Russia's Delayed Reentry: JPMorgan Predicts MSCI Index Return After 2027

The geopolitical landscape continues to shape global financial markets, with Russia's potential reentry into the msci global equity indexes being a hot topic. jpmorgan analysts have recently weighed in, predicting that Russia is unlikely to rejoin these indexes until after 2027. This forecast comes as a stark contrast to the more optimistic scenario of a two-year reentry process, which was initially expected to start in June 2025.

The exclusion of Russian stocks from the MSCI equity indexes, which occurred in early March 2022, has had profound impacts on global market dynamics. This move was a direct response to Moscow's invasion of Ukraine and has led to significant changes in the investment landscape. At the start of 2022, Russia accounted for just under 4% of the MSCI Emerging Markets Index. Its exclusion has reduced the index's exposure to Russian assets, which had been steadily declining since the 2008 global financial crisis. As a result, the weight of other emerging markets, such as China, Taiwan, and India, has increased, pushing Russia and Brazil toward the rear of the pack in terms of market significance.



The reclassification of Russian indexes from emerging markets to standalone markets status, as announced by MSCI, indicates that the Russian equity market is currently uninvestable for many global-market participants. This reclassification was confirmed by a majority of global-market participants, who agreed that the Russian equity market is currently uninvestable. This decision has further limited investment opportunities in Russian assets and prompted investors to seek out other emerging markets for growth potential.

The potential implications for investors who had previously held positions in Russian assets are multifaceted. On one hand, the exclusion from MSCI indexes has made Russian stocks less accessible to many global investors, potentially leading to a decrease in liquidity and higher volatility in the Russian market. On the other hand, the reclassification of Russian indexes from emerging markets to standalone markets status, as announced by MSCI, indicates that the Russian equity market is currently uninvestable for many global-market participants. This reclassification could further limit investment opportunities in Russian assets and prompt investors to seek out other emerging markets for growth potential.

The Russia-Ukraine conflict has had significant and multifaceted impacts on European equity markets. Initially, the conflict led to a sharp decline in European equity markets due to the region's proximity to the war and its heavy reliance on Russian energy supplies. For instance, countries like Hungary, Poland, and Germany, which are geographically close to the conflict zone and dependent on Russian gas, experienced high negative returns. The U.K., despite being hit hard by energy-price inflation, managed a strong finish to the year.

However, European equity markets have shown resilience and managed to recover more quickly than anticipated. Several factors contributed to this recovery. Firstly, Europe was able to reduce its dependency on Russian gas by securing alternative supplies of liquefied natural gas (LNG) from the U.S. Additionally, a warmer-than-usual winter led to less depletion of reserves than expected. The marginal expansion of business activity, slower and smaller-than-expected central-bank rate hikes, and China’s lifting of COVID-19 restrictions also played a role in the recovery.

Industry and factor rotations further aided Europe's recovery. Industries in the energy sector, as well as banks and airlines, benefited from investor rotation and emerged as winners. This trend helped European equities in general, and U.K. equities in particular, given their high exposure to the financial sector. In contrast, sectors like real estate, technology hardware and equipment, peripherals, and telecommunications services did not fare as well.

Despite the ongoing geopolitical tensions, European equity markets have managed to recover and even outperform other regions. For example, European equity markets ended up 2% in local currency over the one-year period from January 31, 2022, to January 31, 2023. This recovery was driven by a swift turnaround in the fourth quarter of 2022, when Europe outperformed the U.S. and emerging markets.

In conclusion, the exclusion of Russian stocks from MSCI equity indexes has had significant impacts on global market dynamics, leading to a reallocation of investments and increased volatility. Investors who had previously held positions in Russian assets face potential challenges in finding alternative investment opportunities and navigating the current geopolitical landscape. The Russia-Ukraine conflict has had significant and multifaceted impacts on European equity markets, but these markets have shown resilience and managed to recover more quickly than anticipated. The future of Russian stocks in global indexes remains uncertain, but the current geopolitical situation and the discretion of MSCI will play a crucial role in determining the timeline for reentry.