State Street Global Advisors (SSGA) will continue buying shares in Chinese companies blacklisted by the United States, in an effort to keep its job managing Hong Kong's largest ETF.

On Monday, SSSGA said that it would stop buying shares of blacklisted companies for the $13bn Hong Kong Tracker fund, the largest ETF in Hong Kong.

The decision followed an executive order from US president Donald Trump that all “US persons”  must divest from a swelling blacklist of Chinese companies, which the US government claims – without providing much detail or evidence – have connections to the Chinese military and are national security threats.

However, in a sudden U-turn, SSGA announced on Wednesday that it would continue investing the tracker fund in blacklisted Chinese companies.

The firm said that its volte-face owed to a new understanding of what a “US person” was. As neither SSGA’s regional Asian company nor the tracker fund itself constituted a “US person” proper, it said, it was exempt from the executive order when managing the tracker fund.

“As a result, SSGA…is able to continue to manage the [tracker] fund’s portfolio [and] track the Hang Seng index, including making new investments in securities sanctioned under the executive order,” the company said.

The firm’s U-turn comes 24 hours after former Hong Kong government officials publicly warned State Street could be fired they kowtowed to the United States. Joseph Yam, former head of the Hong Kong central bank, told the South China Morning Post newspaper:

“The whole purpose of the tracker fund is to track the Hang Seng Index. If [SSGA] cannot track the Hang Seng index, then [SSGA] is no longer fit for duty.”

He explained that the fund’s rules allowed the Hong Kong government to fire the manager if it failed to follow the index.

The two stocks in particular that concern the fund are China Mobile and China Unicom, two of the largest telecoms providers in the world. Both companies are in the Hang Seng index, but have been added to Trump’s new blacklist.

The tracker fund follows the Hang Seng index, a list of China’s largest and most famous companies. The index has included China Mobile and China Unicom for many years, a fact that has never before irked the US government.  

The tracker fund is used in Hong Kong by retirees and retail investors as a cheap way to invest in the share market.