Shares in China’s Xiaomi sank after the US defence department added the smartphone group to an investment blacklist, in a move that is likely to thin its ranks of US shareholders.

The Beijing-based company’s stock dropped as much as 13.6 per cent in Hong Kong trading on Friday, hours after the Pentagon added it to a list of companies with suspected ties to the Chinese military. That, in conjunction with a separate executive order, will block US investors from buying its shares 60 days from now and will require Americans to eventually sell their holdings.

The move marks a significant blow for Xiaomi, which had been a big beneficiary of Washington’s campaign of sanctions against Chinese competitor Huawei. That had helped Xiaomi’s sales to surpass US group Apple’s, making it the world’s number three phonemaker by units sold in the third quarter.