MSCI is eliminating Russian equities from the firm’s widely tracked emerging markets index, cutting the stocks off from a large segment of the investment fund industry as penalties mount over Russia’s invasion of Ukraine.
“During the consultation, MSCI received feedback from a large number of global market participants, including asset owners, asset managers, broker dealers and exchanges, with an overwhelming majority confirming that the Russian equity market is currently uninvestable and that Russian securities should be removed from the MSCI Emerging Markets Indexes,” MSCI said in a statement on Wednesday.
According to the statement, the decision will be implemented in one step across all MSCI Indexes as at the close of March 9.
FTSE Russell also announced it would delete Russian securities from its equity indexes.
The development followed Russia’s decision to instate capital controls and ban foreigners from selling securities locally.
According to one estimate, the MSCI change could cause an exodus of up to US$32 billion (S$43 billion) in active and passive funds once they are able to trade the stocks again, as reported by Bloomberg. Bloomberg also noted, the problem is it is unclear who would be on the other side of the trades, given the sanctions against Russia.
“Other index providers are likely going to follow and it’s impossible to predict how Russian assets are going to come out the other side of this,” said Mr Russel Chesler, head of investments and capital markets at fund manager VanEck Associates Corp in Sydneyto Bloomberg.
“We can’t sell our Russian stocks, even last week our brokers wouldn’t sell them when the markets were open, and this will just deteriorate things further for investors.”
