By Ben Edwards
Index providers are mulling stripping out some Russian
companies, potentially undermining a key structural support for the
country's markets.
In a statement late Thursday, MSCI Inc. said it is considering
removing VTB Bank's ruble shares from its Russian index after the
U.S. Treasury Department slapped the bank with sanctions
restricting its access to U.S. financial markets. MSCI said it was
mulling the move on concerns that if VTB issues new equity, it
could potentially lead to some market participants trading the
shares in the secondary market, breaking those sanctions.
It also said it was launching a new series of composite indexes
that will exclude Russia for investors that want to avoid exposure
to Russian securities.
"This is about signaling," said Tim Ash, an emerging-markets
analyst at Standard Bank in London. "A lot of investors are forced
to hold debt or equity because they're part of an index. So when
they're out of the indices then investors have less reason to buy
them. It could have a large market impact as it could encourage
people to sell existing positions they have," he added.
"It's negative for general sentiment that MSCI is beginning
these discussions," said Pavel Laberko, a fund manager at Union
Bancaire Privée. "But if investors didn't want to invest in Russia
they could have made that choice already--no one is forcing them to
own Russian stocks. An Ex-Russia index is just an additional
convenience for those investors."
The sanctions prohibit U.S. investors from providing certain
firms with financing through new equity or new debt that matures in
longer than 90 days. The measures came as Western leaders ramped up
pressure on Russia amid the turmoil in eastern Ukraine.
MSCI said another proposal is to maintain VTB Bank in the MSCI
Russia index until the first issuance of new shares. The index
provider is seeking feedback from market participants and will
announce its decision on Aug. 8.
VTB's Russian peers Rosneft and Novatek GDR, which were also
subject to sanctions, won't be removed from the index, MSCI
said.
MSCI's move follows a similar call from S&P Dow Jones
Indices, which said Thursday it was asking clients whether it
should remove sanctioned firms from its indexes.
S&P is mulling whether sanctioned firms' shares should be
removed from its indexes, or if a specific country adopts sanctions
on a firm if the index provider should treat that firm as
sanctioned in all jurisdictions.
Earlier in July, J.P. Morgan Chase & Co. said the current
composition of its widely followed emerging-market bond index won't
change, but it won't include any new bonds issued by sanctioned
Russian firms.
Write to Ben Edwards at ben.edwards@wsj.com