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Russia is no longer an option for investors

(CNN Business) — For many years, the world’s most popular emerging markets have been the so-called BRICS: Brazil, Russia, India, China and South Africa.

But with Russia no longer a market Westerners can access after the Ukraine invasion, it might be time for investors to stop lumping all emerging markets into the same stock market.

“The BRICS had their day and that has faded,” said Eric Winograd, senior economist at AllianceBernstein.

Investors leave Russia

Several of the major index providers in the United States have withdrawn Russian stocks from the indices at a “zero” or “effectively zero” price. The trading of shares of several major Russian companies listed in the United States, such as the search engine Yandex and the telecommunications company MTS, has been halted. And the Moscow Stock Exchange has been closed since February 25, the day after the invasion.

War in Ukraine would leave millions without food 0:48

“The idea that a country as big as Russia could be removed from the indices is a big deal,” Winograd said.

It seems likely that Russia will not be included in the major emerging market funds any time soon. Even for Westerners still willing to invest in Russian assets, it’s not clear what comes next.

“Some investors are asking about exposure to Russia in emerging market funds. With indices starting to exclude Russia, it’s still a wait-and-see game,” said Mychal Campos, chief investment officer at Betterment.

For investors who want exposure to emerging markets, Winograd said each country needs to be looked at individually.

“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 that Argentina and South Korea are the same, for example. They are not.”

Forget BRICS and look at TICKS or MIST?

Sticking with the acronym, the closure of the Russian stock market has essentially turned the BRICS into the BICS — due to Russia’s exit — and that could be a permanent change, said Rahul Sen Sharma, managing partner at Indxx, an index provider. global.

Global stocks plunge as Russia invades Ukraine 2:39

“Will investors embrace Russia again? If there is no liquidity, it is a moot question. But it is also hard to believe that people will rush to Russia at any time,” Sen Sharma told CNN Business.

Sen Sharma said some investors might start looking at other emerging markets to replace Russia, such as Taiwan and South Korea. The BRICS could become the TICKS.

He added that Poland, Turkey and Mexico are intriguing, as are the Philippines and Indonesia. Mexico, Indonesia, South Korea and Turkey could be referred to as the MIST markets. “People love acronyms,” Sen Sharma joked.

Of course, any emerging market in Europe – think of Poland – is inherently risky due to its geographical proximity to Russia and Ukraine. So other Central and Eastern European nations may be a tough sell for Western investors.

Other experts say that investors are looking more at individual companies in emerging markets and less at the countries themselves.

“A typical investor sees emerging markets as a security class. It’s a part of the portfolio,” said Callie Cox, US investment analyst at eToro.

“The emerging market landscape has been changing for a while,” Cox added, noting that many investors have been skeptical of Russia since its annexation of Crimea in 2014. “There has been more anxiety.”

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