49 China Stocks to be Dropped from Russell Indexes

Russell Investments has announced a preliminary list of additions and deletions for the annual rebalancing of its family of indexes. As expected, the weight of U.S.-listed China stocks on these indexes will be much lower in 2011 than in previous years. As the main criterion for inclusion is total market capitalization, the steep sell-off in the sector has taken its toll.

The most important of the Russell indexes, the Russell 2000, has lost almost all its China stocks by now. This year we have three deletions and zero additions. For the Russell Microcap Index we have two additions - NEP was not eligible last year, because at the time of index reconstitution the stock was halted by the exchange - and four deletions. And the Russell Global, the only one of the three that allows non-U.S. headquartered companies to be included, dropped 46 U.S.-listed China stocks, while only eight - most of them recent IPOs - have been added.

The final reconstitution of these indexes will take place on Friday, June 24, after the market close. Until that day, Russell can make changes to this preliminary list.

Russell 2000 Additions (U.S. Companies)

None

Russell Microcap Additions (U.S. Companies)

NEP - China North East Petroleum
NEWN - New Energy Systems Group

Russell Global Additions

CNTF - China Techfaith Wireless Communication
ZX - China Zenix Auto International
DQ - Daqo New Energy
LONG - eLong
FTLK - Funtalk China Holdings
QIHU - Qihoo 360 Technology
RENN - Renren
CTE - Sinotech Energy

Russell 2000 Deletions (U.S. Companies)

ABAT - Advanced Battery Technologies
AXN - Aoxing Pharmaceutical
CHINA - CDC Corporation

Russell Microcap Deletions (U.S. Companies)

CADC - China Advanced Construction Materials
CNAM - China Armco Metals
HQS - HQ Sustainable Maritime
UTSI - UT Starcom

Russell Global Deletions

APWR - A-Power Energy Generation Systems
ABAT - Advanced Battery Technologies
AMCN - Airmedia Group
AMBO - Ambow Education Holding
AOB - American Oriental Bioengineering
AXN - Aoxing Pharmaceutical
CHINA - CDC Corporation
CPC - Chemspec International
CHBT - China-Biotics
CAAS - China Automotive Systems
CO - China Cord Blood
CFSG - China Fire & Security Group
CHOP - China Gerui Advanced Materials Group
CGA - China Green Agriculture
CHC - China Hydroelectric
CNIT - China Information Technology
CBEH - China Integrated Energy
BORN - China New Borun
CSKI - China Sky One Medical
CVVT - China Valves Technology
CXDC - China XD Plastics
XNY - China Xiniya Fashion
COGO - Cogo Group
DEER - Deer Consumer Products
DGW - Duoyuan Global Water
EDS - Exceed
ADY - Feihe International
FSIN - Fushi Copperweld
GEDU - Global Education & Technology
GFRE - Gulf Resources
CTC - Century 21 China Real Estate
JST - Jinpan International
KONG - Kongzhong
LIWA - Lihua International
MCOX - Mecox Lane
SEED - Origin Agritech
SHP - Shangpharma
SDTH - Shengdatech
SCOK - Sinocoking Coal & Coke
SVA - Sinovac Biotech
HEAT - Smartheat
SORL - Sorl Auto Parts
UTSI - UT Starcom
WATG - Wonder Auto Technology
WH - WSP Holdings
XIN - Xinyuan Real Estate

Russell Announces Preliminary Index Changes

U.S.-listed China small caps are heavily affected by the preliminary changes that were announced last night for the Russell 2000 and Russell Global indexes. From the 29 China stocks that are currently members of the Russell 2000 Index only one will survive this year's reconstitution. Russell has apparently decided to implement a strict interpretation of the new "Home Country Indicators" and basically all the assumptions I've made in a previous article on the subject have been proven correct now.

The sole survivor of the current China group in the Russell 2000 Index is Advanced Battery Technology (ABAT), but it will be joined after the market closes on June 25 by three new additions: Aoxing Pharmaceutical (AXN), CDC Corporation (CHINA) and L & L Energy (LLEN). I believe a fourth stock, China North East Petroleum (NEP), would have been eligible but it has disqualified itself by getting suspended from trading so the stock couldn't be ranked on the May 28 deadline.

I would expect LLEN and also AXN to benefit from the Russell addition and several of the smaller capitalized deletions to show weakness into the June 25 reconstitution date. Please note that several of the larger cap deletions, stocks like CSFG, SOHU or HOGS will not be deleted from the Russell Indexes completely, instead they will stay on the Russell Global ex-U.S. Index. Those names are not included in the lists that follow as Russell did not announce them explicitly. Others like CHLN, CBAK or HQS will be dropped entirely as the market cap threshold for the Global Index is much higher than for the Russell 2000.

Here is the full list of China Small Caps affected by last night's announcement.

Added to the Russell 2000 Index

AXN   Aoxing Pharmaceutical
CHINA   CDC Corporation
LLEN   L & L Energy

Reconfirmed for the Russell 2000 Index

ABAT   Advanced Battery Technology

Deleted from Russell 2000 Index

ADY   American Dairy
AOB   American Oriental Bioengineering
ASIA   Asiainfo Holdings
CAAS   China Automotive Systems
CAST   ChinaCast Education
CBAK   China BAK Battery
CFSG   China Fire & Security
CGA   China Green Agriculture
CHBT   China-Biotics
CHLN   China Housing & Land Dev
COGO   Cogo Group
CPBY   China Information Security
CPSL   China Precision Steel
CSKI   China Sky One Medical
CSR   China Security & Surveillance
CTFO   China TransInfo Technology
DYP   Duoyuan Printing
FEED   Agfeed Industries
FSIN   Fushi Copperweld
FUQI   Fuqi International
GSI   General Steel Holdings
HEAT   Smartheat
HOGS   Zhongpin
HQS   HQ Sustainable Maritime
HRBN   Harbin Electric
LIWA   Lihua International
NIV   NIVS IntelliMedia Technology
SDTH   ShengdaTech
SOHU   Sohu.com
SUTR   Sutor Technology
UTA   Universal Travel Group
WATG   Wonder Auto Technology

Added to the Russell Global Index

AUTC   AutoChina International
CAGC   China Agritech
CBEH   China Integrated Energy
CBPO   China Biologic Products
CCME   China MediaExpress
CHOP   China Gerui Advanced Materials
CO   China Cord Blood
CTEL   City Telecom (H.K.)
CVVT   China Valves Technology
CXDC   China XD Plastics
DEER   Deer Consumer Products
GFRE   Gulf Resources
HTHT   China Lodging Group
JKS   JinkoSolar
RINO   RINO International
SCOK   SinoCoking Coal
SORL   SORL Auto Parts
YONG   Yongye International

Deleted from the Russell Global Index

CHNR   China Natural Resources
CSUN   China Sunergy
DL   China Distance Education
GIGM   GigaMedia Limited
GRO   Agria
GU   Gushan Environmental Energy
JRJC   China Finance Online
NED   Noah Education Holdings
NCTY   The9 Limited
QXM   Qiao Xing Mobile Communication