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Liang, whose resignation rumor has affected the performance of SMIC shares, was actively involved in the technological progress of the company.
Semiconductor Manufacturing International Corp (SMIC) (HKG: 0981) based in China has a lot to worry about after its stock plunged by nearly 10% in response to the current challenges of the company. Investors may have lost interest and questioned the long term performance of the company after a resignation by its Co-Chief Executive Officer was leaked by the press in addition to the announcement by the Stock Index Giant MSCI Inc (NYSE: MSCI) to remove some Chinese stocks in the coming year. Its shares were suspended for trading in Hong Kong and recorded a 7.2% drop in price on Wednesday. At the time of writing, SMIC stock is 4.96% down.
Challenges with the SMIC Co-CEO Resignation that Influence the Stock
The media reported and circulated a resignation letter said to have been written by Liang Mong Song, the company’s Co-CEO after learning the company has appointed a Vice Chairman to the board without his knowledge. Liang, whose resignation rumour has affected the performance of its shares was actively involved in the technological progress of the company.
SMIC appointed a former senior executive at Taiwan Semiconductor Manufacturing Co. Chiang Shang-yi to the board. Bernstein analysts believe that the appointment of Chiang will have a positive effect on the company. However, the departure of Liang will beyond doubt affect their long term progress considering the fact that his direct contribution led to the mass production of 24nm. SMIC has confirmed that the intention of conditional resignation of Liang has come to their knowledge, and they are currently verifying.
Another challenge that may have a long term negative impact on its shares is the announcement that some Chinese stocks would be removed from the MSCI in 2021 following the pressure from US regulators. SMIC was unfortunately named in the executive order as part of the companies banned per claims that they support the Chinese military. MSCI will remove them from its index on January 5, 2021 which will drive out global investors and affect their shares.
Removal of Some Chinese Companies from MSCI
SMIC has suffered a lot from the tension between China and the US with the company earlier sanctioned, making it difficult to obtain American Technology according to a report. The removal has been said to reflect a tiny fraction of MSCI index as it does not include mainland China and Hong Kong. In addition, subsidiaries and affiliates are not affected by the exercise.
The CEO of Stansberry China, James Early reacted to this stating that the market participants are the force behind this exercise, and has nothing to do with MSCI. He believes the participants are pushing this because of the market. MSCI also confirmed that their decision was influenced by over 100 participants globally.
Robinhood Securities LLC, a US-based trading app has also announced that traders can no more trade in the stocks listed in the order. Similarly, S&P Dow Jones Indices LLC (INDEXDJX: .DJI) and FTSE Russell Company have updated their site to alert the public that they will follow the removal exercise in due time.
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