FX.co ★ Russia's stocks cut by emerging market indices

MSCI Inc. and FTSE Russell are cutting Russian equities from widely-tracked indexes, 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.

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. Russian bonds are reduced.

"We can't sell our Russian stocks," Russel Chesler, head of investments and capital markets at fund manager VanEck Associates Corp. in Sydney, said. "Even last week our brokers wouldn't sell them when the markets were open, and this will just deteriorate things further for investors."

Meanwhile, Stoxx Ltd. said it will delete Russian companies from its indexes following the sanctions from the European Union, the U.K. and the US More than 60 constituents will be deleted from its index universe at the close on March 18.

While Moscow has kept its stock market closed since Monday, foreign-listed shares in Russian companies plunged this week. To support its market, the country announced Tuesday that it will deploy up to $10 billion from its sovereign wealth fund to buy up equities.

The expulsion of Russian bonds from indexes could be next, with billions of dollars left in limbo.

JPMorgan Chase & Co. is reviewing the inclusion of some debt from Russia, Belarus and Ukraine in its indexes while Intercontinental Exchange Inc. will remove those issued by sanctioned Russian entities.

"Some funds may end up marking their book value for Russian assets as zero," Hiroshi Matsumoto, senior client portfolio manager at Pictet Asset Management (Japan) Ltd, said. Once investors try to sell Russian bonds they will "probably have close to no value and it'll probably be the same for stocks."

Russia's removal from key equity gauges means other emerging markets may benefit from fresh inflows.

According to Vishnu Varathan, head of economics and strategy Mizuho Bank Ltd. in Singapore, India and China could be beneficiaries. Alan Richardson, portfolio manager at Samsung Asset Management, said capital flows could pivot to Indonesia and Malaysia, which have similarities to Russia in terms of their commodity economies.

Russia had a 1.5% weighting in the MSCI Emerging Markets Index, and 1.3% for FTSE Russell's comparable gauge.

"The removal of Russia from key indexes will be a positive thing for investors given the uncertainty surrounding the economy and potential settlement risks," Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., said.