOOC.

State Street said it will not make new investments in sanctioned securities through its Tracker Fund, the biggest ETF based in Hong Kong. It warned investors that this means the fund will no longer perform in line with the Hang Seng Index.

Goldman Sachs, J.P. Morgan and Morgan Stanley have also filed to delist 500 products in Hong Kong, including warrants and callable bull/bear contracts.

In November, U.S. President Donald Trump signed an executive order to ban U.S. companies and individuals from trading securities of Chinese businesses with deep ties to the People's Liberation Army, effective Monday. The New York Stock Exchange has since decided to delist three state-owned Chinese telecommunications companies, including China Mobile.

Nine companies on the U.S. sanctions list, including the three telecom companies, are listed in Hong Kong, according to the Hong Kong Economic Journal.

Nine blacklisted Chinese companies are reportedly traded on the Hong Kong Stock Exchange, including three components of the benchmark Hang Seng Index.   © Reuters

"We do not believe this [U.S. sanctions] will have a material adverse impact on Hong Kong's structured products market, the largest in the world with over 12,000 listed products," said Hong Kong Exchanges and Clearing, the bourse's parent company, in a Sunday statement.

"HKEX is working closely with the relevant issuers to ensure orderly delisting, and facilitate buyback arrangements being arranged by the issuers," the company said.

Hong Kong does not have the same stringent capital restrictions as mainland China, and allows foreign investors to buy stock in mainland companies relatively easily. Many U.S. financial institutions base their Chinese operations in Hong Kong to take advantage of this fact, especially with more Chinese companies pursuing a secondary listing in the city in case they are delisted in the U.S.

Trump's executive order throws a wrench into the American investment banks' day-to-day operations, as the decoupling of the U.S. and Chinese economies bleeds into the financial sector.

Meanwhile, mainland investors see an opportunity in the resulting drop in stock prices in Hong Kong. Mainland Chinese players have been aggressively snapping up shares in sanctioned companies, Hong Kong media report.

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