BlackRock Blocks New Cash From MSCI Russia ETF After Plunge

(Bloomberg) -- BlackRock Inc. suspended the creation of new shares in an exchange-traded fund tracking Russian stocks, one of a slew of issuers across Wall Street effectively halting inflows into products lashed by the fallout from the war in Ukraine.

The creation of shares -- the process by which new cash enters an ETF -- in the $105 million iShares MSCI Russia ETF (ticker ERUS) is “temporarily suspended” until further notice, the world's biggest asset manager said in a press statement on Tuesday. Buying and selling of shares will still be available on the secondary market, it said.

“It's essentially a closed-end fund now,” said Athanasios Psarofagis, a Bloomberg Intelligence ETF analyst. “The silver lining is that it's still trading so clients could still get money out, but at a more uncertain price.”

BlackRock's move follows Monday's announcement by Direxion Shares ETF Trust that the only leveraged Russia ETF is to be liquidated. Also on Tuesday, DWS Investment said it was halting both the issue and redemption of shares in the London-listed Xtrackers MSCI Russia Capped Swap UCITS ETF (XMRC), which has about $50 million in assets. Franklin Templeton said creations in the Franklin FTSE Russia ETF (FLRU) are suspended until further notice.

Money managers of all stripes are racing to get to grips with the blizzard of sanctions placed on Russia in response to President Vladimir Putin's invasion of Ukraine. The Moscow stock exchange was closed for a second day on Tuesday as Russia reels from the measures, with some saying the country has become “uninvestable.”

Foreign-listed shares of Russian companies have plunged. ERUS has dropped over 50% in the past week.

In its statement BlackRock said the liquidity of Russian securities and the nation's currency had “experienced significant declines” following the sanctions, subsequent market closures and Russia's own capital controls. The firm cautioned that ERUS may no longer meet its investment objectives and may experience tracking error and significant distortions in its valuation compared to its assets.

Late on Monday Direxion announced it was closing the Direxion Daily Russia Bull 2X Shares ETF (RUSL) after suspending share creations last week. The same day, HSBC said it was declaring a “non-dealing day” for the HSBC MSCI Russia Capped UCITS ETF (HRUB).

ERUS, which had assets of as much as $566 million in the middle of February, tracks the MSCI Russia 25/50 Index. MSCI Inc. has said it is closely monitoring accessibility and investability of Russian equities and is seeking feedback from market participants on the appropriate treatment of the market. A possible decision to reclassify its Russia indexes could result in billions of dollars flowing out of the nation's stock market.

“I don't think a full-out closure is completely off the table if MSCI decides to reject all Russian securities eventually,” Psarofagis at BI said of ERUS.