MSCI Russia - November 2020 Rebalancing Preview

MSCI will release the results of the November semiannual rebalancing after markets close on November 10. The results take effect after the close on November 30. For Russia, the main events to watch for in this rebalancing are the entry of Mail.ru Group and departure of MMK. We also note a future risk for VTB. EM, FM and global investors are also watching the transition of Kuwait from FM to EM.> Mail.ru Group looks primed to join the indexes. Since the Moscow cross-listing debuted in July, it has easily blasted through liquidity requirements to join the indexes in this rebalancing. The market cap and free float are more than 40% and 50% above our forecast minimums for entry, respectively. We consider it highly likely that the Moscow listing will be admitted to the MSCI Russia with a weight of 1.7-1.8%, implying minimum passive inflow of more than $90-100 mln. Since we first flagged this possible inclusion early this year, we think it has become a consensus view, giving active investors plenty of time to decide how they want to trade the event. Risks to our view and other details are available inside the note.> MMK expected to depart. After continued underperformance versus the EM and Russian benchmark indexes, MMK's free-float-adjusted instrument market cap now comes 18-25% below the level required to remain in the index under our base case. The stock currently comprises 0.6% of the MSCI Russia, and we expect $30 mln in passive allocation to depart following exclusion from the indexes.> Monitoring VTB's exclusion risk in future rebalances. VTB is the smallest index constituent of the MSCI Russia after MMK, at a bit more than 0.7% of the index. During this November review's pricing period, the stock was trading from 2% below to 11% above our minimum threshold for exclusion. Although we do not expect it to depart the indexes this month, we note that underperforming in coming months could put it at risk of exclusion in a future index review.> Kuwait moving from FM to EM. After past delays, Kuwait will formally move from the FM to EM index family as part of this rebalancing. An EM index weight of 0.7% should spur reallocation into Kuwaiti stocks of more than $1 bln from passive funds tracking the MSCI indexes. This would imply some $30 mln being reallocated out of Russian stocks.