Ukraine conflict: Russia shunned as FTSE Russell, MSCI remove stocks, bonds from indices after market becomes ‘uninvestable’
- Feedback from market participants confirmed the Russian market has become ‘uninvestable’ after trading suspension, restrictions on non-residents
- Russia faces an onslaught of Western sanctions after it invaded Ukraine on February 24; trading on Moscow Exchange suspended
FTSE Russell will delete Russian securities from its equity indices from March 7 while MSCI will move Russian securities to “Standalone Market” status from “Emerging Markets” on March 9, measures that are likely to devastate the local market and economy.
The decision was made as the market became uninvestable after the Central Bank of Russia halted trading on the Moscow Exchange and blocked foreign investors from selling. The central bank also restricted its lenders from processing fund withdrawals in all currencies held by foreign clients in retaliation to Western sanctions.
“For most global investors, Russian financial assets have become uninvestable due to moral or compliance reasons,” Yan Wang, chief emerging markets and China strategist at Montreal-based Alpine Macro, said in a March 2 report. “The Kremlin’s recently imposed capital account controls also make foreign holdings of Russian assets highly risky.”
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Foreign investors, mostly in Western countries, own nearly 60 per cent of domestically listed Russian stocks, and 20 per cent of Russian government bonds, according to Alpine Macro, citing data from the Moscow Exchange and Bloomberg.
FTSE Russell will delete 60 index constituents on the Moscow Exchange at a zero value when markets open on Monday, according to its statement. The compiler will also delete Global Depositary Receipts of at least 27 entities at their March 4 closing prices.
The securities would be deleted at zero value should trading in them be suspended. In the case of two sanctioned firms VTB Bank and Novorossiysk, they will be deleted at zero value, according to the statement.
FTSE Russell will place Russia under the “unclassified” market. A standalone country index using local exchange prices will be available instead. The Russian market will have to be re-evaluated again when sanctions are removed, meaning its return will not be automatic.
MSCI said feedback from a large number of market participants confirmed that the Russian equity market “is currently uninvestable” and that Russian securities should be removed from its emerging-market indices, MSCI said in its statement on Wednesday.
