MSCI Russia - February 2022 Rebalancing Preview

MSCI is set to release the results of the February 2022 quarterly rebalancing after markets close today, February 9. We expect the index provider to set a baseline market cap threshold for Russia of $3.5-3.6 bln, which would imply no inclusions or exclusions at this time. All changes will come into effect after global closes on February 28.> VK and Ozon look fairly safe for this rebalancing but at high risk in May. The smallest MSCI Russia constituents, VK and Ozon, traded 5-34% above our exclusion threshold estimates in MSCI's pricing period for this rebalancing, and hence we see a very low possibility of an exclusion at this time. However, had semiannual rebalancing rules been applied, as they will be in May, the stocks would have needed to grow 6-26% (depending on the date) to remain in the indexes. The fall in VK's overall market cap suggests MSCI could either exclude the stock or downgrade it to small cap in May, depending on how the final numbers work out. Either stock's exclusion from the headline index would trigger $35-45 mln in outflow from passive funds tracking the MSCI EM, Russia or subindexes. > Novatek likely to replace Yandex in the heavyweight band of the 10-40 index. Yandex had taken over the coveted fourth spot in the MSCI Russia 10-40 in the November rebalancing. (The fourth spot is the last in the heavyweight band, whereas the fifth spot has a 4.5% weight limit.) However, Yandex has sharply underperformed nearest 10-40 competitors Novatek and Nornickel since then. As Novatek is now circa 7.4% of the main index versus 7.1% for Nornickel and 5.4% for Yandex, the gas producer looks highly likely to retake the position when the 10-40 rebalancing is decided (likely after the close on February 16). The 10-40 index is not tracked by passive funds, and thus resultant flows are based on active fund managers' individual decisions and thereby unpredictable but significant. > MMK and PIK Group look like strong contenders for entry to the MSCI Russia Standard Index in May. If we assume that MSCI will assign both stocks 0.25 free-float coefficients after their secondary placements late last year, the stocks would be currently trading 11-23% above the levels we consider necessary to enter the index in May. (As a reminder, index thresholds move daily.) We discussed the details of the float estimates and their consequences in our November preview.> Rule change still pending. MSCI previously announced it would move quarterly rebalancings to the semiannual rule set. We will be looking for any clarifications. We discussed implications in our November preview.