EUR 38.44 For Business Accounts Only

MSCI February 2019 QIR playbook: Minor changes in upcoming QIR; More actions likely in May SAIR

Look for 1 potential deletion across coverage in February QIR. We expect minimal action in the February 2019 QIR rebalance, as a 1.8x size requirement is applied on potential candidates across the market cap, and free float is applied with no size checks for current members. This is unlike the SAIR rebalances, where there is a 1x size check for both members and potential candidates. In Kuwait, NRE KK (National Real Estate Company) fails the liquidity requirement, standing at 4.4% in 4Q18, 0.5% in 2Q18, and 3.0% in 1Q18 vs. the required 5.0%. Accordingly, we expect its exclusion out of the Kuwait Small Cap index in this QIR. In Egypt, EKHO EY [Overweight | TP USD1.45] currently passes all requirements in terms of liquidity and size, which has been the case for the past 3 rebalances, but inclusion never materialised. Consequently, we assign a small probability for an inclusion in the Egypt Small Cap index in the February QIR.

Highlight 4 possible changes in May rebalance the UAE, Qatar, and Kuwait. Based on current prices, DAMAC UH [Overweight l TP AED2.40] (USD-2.8mn, 6 DTT) could exit the UAE Standard index in the May 2019 rebalance, as its FFMC falls 23.3% below the current required cut-off. MPHC QD (USD+8.8mn, 8 DTT) in Qatar is a possible inclusion in the Standard index, passing both the size and liquidity criteria. BURG KK (-USD8.2mn, 10 DTT) fails FFMC requirements by 10%, putting the stock at risk of deletion in the next May 2019 SAIR. SHIP KK (USD1.3mn, 3 DTT) is a potential candidate for the Kuwait Small Cap index in May 2019, as it passes the size criteria and liquidity requirement.

NBK KK and KFH KK could be largest beneficiaries post Kuwait removal of 49% FOL. On 15 December, the Ministry of Trade and Industry lifted the 49% FOL, allowing foreign investors to own up to 100% in banks. We expect NBK KK to witness flows of cUSD408mn (44 DTT), while KFH could witness flows of cUSD158mn (56 DTT).

Egypt trades at cheapest valuation among peers, while Saudi Arabia premium is justified. Egypt currently trades at 2019e P/E of 8.42x (against 2019e EPS growth of 21%) at a 34% discount to MENA average. As for Saudi Arabia, it currently trades at 2019e P/E of 14.2x (against 2019e EPS growth of 16.4%), an average premium of 30% to average MENA markets. Such premium is justified, as the awaited upgrade to EM status approaches (May-19), potentially resulting in an estimated USD11bn of passive inflows.