MSCI Russia - November 2021 Rebalancing Preview

MSCI will release the results of the November semiannual rebalancing after markets close tomorrow, November 11. The rebalancing comes into effect after markets close on Tuesday, November 30. In this rebalancing, we expect MSCI to use a baseline market cap threshold for Russia of $4.5-4.7 bln. We also expect Rusal to be included in the MSCI Russia Standard Index, while below we discuss the very low but non-zero probabilities for entry for PIK Group and MMK. We anticipate no exclusions. In the MSCI Russia 10-40, Yandex looks likely to push Novatek out of the coveted heavyweight spot. Meanwhile, the exclusions from the MSCI EM of Argentina and Pakistan will have no material effect on the Russian market, while we also review the limited guidance provided by MSCI on forthcoming methodology changes.> Rusal highly likely to enter in November. We reconfirm our view that Rusal is poised to enter the indexes in this rebalancing, with the only, slight risk being the possibility that MSCI would judge the float well below that disclosed by the company. Entry to the MSCI Russia Standard on a 20% free-float coefficient would imply a 1.0% weight in the MSCI Russia and reallocation of some $124 mln from passive funds tracking the MSCI EM and derivatives.> PIK Group and MMK look highly unlikely to enter now, largely depending on unlikely, discretionary decisions by MSCI to include recent SPOs into free float calculations. Both stocks saw SPOs in recent months that would likely lead MSCI to increase its float coefficients in time from 20% to 25%, but MSCI methodology implies that the index provider is much more likely to revise its internal float estimates only as part of the May annual review of free float. Were the odds to be beaten and PIK to enter the index now, it would likely come in with a weight in the MSCI Russia of 0.7-0.8% and passive reallocation from MSCI EM trackers of $85-106 mln. MMK would see a 0.8% weight and $100 mln allocation. The low-probability scenarios for a November entry are discussed below.> Coveted fourth spot in MSCI Russia 10-40 contested by Yandex. Yandex is currently the fourth highest weighted stock in the MSCI Russia Standard and 12% ahead of Novatek. When the 10-40 rebalancing is repriced (likely after the November 18 close), the fourth largest constituent in the standard index on that date will be poised to take over the heavyweight spot in the 10-40 index currently held by the gas producer.