Russia’s “Toxic” Stocks Cut By LSE, MSCI As Western Sanctions Hit Hard

Russia’s financial connections with the rest of the world are getting severed by western sanctions. Since Monday, Moscow has kept its stock market closed, the longest closure since the 1998 Russian financial crisis, as offshore markets for Russian Global Depositary Receipts (GDRs) have been hammered. 

On Thursday, the London Stock Exchange (LSE) announced that trading for 27 companies with strong ties to Russia had been suspended hours after MSCI Inc. deleted Russian stocks from its widely-followed indices, according to Financial Times

LSE suspended trading for En+, Sberbank, Gazprom, Lukoil, Polyus, among a couple of dozen others. It said the move was due to “events in Ukraine, in light of market conditions, and in order to maintain orderly markets.”

Another index provider, MSCI, said market participants view the Russian market as “uninvestable” and will remove Russian securities from emerging market indexes effective on March 9. 

LSE CEO David Schwimmer told Bloomberg TV it suspended trading of Russian GDRs, also noting that a little less than 1% of total income comes from Russia and Ukrainian operations. 

Readers may recall yesterday. We first highlighted how the Dow Jones Russia GDR Index, an index designed to track the top Russian GDRs that trade on the LSE, plunged a mind-numbing 97% in just a few days and wiped out $572 billion. 

Onshore trading in Russian stocks has been at a standstill for the fourth day; many offshore Russian assets are being marked to near zero. Traders report difficulty unwinding clients’ positions in Russian stocks as demand for these assets plunged on western sanctions.  

“We can’t sell our Russian stocks,” said Russel Chesler, head of investments and capital markets at fund manager VanEck Associates Corp. in Sydney. 

“Even last week our brokers wouldn’t sell them when the markets were open, and this will just deteriorate things further for investors,” Chesler said. 

Marek Drimal, a strategist covering Europe, the Middle East, and Africa at Societe Generale SA in London, called Russian assets “toxic.” 

“Onshore markets are barricaded and basically uninvestable, while offshore markets have been hammered. The speed of events as they are happening is just mind-boggling,” Drimal said.

Stateside, on Thursday, VanEck announced a problem for US investors who had Russian exposure via the VanEck Russia ETF (RSX), the world’s largest Russia-focused exchange-traded fund. It said, “although shares of the Fund are expected to continue trading on Cboe BZX Exchange, Inc., there can be no assurance that an active market will be maintained for the Fund’s shares.”

The bottom line for readers is many of these indexes tracking Russian GDRs are practically worthless, as we detailed yesterday in the collapse of Dow Jones Russia GDRs. When onshore markets finally reopen, Russia’s wealth funds (or the national plunge protection team) will have a lot of work to do as they may deploy billions of dollars to rescue stocks. 

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