NEW YORK: A possible decision by MSCI Inc to reclassify its Russia Indices may result in billions of dollars flowing out of the nation’s stock market.

       That’s the view from Brian Freitas, an Auckland-based analyst for independent research platform Smartkarma, after the index provider said it was seeking market feedback on the appropriate treatment of Russian equities.

       Options include reclassifying the MSCI Russia Indices from Emerging Markets to Standalone Markets status, MSCI said Monday.

       “A reclassification to standalone status will result in passive outflows of around US$16bil (RM67.1bil) from Russian stocks as of the close on Feb 25,” said Freitas.

       There could be outflows from active global investors of a “similar magnitude,” he said, adding however that “the final number could be far lower once Russian stocks open for trading and investors are free to covert their rubles to US dollars.”

       Russia on Monday halted stock trading, though companies listed abroad tumbled.

       Trading was suspended yesterday as well, Russia’s central bank said.

       Mounting sanctions against Russia are raising the risk the nation’s stocks and bonds may be kicked out of major global benchmarks, effectively cutting them off from a big segment of the investment-fund industry.

       MSCI, a provider of major emerging-market indexes, said it is closely monitoring just how accessible and investable the Russian market is for foreigners and plans to say more by the end of the week, according to its statement.

       Around 30% of the passive funds that may leave Russian stocks will go into China – the largest country in the MSCI Emerging Markets Index, Freitas said.

       A bulk of that is likely to go into the largest stocks such as Tencent Holdings Ltd, Alibaba Group Holding Ltd and Meituan, he said.

       “The total inflows could be between US$5bil (RM21bil) to US$8bil (RM33.5bil) though that number is highly dependent on when and where global investors are able to sell their Russian stock holdings.”

       Russia-focused equity funds have tumbled 23% on average in the past week, according to data compiled by Bloomberg.

       Given all sanctions on Russia, it is unclear who would be on the other side of the trade if funds were to offload the nation’s assets.

       “Please note that as long as the Russia prevents selling, MSCI won’t be able to implement a deletion or any decrease in weight,” said Noaman Khalid and Elia Alchaar at Arqaam Capital, a Dubai-based investment bank.

       They added it’s likely that flows into other markets will come as funds rebalance to the higher weights and not necessarily taking their money out of Russia. — Bloomberg