The shares of Russia's two biggest banks soared on Monday after avoiding being dropped from a top emerging markets index as part of the West's response to the Kremlin's stance in Ukraine. The New York-based MSCI index provider decided on Friday to keep offering the shares of Sberbank and VTB to clients as long as the two Russian state-held giants did not issue any more stock.
Sberbank shares rose more than four percent while those of VTB gained nearly three percent in late afternoon trading on Moscow's main exchange. The broader market followed the banks' lead higher and was up nearly two percent while the ruble gained about one percent against the euro and also edged up against the dollar. Russian investors said they now expected the other main exchanges in Europe to follow New York's lead and keep the two stocks.
"We believe that the risk of two of the heavyweight members of the MSCI Russia being excluded from the index was weighing on the broader Russian market last week, and that the news will therefore provide some relief to the market," VTB Group's investment house said in a research note. VTB noted that it may have a conflict of interest in the matter. The MSCI Russia index is global traders' preferred way to access a balanced portfolio of paper that reflects the price of the main Moscow-issued stocks.
The ordinary and preferred shares of Sberbank make up about 12 percent of the MSCI Russia index while those of VTB are weighed at just under three percent. MSCI was under pressure to drop the two finance houses as part of a sanctions package unleashed against Russia's financial and other sensitive sectors over the Kremlin's perceived backing of insurgents in eastern Ukraine.