Page 97 - RusRPTMar19

to 4.66%), independent gas producer Novatek (NVTK) (+37bp to 4.66%), supermarket chain X5 Retail Group (FIVE) (+33bp to 4.66%) and diamond producer Alrosa (ALRS) (+33bp to 4.66%).
As for weight decreases, gold miners Polyus Gold (PLZL) (-44bp to 3.21%) and Polymetal (POLY) (-39bp to 3.01%), as well as steel mill Novolipetsk Metallurgical Kombinat (NLMK) (-38bp to 4.10%), the Moscow Exchange (MOEX) (-37bp to 2.71%), utility company Inter RAO (IRAO) (-36bp to 2.63%), fertiliser producer Phosagro (PHOR) (- 31bp to 2.25%) and supermarket chain Magnit (MAGN) (-29bp to 2.12%) took the biggest cuts.
“Although SBER (+15bp to 6.91%) is a top two stock in the MSCI Russia index, its weight in the 10/40 index remains far below the 9% level as a result of the MSCI’s sanctions treatment,” Ilya Piterskiy of VTBC said in a note. “As far as we are aware, the index is not followed by any passive money. Instead, it serves as a benchmark for actively-managed European Russia-dedicated funds, with an estimated AuM of $4.7bn. Following the rebalancing, the funds might find themselves underweight the stocks whose weights were increased and vice-versa.”
Two companies belonging to Russian oligarch and Kremlin insider Oleg Deripaska, the aluminium producer Rusal and energy holding EN+ are eligible for inclusion in the benchmark MSCI Russia index after the US Treasury Department (USTD) decided to drop the sanctions on the companies completely in December 2018, BCS Global Markets reported on February 12. Inclusion in the widely followed index usually leads to an increase in the share price of the company as index tracking funds are forced to passively invest in the name to include it in their portfolio. The next adjustment to the MSCI index is due in May. However, the companies need to meet certain criteria before they can be included and while it is likely that Rusal will meet these criteria it is much less likely for EN+, says BCS. “Inclusion of Rusal into the MSCI indexes at May SAIR is very possible, as the stock would need to rise by 9-17%, while liquidity threshold is relatively easy $1.1mn a day. Inclusion of EN+ is unrealistic, as the stock would need to appreciate by more than 50% by mid- April,” Slava Smolyaninov, chief strategist and deputy head of research at BSC said in a note. The US Department of the Treasury's OFAC removed EN+ Group, United Company RUSAL, and EuroSibEnergo from its US Specially Designated Nationals And Blocked Persons List (SDN List). “As we initially noted almost exactly one year ago, the liquidity criteria is an easier one as its liquidity on the Moscow Exchange would need to exceed $1.1mn on a median basis in February and March, which is more than realistic, in our view. There are two possible treatments of Rusal liquidity by MSCI given the OFAC sanctions removal – either 1M ATVR based solely on March liquidity or the proper 3M and 12M assessment, and in either case trading just north of $1mn would suffice,” Smolyaninov said. “If Rusal was included today at a minimum necessary FIF-adjusted market cap just below $1.5bn, it would get a 0.74% weight with $59mn expected inflows from ETF funds. This translates into 7.4x of days of trading to cover given the $8mn 3M ADTV of combined liquidity of Moscow and Hong Kong lines. However, liquidity will likely improve further in the coming months given the SDN-delisting,” Smolyaninov added. “EN+ needs to rise by 59-72%, which is unrealistic. While liquidity of the Moscow line of the EN+ receipts would need to increase to c$1.4bn a day, which is undemanding given the volumes post-sanctions removal, it would need to appreciate by 59- 72% in value to meet the minimum requirements on FIF-adjusted market cap by mid-April, an unrealistic scenario, even if it is assigned the minimum 0.2 FIF,” Smolyaninov concluded.
97 RUSSIA Country Report March 2019 www.intellinews.com