Page 73 - RusRPTDec18

8.3 Stock market
8.3.1 Equity market dynamics
MSCI has released the results of the November semiannual rebalancing: Polymetal in, RusHydro out. Changes come into effect after the close on November 30. For Russia, the two major changes are the introduction of Polymetal and exclusion of RusHydro. Meanwhile, Russia's weight in the MSCI EM will be almost unaffected by the rebalancing at a pro forma 3.85%. Polymetal to be included. POLY RX will join the MSCI Russia and MSCI EM. We discussed the range of possibilities for how MSCI may treat Polymetal's free float in our preview, and in the end MSCI went at the far low end with a free-float coefficient of 0.40. The stock's pro forma weight in the MSCI Russia will be 0.90%, implying minimum mandatory passive inflow of $30mn. This is 9.9 times POLY RX's 30d ADT and 1.6 times the company's total ADT. RusHydro to exit. RusHydro currently has a weight of around 0.47% in the indexes, and its departure should trigger minimum mandatory passive outflow of $16mn, equivalent to 2.8 times its 30d ADT. No other exclusions were announced. Other notable Russia changes: Retailers, OGK-2. Both Magnit and X5 Retail Group will be demoted from the MSCI Russia Large-Cap to the MSCI Russia Mid-Cap index, but as these two indexes together comprise the MSCI Russia Standard that is commonly used in benchmarking, we see no market implications from the change. Also, OGK-2 will be deleted from the MSCI Russia Small-Cap Index, which we see as immaterial for the stock. MSCI's key market cap threshold for Russia in this rebalancing came in at $3.0bn, a 17% reduction since May and in line with expectations.
8.3.2 Equity market oil benchmark
About two thirds of the capitalization of Russia’s stock market is made up of oil and gas names and in the past the market’s performance has been closely tied to the price of oil. The rule of thumb is the RTS index should be simply the pirce of oil x20.
With oil prices averaging around $75 in the second quarter of this year, the bto the rule of thumb the RTS is undervalued by over 400 points as of August – the biggest gap it has displayed for at least two years.
At the time of writing the RTS was 1,085 and oil prices are averaging $77.1, which means the implied RTS value should be 1,541.
The rule of thumb suggests the RTS is currently 400 points undervalued -- its most undervalued for at least three years.
73 RUSSIA Country Report December 2018 www.intellinews.com