U.S. index provider S&P Dow Jones said Monday it won’t remove Russian stocks from the firm’s various benchmarks, based on consultations it had with clients. The company’s announcement comes amidst mounting signs that Western sanctions are having an impact on the Russian economy.
Russian stocks: Sufficient advance notice available
In the wake of broadening economic sanctions against Russia, the S&P Dow Jones Indices initiated a consultation exercise with clients regarding the inclusion of Russian securities in S&P indices. The objective of the client consultation process that commenced on July 31 was to gather information to make potential index adjustments in a timely fashion and to ensure that its indices continue to take into account changing market conditions, including the recently announced sanctions and any impact they might have on its licensees and other market participants.
David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said: “Based on comments received from stakeholders as well as our own research, it is S&P DJI’s understanding that Russian laws and regulations provide for sufficient advanced public notice of new equity issuances to allow index adjustments to be made with normal announcement periods if any such adjustment is deemed appropriate”.
Significance of S&P’s announcement
As reported, last week all stock markets were slumping as investors worried about World War 3. Talk of World War 3 will undoubtedly surface again, as there’s more news of violence out of the Ukraine crisis. Stock markets have already begun to slump again on the news, with the Market Vectors Russia ETF turning negative. Considering the apprehension over the Ukraine crisis, S&P’s announcement on Monday confirming the retention of Russian stocks in the index is significant.
It is pertinent to note that major investors, including funds, are investing in consolidated stock indices, in which Russian stocks are presented. To Russian issuers, investments come also through passive funds which automatically follow the MSCI and Dow Jones, but if Russian stocks are excluded from the indices, they will be automatically sold by these investors.
Interestingly, U.K. indices provider FTSE too has said it kept shares of Russia’s Sberbank Rossii OAO (MCX:SBER) (OTCMKTS:SBRCY) and Bank VTB OAO (MCX:VTBR) after negotiations with investors and market participants, while U.S.-based MSCI Barra decided to keep shares of the banks in early August, with both agencies saying that they can revise the decision if the banks announce new share issues.