MSCI Creates Indexes Excluding Russia, Reviews VTB on Sanctions

MSCI Inc. introduced indexes that exclude Russia for clients seeking to avoid exposure to a country hit by punitive U.S. and European Union sanctions.

MSCI announced new composite indexes excluding Russia, including MSCI ACWI ex-Russia and MSCI Emerging Markets ex-Russia, in an e-mailed statement late yesterday. It’s also seeking investor feedback on OAO VTB Bank’s inclusion in MSCI Russia by Aug. 7 and will announce its decision Aug. 8. MSCI gauges are tracked by investors managing about $9 trillion.

The U.S. imposed sanctions on state banks, including VTB, its Bank of Moscow unit and Russian Agricultural Bank on July 29, while the European Union yesterday added Russia’s three largest lenders, OAO Sberbank, VTB and OAO Gazprombank, to a list of companies penalized over President Vladimir Putin’s support for the insurgency in Ukraine.

MSCI is considering proposals that include deleting VTB from the MSCI Russia Index “as soon as practicable,” or keeping it in the gauge until its first sale of new shares, MSCI said. VTB fell 1.3 percent to 3.93 kopeks by 11:20 a.m. in Moscow.

The U.S. imposed sanctions against OAO Rosneft, Russia’s largest oil company, and natural gas producer OAO Novatek on July 16, prohibiting any new financing of debt with a maturity of more than 90 days from U.S. sources. Both are members of MSCI Russia Index and since penalties don’t affect new or existing equities, MSCI said it will maintain Rosneft and Novatek’s global depositary receipts in the gauge.

‘Distant Possibility’

“The measures currently imposed by the EU and the U.S. do not restrict portfolio investment into Russian equities,” VTB Capital analyst Ilya Piterskiy said in an e-mailed note today. “No capital controls have been adopted by Russia. Consequently, we think there is only a distant possibility of the accessibility of the Russian equities market being reassessed. The MSCI does not have a track record of downgrading countries on purely political grounds.”

S&P Dow Jones is seeking clients’ views on Russian index members and while it believes its gauges aren’t directly affected by sanctions, some licensees may be required to divest holdings of sanctioned companies, the company said in a statement yesterday.

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