MSCI Russia - May 2020 Rebalancing Preview

MSCI will release the results of the May semiannual rebalancing after markets close on Tuesday, May 12. The results will take effect after global markets close on May 29. Below we reiterate, update and expand our expected changes for this rebalancing.> Transneft looks set to exit. After two years of quarterly rebalancing discussions about how close Transneft is to an exclusion threshold, the stock now appears due to depart after failing in 18 of 20 reviewed sample cases to maintain the necessary free-float-adjusted market cap.> TCS unlikely to join the indexes for now. After underperformance in recent months, we no longer expect the stock to enter MSCI in May. On the bright side, the Moscow cross-listing is generating adequate liquidity for inclusion, and hence the stock will be on our watch list in future rebalancings if it outperforms peers.> Reiterating and revising likely float and weight changes. May's rebalancing also encompasses MSCI's annual review of global free float. We update five expected changes published over the course of the past year: Gazprom, Polyus, Polymetal, MTS and Moscow Exchange. > Yandex appears due to enter in August. Yandex's liquidity already meets MSCI requirements for three consecutive quarters, on our estimates, and we see no reason to think 2Q20 will be different. We update our view on the company's prospects, now expecting it to enter the indexes in August. Current pricing would suggest a weight in the MSCI Russia of roughly 6.3%.> Eyes on Etalon for the small-cap index. Though outside our index coverage, we note a chance that Etalon will enter the MSCI Russia and EM Small-Cap indexes after launching a Moscow cross-listing in February. > Other MSCI housekeeping. Wrapping up with other index developments relevant to EM/FM investors, we note that Kuwait's upgrade to EM is now delayed to December, Argentina will be reviewed for expulsion from EM and Iceland for inclusion in FM in June, and MSCI has announced a number of other FM changes for May due to market difficulties amid the Covid-19 crisis. These events are minimally relevant to Russia investments.