FOCUS: Inclusion in MSCI Russia Index boosts Yandex, Russia’s invest status

By Yekaterina Yezhova

MOSCOW, Aug 24 (PRIME) -- Yandex hit an all-time high after confirmation of its inclusion into the MSCI Emerging Markets (EM) Index and the MSCI Russia Index from September, a move, which will not only boost the Internet company’s liquidity, but also entice foreigners into investing in Russia’s economy, analysts said.

“The MSCI Russia Index is important in the first place for foreign investors who are unready to spend time to study Yandex, but willing to invest in the country’s economy hoping for its growth or independence from other investment cases. They will invest in the index’s stocks,” company Finam analyst Leonid Delitsyn told PRIME.

MSCI, a provider of research-based indexes and analytics, released the results of the August 2020 Quarterly Index Review for the MSCI Equity Indexes, which showed that Yandex’s Class A ordinary shares will be included in the MSCI EM Index and MSCI Russia Index starting from September 1.

“The MSCI Russia Index’s purpose is to reflect the country’s economy represented on the stock market by liquid shares. The funds that are guided by the index will adjust their portfolios in accordance with its revision. For Russian investors, it means there will be extra demand for Yandex’s shares, which will propel its quotes and liquidity,” Delitsyn said.

Investment company Freedom Finance Valery Yemelyanov said that inclusion of the Internet company into the index “could be a powerful signal for non-resident investors that the Russian economy has taken the path of innovations and diversification.”

“Yandex A shares will be included into the MSCI Russia Standard Index with a weight of 8.1%, as a result of a 0.95 foreign inclusion factor (FIF) coefficient, and the stock will have a 0.27% weight in the MSCI EM Index, on a pro-forma basis, as of the close on August 12. We calculate that this will lead to passive flows of at least U.S. $880 million,” Alfa-Bank analyst John Walsh said in a research note.

He also said that Russia’s weight in the MSCI EM Index would rise to 3.4% from 3.2% as a result of inclusion of Yandex. Freedom Finance analyst Alexander Osin said Yandex’s weight in the MSCI EM Index will stand at 0.24%.

Otkritie Broker chief analyst Alexei Pavlov also expects Yandex’s weight in the MSCI Russia Index at 8.1%, which will result in an inflow of U.S. $1–$1.5 billion into the company’s stocks from passive funds. “It’s approximately equal to a two-week turnover of the company’s shares in New York and Moscow together,” he said.

Investment firm ITI Capital expects to see an active inflow of passive cash on August 31–September 1.

Delitsyn at Finam said the MSCI Russia Index will be still led by the country’s juggernauts – top lender Sberbank, gas giant Gazprom, and oil major Lukoil.

Yandex’s ordinary shares skyrocketed by 70.4% since the beginning of the year to 4,594.80 rubles on August 20 on the Moscow Exchange, and its American depositary receipts (ADRs) advanced by 46.3% to $63.63 on the Nasdaq.

ITI Capital expects the ordinary shares to trade at 5,000 rubles by September, while Osin at Freedom Finance thinks the stock will correct downwards to 2,978 rubles by the end of 2020.

Inclusion in the MSCI indexes will push the company’s stocks up, but Yandex is and will remain extremely “expensive” from the point of view of the comparative analysis of financial multipliers, Osin said.

“The loss in April–June propelled Yandex’s price earnings (PE) ratio to a very high of 149x. However, even if its annual profit amounts to 30 billion rubles, which is above average market expectations for the net profit…the PE ratio will stand at 49x, which is seven times higher than the Moscow Exchange’s stocks and 50% higher than those of the Nasdaq companies with much lower investment risks on the U.S. market,” the analyst said in a note.

“Yandex’s half year report does not point to shaping of ‘breakthrough’ growth points of its financial indicators able to boost the company’s incomes in the mid-term…We expect Yandex’s financial indicators to recover in the next two quarters at an average rate for the past three years as the broad global economy revival buds.”

Yandex’s securities will be still popular as short-term protective investment. Demand for the stocks traditionally rises when the global indicators of the required yield on investment falls, Osin also said.

(74.0999 rubles – U.S. $1)

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