Global stock index provider MSCI announced on Wednesday that the Russian market will no longer be part of the company’s dedicated emerging market benchmarks. The country will be classified as an independent market by MSCI from the 9th of March, in response to the attacks against Ukraine.
Itaú BBA analysts project that the decision could result in a flow of approximately R$7 billion in foreign funds destined for Brazil.
“On February 28, MSCI held a consultation with international institutional investors on the accessibility and ease of investing in the Russian stock market. During the consultation, we received responses from a large number of market participants, including asset managers, financial agents and brokers, who mostly confirmed the difficult access to the Russian stock market at this time and that Russia should be excluded from emerging market indices”, says the index company, in a note.
Itaú BBA analysts calculate that, considering the closing of the fourth of the global markets, Russia represented something like 1.47% of the emerging markets index. Brazil has a weight of approximately 4.97% in the index.
The exclusion of the percentage dedicated to Russia should result in an outflow of resources of around US$ 5.9 billion (R$ 29.8 billion) from the Russian market, considering the passive investments that follow the regional distribution indicated by the benchmarks of the MSCI, project the bank’s analysts.
They also estimate that, considering Latin America’s current weight of close to 9.33% in the emerging market equity index, the region could receive positive capital flows of around US$ 2.12 billion (R$ 10.7 billion ), of which about US$ 1.34 billion (R$ 6.7 billion) potentially being directed to Brazil.
“We believe that, in the current geopolitical scenario, investors’ attention may shift to the Latin American region, which not only offers cheap valuations but has been trading below the historical average for some time now”, point out analysts at Itaú BBA.
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