MSCI Russia - Looking Beyond Tonight's Quarterly Rebalancing

MSCI will release the results of the August quarterly rebalancing after markets close tonight. The rebalancing comes into effect after markets close on Tuesday, August 31. We expect MSCI to use a market cap threshold of $4.3-4.5 bln for Russia. This implies no companies enter or exit the MSCI Russia Standard Index, and we do not anticipate other material changes to the index at this time. Meanwhile, in this note we look ahead to some potential changes for November and beyond. The scenarios are subject to change as always - MSCI threshold requirements move daily, and methodology changes can also alter the outlook for the MSCI Russia Standard.> Coveted #4 spot in the MSCI Russia 10-40 is being contested. Current holder Nornickel is only 0.2% ahead of Novatek in the Standard index at present. Yandex remains in contention, albeit more distantly, currently 3% behind Novatek. While the Standard index rebalancing decisions will be released tonight, that for the 10-40 will be priced and announced likely after the close on August 19.> Quarterly rebalancings to be switched to semiannual ruleset. MSCI recently announced that it plans to change the format of the February and August reviews to follow rules similar to May's and November's. Though details have not been announced, the rule change will likely make inclusions and exclusions more likely in February and August.> Prospects for later entry by stocks closest to the floating cap threshold. Rusal is currently closest to our estimates for entry requirements, but its case could change between now and the November rebalancing's pricing period in late October. PIK Group and MMK are next closest, requiring price growth of 2-12% at current threshold estimates. Recently placed Fix Price is more distant (9-15%), and also seems to face an uphill struggle to meet liquidity requirements. On the exclusions side, even the smallest constituent appears to have a comfortable 30% gap from our harshest potential exclusion threshold.> Coming global changes to EM benchmark hold little consequence for Russia. Argentina is to be excluded from EMs in November, and MSCI will decide whether to exclude Pakistan in September. These two countries' markets now constitute only 0.02-0.15% of the MSCI EM, and their departure would have a negligible effect on Russia. MSCI also issued a warning about the accessibility of Turkey and several other markets, but no immediate action is under consideration. Meanwhile, we see multiple reasons to think MSCI will not return to discussions of expanding eligibility for China in the foreseeable term.