On Sunday, MSCI released a schedule and a methodology guide for its planned general changes in its Standard indices, namely (i) adjusting index weights for the free float, and (ii) increasing target coverage in each market from 60% to 85% (of the free-float-adjusted total market capitalization). Importantly, the changes will be phased in gradually: as of November 30, 2001, approximately half of the change resulting from the free-float-adjustment will be implemented, including all the new index constituents that will be added as a result of the increased target coverage. The remaining half will be implemented as of May 31, 2002. However, the MSCI will release as early as on June 30, 2001 (or before) index constituents and their inclusion factors (i.e. the adjusted weights), and MSCI will start publishing provisional index series based on the new methodology shortly thereafter.
MSCI defines “free float” as “the proportion of share capital that is deemed available for purchase in the public equity markets by international investors”, and will generally determine the free float by type of investor. Strategic investors (whose stakes will be excluded from the free float), include governments, corporations, management and Employee Stock Ownership Plans holders (and typically banks, though these are given a special treatment). On the other hand, shares held by individuals, investment funds, pension funds, venture capital funds, etc. will generally count toward free float. For more details, see the MSCI announcements and the press release at www.msci.com.
Czech stocks’ free float is below-average (relative to regional and emerging-market peers), and their weight in various indices will likely suffer as a result of the free-float adjustment. As for the relative weights of individual stocks, Cesky Telecom could suffer most (its free float is only 15%), while the banks could benefit (relative to other Czech stocks), since their free float is higher (40% in case of KB, 42% in case of CS). CEZ has 33% free float, Unipetrol 38%, Tabak 20%. The raising of target coverage from 60% to 85% may lead to introduction of Ceske radiokomunikace (and perhaps other, less important stocks) to some of the indices, particularly considering that IPS (included now) is set to be delisted from the stock exchange. Ceske radiokomunikace free float is 28%.
(Ondřej Daťka)