 The MSCI EM roll is indicated rich to fair value; however, the roll hasn't really started to trade yet and may have a significant price adjustment to a clearing level once it becomes more active this week. The EM roll has exhibited cheapening trends in 6 of the past 7 quarters, and given a weakening in positioning metrics over the past quarter, we see no reason for it to break this trend in the upcoming roll. As such, we believe the EM roll is likely to cheapen into expiry and recommend rolling longs late/shorts early. MSCI announced last week that Russian companies will be removed from the Emerging Markets index on March 9th at effectively a zero price. This action should allow the EM roll to trade in a relatively orderly fashion (at least relative to the alternative).

 Dividend risk is extremely high and will likely be the main driver of the MSCI EAFE roll, due to seasonal dividend concentration, perceptions of high dividend cancellation risk in Europe because of the Russia/Ukraine crisis, and aggressive position unwinds in European implied dividends. Given the fluid nature of the crisis, it is difficult to take a view on whether a re-pricing of this dividend risk will occur during the roll. We expect the EAFE roll will reflect a large dividend haircut when it begins trading. If so, from a risk/reward standpoint, short rollers should consider rolling early to lock in the dividend discount. Meanwhile, long rollers may wish to wait for further clarity before trading their positions, and if the dividend haircut continues to grow, consider switching from the futures to a total return swap or ETF to receive full passthrough of dividends for the next quarter.

 For other liquid regional MSCI Mar-22/Jun-22 futures rolls: The MSCI Europe roll currently trades at a modest discount, but the roll hasn’t started to trade and bid-offer is very wide, so it will likely have a sizeable price adjustment to a tradeable level once the roll becomes active. Into expiry, we think the risk is skewed to a further cheapening of the roll given weak positioning (note the contract is a net TR future, so it is little impacted by the dividend dynamics that are hitting the price return European and EAFE futures).

The MSCI EM Asia roll is trading at a discount. The roll of the regional contract displays a similar trend as country index futures in Asia ex-Japan. Into expiry, the roll could potentially further cheapen due to foreign outflows. The MSCI World contract is rolling at a discount. Into expiry, the calendar roll will likely continue to trade at discounted levels, with risks biased towards further cheapening from current levels, considering the current risk-off environment.

 Among liquid country MSCI contracts, the Singapore and China A-shares contracts rolled at relatively large discounts in February; while the Taiwan roll traded at a premium. In the broader region, the monthly rolls mostly traded at discount to fair value in February 2022. This is mainly due to geopolitical tensions and hawkish central banks taking a toll on Asia equity sentiment.