'KINDEX Russia ETF' Tank Crisis... Panic Among Low-Price Buyers

Korea Investment Trust Management KINDEX Russia MSCI ETF Delisting Risk
MSCI Applies 0.00001 Price to Russian Stocks
Risk of ETF Becoming Worthless (0 KRW) if Not Sold by the 9th

[Asia Economy Reporter Junho Hwang] The only Russian-listed exchange-traded fund (ETF) in South Korea is on the verge of becoming worthless. Investors who bravely(?) bought at low prices even during the war situation must sell this ETF by the 9th to salvage whatever money remains, but even that is proving difficult.

On the 4th, Korea Investment Management announced, "MSCI (Morgan Stanley Capital International), which provides the underlying index tracked by the KINDEX Russia MSCI ETF (synthetic), has announced a price application of 0.00001 for Russian stocks. Based on the current standard, the real-time estimated net asset value (NAV) of this product will converge to zero as of the 10th." The ETF has both an actual trading price and a NAV based on fund management; as of yesterday's closing price, they were 14,380 KRW and 14,121 KRW respectively. However, from the 10th, it means the price will drop close to zero.

Under the current circumstances, delisting is highly likely. Korea Investment Management stated, "Due to the suspension of index calculation on the 10th, failure to meet correlation coefficient requirements, and counterparty risk in over-the-counter derivative transactions, the possibility of delisting is high. However, the exact delisting date is still unknown."

This means investors must sell all of this ETF before the 10th to recover at least some of their investment. But even this is not easy. At the start of trading on that day, the ETF plunged to the lower limit price (10,070 KRW). The low-price buying forces have also hesitated due to the plunge to the lower limit. More than 320,000 shares remain at the lower limit price, but only about 50,000 shares were traded in one hour. Korea Investment Management explained, "Currently, it is difficult for domestic liquidity providers (LPs) to submit normal quotes for this ETF."

This ETF attracted money after the Russian stock market plummeted following the disclosure of Russia's invasion plans of Ukraine. Individual investors aiming for a rebound in the Russian stock market after the conflict poured in. From the 11th of last month to the 3rd of this month, individuals net purchased 27.848 billion KRW.

Even after news spread that MSCI, the index provider, would exclude Russia from the MSCI Emerging Markets Index, individuals continued to buy this product. With massive funds flowing into a product with a market capitalization of about 8 billion KRW, liquidity providers (LPs: NH Investment & Securities, Mirae Asset Daewoo, Meritz Securities) faced difficulties in providing adequate funds. Consequently, the Korea Exchange took steps to suspend trading due to the widening premium/discount (difference between market price and NAV).

This content was produced with the assistance of AI translation services.