Hong Kong's original stock market tracker said Monday it would make no new investments in firms listed by Washington as having links to China's military as it also recommended Americans no longer invest in the fund.
The announcement is the latest stark illustration of how tensions between the world's two biggest economies are causing headaches for international firms in Hong Kong, which has long served as China's gateway to global markets.
Outgoing US President Donald Trump issued an order in November banning Americans from investing in Chinese firms deemed to be supplying or supporting the Asian giant's military.
On Monday the Tracker Fund of Hong Kong (TraHK) — which has some US$14 billion in assets — said it was complying with that order.
"In light of the Executive Order, TraHK will not make any new investments in a sanctioned entity with effect from 11 January 2021," the company wrote in a statement to the stock exchange.
"TraHK is no longer appropriate for US Persons to invest. You should consider whether this is an appropriate investment for you," it added.
On Monday Goldman Sachs, Morgan Stanley and JPMorgan Chase also said they would delist some 500 structured products in Hong Kong to comply with the same executive order.
TraHK was set up by Hong Kong's government following the 1998 Asian financial crash and is the city's biggest exchange traded fund.
It is run by the Asian arm of State Street Global Advisors, a massive US asset management firm.
Investors and businesses have been scrambling to respond to Trump's often vaguely-worded executive orders targeting China.
Last week the New York Stock Exchange confirmed, after a dizzying few days of reversals and confusion, that it was delisting three state-owned Chinese telecom giants.
Trump also signed an executive order banning transactions involving Alipay, WeChat Pay and other apps linked to Chinese companies, drawing strong criticism from Beijing.
Over the weekend China published new rules to protect its firms from "unjustified" foreign laws that will allow Chinese courts to punish global companies for complying with foreign restrictions and sanctions.
Hong Kong-based firms are finding themselves acutely vulnerable to the crossfire of these spiralling tensions and competing restrictions.
Last year the US imposed sanctions on multiple Chinese and Hong Kong officials over Beijing's crackdown on democracy supporters in the city.
The restrictions bar financial institutions from doing any transactions with the sanctioned individuals.
At the same time Beijing has imposed a sweeping national security law on Hong Kong which, among its many provisions, outlaws any firms complying with any a foreign sanctions regime.
The dichotomy has left international businesses fearful of being punished by either side.