“The BRICS had their day in the sun and it faded,” said Eric Winograd, senior economist at AllianceBernstein.
Several major index providers in the US have excluded Russian stocks from the indices at “zero” or “virtually zero” prices. Trading in the shares of several leading Russian companies registered in the US, such as the search engine Yandex and telecommunications MTS, was stopped. And the Moscow Exchange has been closed since February 25, the day after the invasion.
“The idea that a big country like Russia can be excluded from the indexes is a big one,” Vinograd said.
It seems likely that Russia will not be included in the leading emerging markets funds anytime soon. Even for those Westerners who are still willing to invest in Russian assets, it is not clear what will happen next.
“Some investors asking about Russia’s contribution to emerging market funds. As the indexes start to exclude Russia, it is still a waiting game,” said Michal Campos, head of investment at Betterment.
According to Winograd, investors wishing to gain access to emerging markets should consider each country separately.
“The name of the game will be differentiation. Don’t invest in emerging markets based on an acronym,” Winograd said. “It is always strange to say, for example, that Argentina and South Korea are one and the same. This is not true”.
Forget BRICS and look at TICKS or MIST?
To stick with the acronyms, the shutdown of the Russian stock market essentially turned BRICS into NICS — and that could be a permanent change, said Rahul Sen Sharma, managing partner of Indxx, a global index provider.
“Will investors ever be able to attract Russia again? If there is no liquidity, this is a moot point. But it’s also hard to believe that people will flock to Russia anytime soon,” Senator Sharma told CNN Business.
Sen Sharma said some investors may start looking at emerging markets other than Russia, such as Taiwan and South Korea. BRICS can become TIKS.
He added that Poland, Turkey and Mexico, as well as the Philippines and Indonesia are of interest. You can call Mexico, Indonesia, South Korea and Turkey MIST markets. “People love their acronyms,” Sen Sharma joked.
Of course, any emerging market in Europe – think Poland – is inherently risky because of how close it is geographically to Russia and Ukraine. Thus, other Central and Eastern European countries may be difficult to reach for Western investors.
Other experts argue that investors are looking more at individual companies in emerging markets than at the countries themselves.
“The average investor views emerging markets as a class of stocks. It’s part of a portfolio,” says Callie Cox, US-based investment analyst at eToro.
“The emerging markets landscape has been changing for a long time,” Cox added, noting that many investors have been skeptical of Russia since its annexation of Crimea in 2014. “Anxiety has intensified.”