MSCI Russia - November Rebalancing Review

MSCI has released the results of the November rebalancing. The MSCI Russia Standard Index will see one inclusion, Mail.ru Group, and one exclusion, MMK. The small-cap index will see the addition of Rusagro. MSCI used a general market cap threshold of $3.8 bln in this rebalancing, at the lower end of our expected range. The changes will take effect after global markets close on November 30.> Mail.ru Group included, though at a lower weight than forecast. Mail.ru Group joins the indexes, but MSCI appears to have used the share count from prior to the September placement, 208.6 mln shares rather than 227.9 mln. The index provider also assigned a free float of 50%. As a result, the company takes up 1.5% of the pro forma MSCI Russia rather than the 1.7-1.8% we had thought most likely. Mail.ru Group's weight in the pro MSCI EM will be 0.04%. Some $100 mln in passive money tracking MSCI indexes will likely move into the stock via the Moscow ticker. This equates to 6.4 times the Moscow 30-day ADT and 4.1 times the combined Moscow and London ADTs.> MMK will depart as expected. MMK will exit the indexes. The company currently comprises less than 0.6% of the MSCI Russia, and we would expect minimum mandatory passive outflow of some $30 mln, or 2.7 times the company's 30-day ADT.> Watching VTB's exclusion risk in future. As of MSCI's October 19 pricing date for this review, VTB's free-float-adjusted instrument market cap was 4% above the exclusion line. Hence, the stock may be at risk of exclusion in a subsequent, likely semiannual, review. We discussed the situation in more detail in our November preview.> Other Russia changes. MSCI also expanded Polymetal's and Yandex's share counts by less than 0.01% apiece. Rusagro will join the MSCI Russia Small-Cap and EM Small-Cap indexes. Its 0.2% weight in the Russia index should lead to passive funds reallocating more than $3 mln into the stock, equivalent to more than five times the 30-day ADT.> Kuwait moves from FM to EM. Kuwaiti stocks will transition to the EM benchmark as part of this rebalancing. The country will take a pro forma weight of 0.6% in the index, spurring reallocation into seven Kuwaiti stocks from passive trackers of more than $1 bln. The event will have only a negligible impact on Russian assets, including passive reallocation out of Russia of some $30 mln.> Other EM changes. China will see 56 additions and 49 deletions from the MSCI EM, reducing its indexed market cap by 2.5%. The EM benchmark will see 38 new stocks and 29 departures outside China, including 12 new Indian stocks and the Kuwait additions.