Tracker Fund reverses move on US-blacklisted shares

Top News | Avery Chen and agencies 14 Jan 2021

State Street Global Advisors Asia, manager of Tracker Fund of Hong Kong, has made a U-turn and says it will resume investments in US-sanctioned firms as it and the fund are not "US persons."

That came two days after the most popular exchange-traded fund said it will not make any new investment in companies banned under an executive order by outgoing US President Donald Trump. The order said the banned firms are linked with China's military.

The HK$104.3 billion Tracker Fund is designed to track the Hang Seng Index, which includes three US-blacklisted firms - telecom giants China Mobile and China Unicom as well as major oil producer CNOOC.

State Street's initial decision had attracted scrutiny from the Hong Kong Monetary Authority and was criticized by Joseph Yam Chi-kwong, who said fund managers who cannot freely trade all blue-chip stocks are unfit to run the Tracker Fund.

State Street's U-turn has not had a material impact on Tracker Fund's investors, but it has caused unnecessary chaos to the market, an HKMA spokesman said.

HKMA said it maintains close communication with Tracker Fund's supervisory committee and will continue to monitor developments.

However, some market watchers are worried that State Street may do another reverse. State Street Global Advisors Asia was registered in Hong Kong, but it is wholly owned by US banking group State Street Corp.

"Will they change their mind a second time, like the NYSE did when it delisted the stocks? Wait and see," said activist investor David Webb.

Two months after Trump issued the executive order and more than a day after it took effect - the financial industry is still struggling to figure out what it can and cannot do under the new rules. The lack of clarity has prompted some Wall Street firms to err on the side of caution, meaning the ban could have a broader market impact than initially envisioned.

Two bond fund managers in Asia said it has become increasingly difficult to sell notes of affected companies because many brokers have pulled back from dealing in the names, according to Bloomberg's report.

Among the questions still hanging over America's biggest securities firms is whether Trump's order forces them to stop facilitating investments in restricted companies for all clients, or just those in the United States.

Some firms have determined they should implement the ban globally, while others believe they can continue to trade for non-US clients, people familiar with the matter said.

Some big US money managers have already started selling down their stakes. Vanguard Group yesterday said it has liquidated its holdings of Chinese companies included in the ban as of January 8.

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