While Moscow has kept its stock market closed since Monday, foreign-listed shares in Russian companies plunged this week. To support its market, the country announced Tuesday that it will deploy up to $10 billion from its sovereign wealth fund to buy up equities.
“Russian assets have become toxic, for a lack of better expression,” said Marek Drimal, a strategist covering Europe, the Middle East and Africa at Societe Generale SA in London. “Onshore markets are barricaded and basically uninvestable, while offshore markets have been hammered. The speed of events as they are happening is just mind-boggling.”
The expulsion of Russian bonds from indexes could be next, with billions of dollars left in limbo less than one week after the invasion.
FTSE Russell said it’s evaluating the impact of sanctions on the nation’s bonds. JPMorgan Chase & Co. is reviewing the inclusion of some debt from Russia, Belarus and Ukraine in its indexes while Intercontinental Exchange Inc. will remove those issued by sanctioned Russian entities.
“Some funds may end up marking their book value for Russian assets as zero,” said Hiroshi Matsumoto, senior client portfolio manager at Pictet Asset Management (Japan) Ltd. Once investors try to sell Russian bonds they will “probably have close to no value and it’ll probably be the same for stocks.”
Russia has a weighting of 1.85% in the Bloomberg Emerging-Market Local Currency Index, and makes up 2.22% in JPMorgan’s Emerging-Market Bond Index Plus.
Russia’s removal from key equity gauges means other emerging markets may benefit from fresh inflows.
India and China could be beneficiaries, according to Vishnu Varathan, head of economics and strategy Mizuho Bank Ltd. in Singapore. Alan Richardson, a portfolio manager at Samsung Asset Management, said capital flows may pivot to Indonesia and Malaysia, which share similarities to Russia in terms of their commodity-based economies.
Russia had a 1.5% weighting in the MSCI Emerging Markets Index, and 1.3% for FTSE Russell’s comparable gauge, according to data compiled by Bloomberg.
“The removal of Russia from key indexes will be a positive thing for investors given the uncertainty surrounding the economy and potential settlement risks,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co.
--With assistance from Sydney Maki, Abhishek Vishnoi, Min Jeong Lee, Masaki Kondo, Joe Easton and Tan Hwee Ann.
This article was provided by Bloomberg News.