MSCI makes sweeping changes in latest index rebalances following coronavirus turmoil

MSCI’s semi-annual index review has seen a dramatic increase in the number of changes to its equity indices following the volatility seen across markets during the coronavirus turmoil.

MSCI was one of the few index providers to go ahead with its scheduled rebalances as many decided to postpone until later in the year as a result of the market volatility.

The MSCI ACWI Small index saw the biggest increase in changes from last year with 442 additions and 544 deletions from its 5,910 constituents in May versus just 344 additions and 195 deletions in 2019.

There was also a dramatic rise in deletions from the firm’s flagship index, the MSCI ACWI Investable Market, which saw 536 stocks removed from the 8,954-strong index compared to 170 in May 2019.

It was a similar story for the MSCI ACWI which removed 181 securities from the index versus just 41 last May.

Airliners

In particular, a significant volume of travel companies downgraded from its standard indices into small cap categories.

The standard MSCI United Kingdom index will have nine companies removed at the next rebalance including travel companies EasyJet, Tui and Carnival.

The three stocks have seen their share prices fall 64.6%, 73.3% and 74.3% year-to-date, respectively, as countries limited the amount of international travelling in recent months due to the coronavirus outbreak.

As a result, the three travel companies have been downgraded to the MSCI United Kingdom Small Cap index in the replacement of several energy and clothing companies.

A total of 28 companies are set to be removed from the small cap index including energy companies Gulf Keystone Petroleum, Pharos Energy and Premier Oil as well as retail companies Superdry and Ted Baker.

Similar changes are to be made to the standard global indices for the USA and China which are receiving the most changes.

The MSCI USA index and the MSCI China index are expected to have 23 and 56 securities removed and 41 and 45 securities added, respectively.

Index rebalance delays: What this means for the market

Notably, the MSCI USA index will see travel companies such as American Airlines, Norwegian Cruise Line and United Airlines removed as well as retail brands such as Under Armour and Gap.

In their replacement will be communication platforms Slack and Zoom which have grown in usage as companies require to communicate while working remotely.

MSCI plans to complete the rebalances at the close of 29 May despite other index providers remaining hesitant to rebalance as a result of the volatile periods seen in the first few months of 2020.

In a recent report, MSCI said reviewing indices during volatile periods requires a balance of timely reconstitution of securities to reflect the changes in equity markets with limiting index turnover to better support index stability and trading cost efficiency.

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