December 17, 2014, 08:44 / Finance

Russia may be excluded from the MSCI Emerging Markets index

Index provider MSCI may exclude Russia from the MSCI Emerging Markets index, it said in a statement. The decision point will be foreign exchange controls. “The possible introduction of restrictive measures, such as capital or currency controls, which could lead to a significant deterioration in the availability of the Russian securities market, could lead to the exclusion of Russia from the MSCI Emerging Markets Index and the reclassification of the offering of this market to the status of an autonomous (Standalone Market)”, - MSCI said in a statement.

To avoid the possible exclusion of the MSCI Russia index from the MSCI Emerging Markets, the index provider may replace the listings of MSCI Russia index companies with their liquid depositary receipts, the message clarifies.

The American weekly Barron's believes that the exclusion of Russia from MSCI has an obvious market meaning: it is a “minor but toxic” part of emerging markets. As of the end of 2013, shares of Russian issuers accounted for 6.1% of the index, and after a sharp drop in 2014 - only 3.2%. According to this indicator, Russia is only the ninth developing economy in the world, behind Mexico and Malaysia. At the same time, Russia is responsible for a 3.1 point fall in the price of shares of the iShares MSCI Emerging Markets ETF, amounting to 8.9%.

UBS analysts believe that the impact of the Russian crisis on other emerging markets (beyond the MSCI index mechanism) will be limited due to the "manageable" nature of the crisis, the relatively small size of the Russian economy and the fact that cheap oil is favorable for other developing countries. All of them, except Malaysia, are net importers of oil, recalls UBS.

The MSCI Emerging Markets Global Index consists of 26 indices, including Russia, Argentina, Mexico, Thailand and other countries. It is designed to measure stock market performance in emerging economies. The MSCI Russia index includes shares of leading Russian companies.