Four Russian companies listed on the London Stock Exchange are being ejected from the FTSE indices they are constituents of. FTSE Russell, the London Stock Exchange Group business behind the FTSE 100, 250, all-share and AIM indices today announced that Evraz, Petropavlovsk, Polymetal and Raven Property Group will be removed from its benchmark indices next week.
The Russell FTSE indices are used to benchmark the UK market’s performance by tracking the overall performance of categories of companies listed on the LSE such as large, mid and small caps. The FTSE 100, for example, is the UK’s main benchmark index and tracks the overall performance of the largest 100 London-listed companies by market capitalisation.
Passive tracker funds that hold shares in all the constituents of a particular FTSE index, in a way that reflects their weightings in the index so performance is closely mimicked, are hugely popular with investors. They are the most common way for investors to gain diversified exposure to the UK’s public capital markets and being part of an index, especially the FTSE 100, guarantees billions of pounds of investment in a company’s stock, driving up its valuation.
That means being ejected from the FTSE indices will almost certainly wipe another big chunk from the valuations of the four Russia-focused companies, who have already seen their share prices decimated over the past few weeks. FTSE Russell said it has taken the decision, which many had been calling for, as a response to feedback from both its external advisory committees and market participants.
It also said there were growing practical impediments to the four companies remaining part of the indices because the ability of investors to buy and sell shareс in the companies has been
“severely restricted due to major international brokerage firms no longer supporting trading of these securities and therefore there is insufficient institutional liquidity and market depth”.
Russell acknowledged the restrictions imposed by major international brokerages means that index trackers can often no longer practically buy the stocks, even if willing to, compromising their ability to accurately track the indices they are designed to.
Evraz, a steel manufacturing and iron ore mining company, and gold miner Polymetal are both constituents of the FTSE 100 but were anyway set for demotion to the FTSE 250 after both were hit by recent sell-offs. Petropavlovsk, another gold miner, was primed for demotion from the FTSE 250 in next Monday’s scheduled reshuffle for the same reason.
Raven Property Group is a commercial real estate company that owns and operates warehouse properties, mainly in the Moscow region. It was previously a FTSE 250 constituent but is currently only part of the FTSE All-share index that covers every London-listed company with a premium listing.
The Standard Life Private Equity Trust and NB Private Equity Partners will take Evraz and Polymetal’s places in the FTSE 250. Polymetal told investors its share will continue to trade despite its exclusion from indices, issuing a statement which read:
“The recent exclusion of Polymetal shares from the series of FTSE equity indices does not impact the company’s listing on the London Stock Exchange.”