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MSCI February 2018 QIR playbook: Expect marginal rebalance with USD71mn net inflows into MENA; but notable changes in Egypt

Launching our MSCI rebalancing playbook. This note is the first of our MSCI rebalancing playbook, tracking all MENA countries with MSCI members, whether part of the Investable Market Indexes (IMI) index, or the standard index. MSCI is due to announce results of its upcoming February 2018 Quarterly Index Rebalance (QIR), on 12 February, with any index changes to come into effect starting 1 March. The most prominent changes we see are in Egypt, positively affecting HRHO EY [Overweight | TP EGP27.5], EAST EY [Neutral | TP EGP352], and ABUK EY [Overweight | TP EGP23.6].

Expect 7 potential additions with cUSD132mn inflows. For the upcoming QIR, we look for 7 additions across 3 markets; EAST EY and UPP UH to MSCI EM Index, ABUK EY, HRHO EY and DFM UH to MSCI EM IMI Index, BJAZ AB [Overweight | TP SAR15.5] to MSCI Saudi Arabia Standalone index, and BATIC AB to MSCI Saudi Arabia Standalone IMI index. We estimate USD132.4mn of total inflows from the potential additions, with EAST EY positioned as the biggest beneficiary based on absolute flows (USD50.6mn) equivalent to 36.6 trading days based on 6M ADTV. ABUK EY is the biggest beneficiary based on inflows relative to number of trading days; USD40.1mn of estimated inflows, equivalent to 56 trading days.

Five impending deletions across 4 markets, with cUSD61mn in outflows. HRHO EY falls short of the criteria for MSCI Egypt, but is likely to be added to MSCI IMI, eliminating selling pressure on the stock, with USD2.8mn of net inflows (1.1 trading days). We foresee the deletion of MRDS QD and BJAZ AB from MSCI EM IMI Index and MSCI Saudi Arabia Standalone IMI index, respectively, and the exclusion of BNA TU and CC TU from MSCI FM IMI Index. We estimate total outflows from the deletions to amount to USD61.4mn, implying net inflows of USD71mn into respective MENA markets. The net effect of BJAZ AB being upgraded to MSCI Saudi Arabia’s standalone universe from IMI is estimated outflows of cUSD35mn, but thanks to high liquidity on the stock, this should clear over c5 trading days.

Increase in number of companies for several indexes. Triggering our call that this upcoming review will see an increase in constituents is that, as of January 2018, MSCI has targeted a higher number of companies than the current constituents for: MSCI Egypt IMI Index (18 from 16), MSCI UAE Index (12 from 11), and MSCI UAE IMI Index (25 from 24). While MSCI has a target of 4 for MSCI Egypt Index, only 3 stocks qualify in this QIR.