MSCI Inc. and FTSE Russell are cutting Russian equities from widely-tracked indexes, while the London Stock Exchange suspends dozens of Russian depositary receipts from trading, isolating the stocks from a large segment of the investment-fund industry.
An overwhelming majority of market participants see the Russian market as “uninvestable” and its securities will be removed from emerging markets indexes effective March 9, MSCI said. FTSE Russell will delete Russia constituents listed on the Moscow Exchange at a zero value on March 7. Meanwhile, trading in 28 depositary receipts for Russian companies have been suspended on the LSE, Chief Executive Officer David Schwimmer said in an interview with Bloomberg Television on Thursday.
Russia’s links with global markets are getting cut with its foreign reserves frozen after it invaded Ukraine, while Moscow’s capital controls and a ban on foreigners selling securities locally have shut the exit for international investors. The latest blow comes as buyers shun Russian oil exports, while its bonds get cut to junk status and companies including Shell Plc pull out.
“We can’t sell our Russian stocks,” said Russel Chesler, head of investments and capital markets at fund manager VanEck Associates Corp. in Sydney. “Even last week our brokers wouldn’t sell them when the markets were open, and this will just deteriorate things further for investors.”
According to Bloomberg Intelligence analysts, exchange-traded funds with global allocations will be the most affected MSCI’s and FTSE’s decisions. But the impact should be “small,” since Russia makes up less than 5% of the funds’ global basket, said Rebecca Sin and Eric Balchunas.
Norway’s $1.3 trillion sovereign wealth fund, which has seen the value of its holdings in Russia slump about 91% so far this year, is another asset manager grappling with the question of exiting Russian assets. The fund’s loss on its Russian equity stakes could amount to just under $2.8 billion under current estimates, with the stake now considered to be worth about 2.5 billion kroner ($280 million), down from 27 billion kroner at the end of last year.
Vincent Mortier, chief investment officer for Paris-based Amundi SA, told clients on Thursday that it was becoming difficult to reduce its exposure to Russia at the moment. Schroders Plc Chief Executive Officer Peter Harrison said earlier that it was very hard to think of Russia as anything other than uninvestable.
The London Stock Exchange’s move to suspend Russian depositary receipts is “in connection with events in Ukraine, in light of market conditions, and in order to maintain orderly markets,” LSE said in a statement. It also noted that less than 1% of its total income comes from operations in Russia and Ukraine.
The Dow Jones Russia GDR Index, which tracks companies like Gazprom PJSC and Sberbank of Russia PJSC, has plunged about 96% in the past two weeks.
Bloomberg is also seeking feedback on the investability of Russian index members in global equity gauges by March 3. Bloomberg LP, the parent of Bloomberg News, is the parent company of Bloomberg Index Services Ltd., which administers these indexes.
Meanwhile, Stoxx Ltd. said it will delete Russian companies from its indexes following the sanctions from the European Union, the U.K. and the U.S. More than 60 constituents will be deleted from its index universe at the close on March 18. Also, S&P Dow Jones Indices “is conducting a consultation with market participants on the potential removal of stocks listed and/or domiciled in Russia,” including those that trade on exchanges abroad.