MSCI Considers Ejecting Russia From Emerging Market Benchmarks

Editorial Staff

1 March 2022

MSCI, provider of financial benchmarks used by the global investment industry, is asking for views on how to treat Russian equities within its indices, including the idea of cutting Russia out of emerging market benchmarks completely.

If the organization decided, for example, to strip Russian stocks from its emerging market benchmarks, it would force fund managers using these indices in setting asset allocations to sell billions of dollars of assets. The fallout from any such move should be relatively modest overall, however, because Russia accounts for 3.2 per cent of the MSCI Emerging Markets benchmark.

Such moves are being mulled at a time when the European Union, the UK, the US and other jurisdictions are imposing heavy sanctions on Russia because of its invasion of Ukraine. Russian banks have been cut from the SWIFT global banking system, and the Moscow Exchange stock market has shut down, while the Russian rouble has fallen dramatically. The crisis has sent up prices of oil and gold, and hit global equities. (This news service also discusses developments here in this video.)

“In view of these developments, MSCI seeks feedback from market participants on the appropriate treatment of the Russian equity market within MSCI indexes up to and including the potential reclassification of the MSCI Russia Indexes from Emerging Markets to Standalone Markets status,” MSCI said in a statement today.

The group added that it will issue further communication before the end of the week following the review of feedback from market participants.

“The fortunes of Russian equities reversed quickly over the course of February 2022. Fund managers are expected to reconsider exposures in light of increasing sanctions being imposed by Western governments,” Wing Chan, Morningstar’s head of manager research, Europe and APAC, said in a note.