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MSCI November 2018 SAIR playbook: Possible changes in Qatar and UAE; Egypt IPO programme a potential trigger for new additions

2 possible additions and 5 deletions across coverage. Our expectation for the rebalancing results is based on current market levels (1 month ahead of the cut-off date). We note that the final outcome is yet to be confirmed, as the November 2018 Semi Annual Index Review (SAIR) will be based on the market cap cut-off on one of the last 10 business days of October, as per MSCI methodology. Our exercise implies potential net inflows of USD50.8mn following the review, due on 13 November. Qatar could be the biggest beneficiary, with estimated inflows of USD52.44mn, followed by the UAE, with expected net inflows of USD1mn. Egypt could witness 1 deletion (MFPC EY) from the Small Cap index. We expect 1 deletion out of the Saudi Arabia Standard index and no changes in Kuwait markets.

QFLS QD and UPP UH strongest candidates for inclusion, DHBK QD and WAHA UH for deletion. Companies are required to meet 1.0x FMC and FFMC in the SAIR vs. 1.8x in the QIR rebalances, making stock inclusions easier. QFLS QD currently meets both size and liquidity criteria to be added to the Standard index. We highlighted the stock as a potential inclusion in our August QIR 2018 review. QFLS QD’s possible inclusion could trigger inflows of cUSD57.7mn (28 DTT). UPP UH could also join the UAE Small Cap index (+USD4.13mn, 3 DTT). Meanwhile, DHBK QD is a strong candidate to exit the MSCI Standard index, as it fails to meet both the FMC and FFMC cut-offs, and hence could witness outflows of USD5.24mn (4 DTT).

Monitor Egypt IPO programme, potentially higher inflows. We expect no changes in Egypt’s Standard index by virtue of the continuity rule (EAST EY and SWDY EY). The government’s IPO programme will likely trigger higher weights of existing members (EAST EY, HELI EY, and AMOC EY) within their respective indexes, and support possible inclusions of ABUK EY and ALCN EY in 2019. As per our calculations, the potential sale of 30% stake in ABUK EY will likely make the stock eligible for inclusion in the Standard index, subject its compliance with the liquidity threshold at the time of the rebalance.

MSCI EM China A-shares to go up to 20%. The MSCI has commenced a consultation process on quadrupling the inclusion factor for China A-shares to 20% from 5% over 1 year. This should have further impact on our coverage, but would still be contained, in our view. In terms of performance, the absence of any triggers for MENA markets in 3Q18 took its toll on MENA* (-3.5%), mimicking that of the MSCI EM’s (-3.6%) performance, in line with our expectation. Further deterioration in EMs (mainly Turkey and Argentina) is a key watch factor for the outlook of our coverage markets.

*MENA is a FFMC weighted average return for our coverage markets.