Hong Kong’s Tracker Fund, one of the largest exchange-traded funds in the city, dropped its prohibition on investing in Chinese stocks blacklisted by the US government in a sudden U-turn three days after imposing the ban.
The move comes after the Tracker Fund’s manager State Street Global Advisors Asia’s initial decision was criticised by Hong Kong government officials, including one who said the company was “no longer fit for duty”.
The company is the Asian arm of Boston-based State Street Global Advisors.
The Tracker Fund is one of a handful of passive investment strategies available for members of Hong Kong’s Mandatory Provident Fund Scheme, the city’s largest public retirement plan.
“TraHK’s investment objective is to provide investment results that closely correspond to the performance of the Hang Seng Index,” State Street Global Advisors Asia says in a statement on January 13, a day before the fund resumed investing in the blacklisted companies.
US President Donald Trump had issued an executive order in November prohibiting US investment in 31 Chinese companies deemed to be affiliated with the Chinese military.
The blacklist includes China Mobile, China Unicom, and China National Offshore Oil Corporation, which have a combined 4.27% weighting in the Hang Seng Index, the benchmark tracked by the Tracker Fund.
State Street Global Advisors Asia had said on January 11 that it would maintain existing investments in the Chinese companies but would not be able to buy more stocks to comply with the US order.
Joseph Yam, a Hong Kong government cabinet member and former chief executive of the Hong Kong Monetary Authority, the city’s de facto central bank, had slammed that decision.
“If the manager cannot track the Hang Seng Index, then the manager is no longer fit for duty,” Yam told Hong Kong newspaper South China Morning Post on January 13.
State Street Global Advisors Asia may have made the decision in haste and then discovered that legal interpretation of US documents would allow it to bypass the order, according to Ronald Wan, chief executive of Hong Kong-based investment firm Partners Capital International.
“It makes sense that State Street is trying to get away with the restriction without violating the executive order,” Wan tells Asia Asset Management, adding however that the flip-flop on the investment policy may hurt investor confidence.
