Bloomberg News

Russia’s Micex Index Drops Most in 2 Weeks as Europe Hopes Fade

October 17, 2011

Oct. 17 (Bloomberg) -- Russian stocks sank the most in almost two weeks, paring last week’s gains as declining confidence that a solution will be found to Europe’s debt crisis pushed down commodity prices.

The 30-stock Micex Index fell 2 percent to 1,403.05 by the 6:45 p.m. close in Moscow, its biggest drop since Oct. 4. OAO Novolipetsk Steel tumbled 4.1 percent, while oil producer OAO Surgutneftegas retreated 3.5 percent. The dollar-denominated RTS index fell 1.5 percent to 1,427.31.

Russian stocks climbed the most last week since March 2010 as growing optimism a solution will be found for Europe’s debt problems and better-than-expected U.S. economic data lifted the price of crude, Russia’s chief export earner. German Chancellor Angela Merkel’s chief spokesman said today an Oct. 23 deadline for a plan to ease the region’s problems won’t bring a swift resolution to the crisis.

The comments “were sufficiently bearish to persuade traders to take a more defensive stance,” Julian Rimmer, a trader of Russian shares at CF Global Trading in London, said in e-mailed comments. “Russia is the levered play on oil, on risk, on everything. Its indices don’t do things by half measures.”

Oil traded in New York sank as much as 1.1 percent to $85.88 a barrel, while Brent oil futures lost 3.1 percent to $111.12 a barrel. Urals crude, Russia’s main blend, slid 0.5 percent to $114.29 a barrel, paring last week’s 10 percent advance, its strongest in the period since May 2009.

Crude and natural gas together make up about 17 percent of Russia’s gross domestic product, compared with a less than 10 percent contribution from commodities in Brazil.

Cheapest BRIC

Russian stocks are the cheapest among the so-called BRIC nations, with shares in the Micex trading at an average 5 times analysts’ earnings estimates, compared with a ratio of 9.5 for stocks in Brazil’s Bovespa index, 11.2 for the Shanghai Composite Index and 14.4 for the BSE India Sensitive Index. The Micex is down 17 percent this year.

Global stocks and companies rallied on Oct. 14 as finance chiefs began talks on Europe and U.S. retail sales rose in September by the most in seven months, easing concern slumping confidence and scant hiring will derail the world’s biggest economy.

Russia’s trade with European Union countries accounted for $453.6 billion, or almost half of the country’s total foreign trade turnover in January through July 2011, according to Russia’s Federal Service of State Statistics. The country sells oil, natural gas and metals to EU.

Crisis ‘Dreams’

Global stocks and the euro fell after Steffen Seibert, Merkel’s chief spokesman, said “dreams” that an Oct. 23 summit will produce a solution to Europe’s problems “won’t be able to be fulfilled.” Bonds maturing in two years’ time issued by Greece yielded 67 percent today, compared with 6.8 percent for similar-maturity Russian debt.

OAO Magnit, Russia’s largest supermarket chain by market value, advanced 1.8 percent to 2,783.50 rubles. The company was raised to “outperform” from “neutral” by analysts at Credit Suisse Group AG who cited “operational improvements” and “significant store rollout” in an e-mailed note today.

Evraz Group SA climbed as much as 14 percent to $21.40 in London trading before retreating 2.1 percent to $18.35. The Russian steelmaker registered in Luxembourg said it plans to shift its base to London via a share swap with a new company and seek entry into the U.K.’s benchmark FTSE-100 Index.

--Editors: Alex Nicholson, Peter Branton

To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net; Jack Jordan in Moscow at jjordan22@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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