Two Conditions to Avoid Delisting of 'Russia ETF'

'KINDEX Russia MSCI ETF' Benchmark Index Recovery
'iShares MSCI Russia ETF' Trading Resumption Also a Prerequisite
Discussion Possible Only After Russia-Ukraine War Ends
Significant Losses Unavoidable Even If 'KINDEX Russia ETF' Trading Resumes

[Asia Economy Reporter Hwang Yoon-joo] Korea Investment Trust Management is facing a dilemma over the follow-up measures for the suspended trading of the ‘KINDEX Russia MSCI (Synthetic) Exchange-Traded Fund (ETF)’ (Russia MSCI ETF).

On the 31st, according to authorities and the industry, the Korea Exchange is discussing follow-up measures with Korea Investment Trust Management, liquidity providers (LPs: NH Investment & Securities, Mirae Asset Daewoo, Meritz Securities), and others to avoid delisting the ‘KINDEX Russia ETF’.

Earlier, Morgan Stanley Capital International (MSCI) reclassified Russia from an Emerging Market (EM) index to a standalone market and announced that it would apply a price of 0.00001 to all Russian stocks within the indices. This means the price of Russia-related ETFs is effectively '0 won.' The loss rate of the ‘KINDEX Russia ETF’ currently reaches -99.32%.

The exchange and Korea Investment Trust Management are reportedly considering a plan to resume trading of the ‘KINDEX Russia ETF’ by preserving hedge assets as much as possible. For this, MSCI must normalize the Russian benchmark index, and one of the hedge assets, the ‘iShares MSCI Russia ETF,’ must resume trading. This is beyond the authority of the exchange and Korea Investment Trust Management.

[Image source=Yonhap News]

However, it is expected that the situation will not worsen to the worst-case scenario. Since MSCI politically sanctioned Russia by devaluing all Russian stocks in the indices to '0,' it is anticipated that normalization will occur once the war ends. In fact, Korea Investment Trust Management is known to have strongly conveyed its opinions to MSCI.

Even if MSCI normalizes the value of Russian stocks, the value of the ‘KINDEX Russia ETF’ will not automatically recover because it is a synthetic ETF product. Synthetic ETFs do not trade the actual related stocks but use hedge assets to trade returns. The hedge assets for this ETF include Russian futures and the iShares MSCI Russia ETF. Among these, as the value of Russian stocks was forcibly converted to ‘0,’ all futures assets were liquidated. On the other hand, some spot assets such as the iShares MSCI Russia ETF remain. However, trading of the ‘iShares MSCI Russia ETF’ is also currently suspended.

If the value of Russian stocks normalizes, the ‘iShares MSCI Russia ETF’ could resume trading and increase in value. This would give the ‘KINDEX Russia ETF’ a reason to resume trading as its hedge assets revive. However, this too is beyond the authority of the exchange or Korea Investment Trust Management.

An industry insider said, "If the two conditions are resolved and the trading suspension is lifted, ETF investors will try to minimize losses by selling off their holdings," adding, "However, the situation requires waiting until the war ends."

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