The price discovery role of ETFs is on full show once again after products tracking the Russian market continued to trade despite the Bank of Russia closing the stock market on Monday.
As expected, Russia ETFs sold off dramatically on Monday. Europe’s largest pure-play Russia ETF, the $208m iShares MSCI Russia ADR/GDR UCITS ETF (CRSU), plummeted 50.3% while the Lyxor MSCI Russia UCITS ETF (RUS) was down 45.9%.
Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said ETFs can become “a saviour” during periods of rapidly vanishing liquidity or when markets are closed.
“ETFs have taken on the role of price discovery,” Psarofagis told ETF Stream. “When everything is closed, ETFs are the best way to proxy the market right now, and history has shown just how accurate they can be.”
Russia stocks have been impacted by a string of sanctions in retaliation to President Vladimir Putin’s decision to invade Ukraine last Thursday.
As a result, the ruble crashed to a record on Monday with the Russian central bank hiking interest rates to 20% in response to the sell-off.
Commenting on the news, Peter Garnry, head of equity strategy at Saxo Bank, said: “Markets were shocked by the comprehensive scale of new sanctions against Russia that were implemented over the weekend after the initial round of sanctions following the Russian invasion underwhelmed.
“The new measures will cripple the Russian financial system.”
In the US, the VanEck Russia ETF (RSX) saw $280m inflows amid total volume of $880m last Friday, the most since the Crimea war in 2014, according to Eric Balchunas, senior ETF strategist at Bloomberg Intelligence.
RSX jumped to a 15% premium as investors saw an opportunity to buy the dip and short-sellers saw an opportunity to create new shares and bet against certain stocks.
Meanwhile, MSCI revealed it is considering the blanket removal of Russian securities from its indices in response to the invasion.
Dimitris Melas, head of research and chair of the index policy committee at MSCI, told ETF Stream: “A potential next step we may consider in the coming days is to consult with market participants on whether or not it would be appropriate to remove Russian securities from MSCI indices.”