MSCI Russia - February Rebalancing Review

MSCI last night announced the results of the February rebalancing review, as scheduled. For Russia, the key event is the promotion of TCS from the small-cap index family to the standard indexes. Other relevant changes include a slight weight increase for Mail.ru Group. Russia's weight in the MSCI EM Standard remains around 2.9% after the rebalancing. MSCI used a market cap threshold of $4.6 bln for the Russia standard index in this rebalancing, at the lower end of our expected range. The changes for the global indexes are due to take effect after markets close on February 26.> TCS promoted to the standard family of indexes. We had noted previously (particularly in our preview) that TCS's promotion prospects would depend on which day MSCI chose to price the index rebalancing. The index provider used the first day of the cycle, January 15, when TCS was pricing more than 5% above our estimated minimum for promotion. TCS is set to enter the MSCI Russia Standard with a pro forma weight of 2.2% and the MSCI EM Standard with a pro forma weight of 0.06%. This should drive passive reallocation from MSCI EM trackers into the stock of some $110 mln, while the stock's allocation from MSCI EM IMI trackers will remain unchanged. This sum equates to 6.1 times the stock's Moscow 30d ADT and 3.0 times the combined Moscow and London ADTs.> Mail.ru Group share count increased, raising its Russia index weight circa 0.1 pp. Mail.ru Group's share count has been adjusted from 208.6 mln to 227.98 mln shares. (Details of the different count scenarios are in our November 2020 preview and review.) The decision raises the company's share of the MSCI Russia Standard some 0.1 pp to almost 1.3% pro forma. Minimum passive reallocation is likely to be $4-5 mln, equivalent to 0.3 times the Moscow ADT.> LSR Group addition looks contradictory. MSCI announced that LSR's Moscow listing would be added to the MSCI Russia and EM Small-Cap and IMI indexes, with a pro forma weight in the Russia IMI index of 0.22%. However, we are under the impression that the stock's London listing is already in the small-cap and IMI index families, and MSCI understandably only allows one listing per security. We are reaching out to MSCI for clarification. Inclusion of the Moscow listing would imply reallocation from passive EM IMI trackers of some $4 mln, equivalent to 4.1 times the Moscow listing's 30d ADT.> Other changes. Yandex's share count has been cut by 0.2%, a negligible sum. Russia makes up 2.89% of the pro forma MSCI EM Standard, up some 5 bps thanks primarily to the promotion of TCS. In total, MSCI announced a net expansion of the MSCI EM of some 1%, including 18 additions and six deletions. The MSCI ACWI's expansion is nearly identical. In the frontier class, Lebanon moves to standalone status as planned, while Iceland will be made eligible for the Frontier 100 and Frontier 15% Country Capped indexes in the May rebalancing.