Bloomberg News

RTS Futures Rise as Crude’s Gain Buoys Outlook: Russia Overnight

November 17, 2011

Nov. 17 (Bloomberg) -- Russian stock futures rose as crude surged above $100 a barrel for the first time in five months, while rising U.S. factory production and homebuilder confidence boosted prospects for the world’s largest energy exporter.

Futures expiring in December on Moscow’s dollar-denominated RTS index jumped 1.4 percent to 153,325 yesterday as oil prices in New York climbed. The Bloomberg Russia-US 14 Index of Russian companies traded in New York dropped 1.7 percent, the most in a week, to $98.51. Internet search engine operator Yandex NV tumbled to a four-week low on speculation investors are selling shares before a ban on divesting stock bought in an initial public offering expires next week.

Russia benefits from rising oil, which along with natural gas sales makes up about 17 percent of the $1.5 trillion economy and provides as much as 40 percent of government revenue. Reports showing U.S. industrial production advanced more than economists expected in October and homebuilder confidence gained this month to the highest level since May 2010 supported the outlook for the world’s biggest economy and for natural resources demand around the world.

“Crude higher is positive but because investors don’t know how the Europe situation is going to be resolved, and where global growth is headed, they remain quite cautious on Russian equities,” said Chris Osborne, chief executive officer of Troika Dialog USA, a unit of Russia’s oldest investment bank, said in a phone interview in New York yesterday.

Urals Crude

Crude for December delivery jumped 3.2 percent to $102.59 a barrel on the New York Mercantile Exchange, the highest settlement price since May 31. Brent oil for January delivery dropped 0.3 percent to $111.88 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to West Texas crude narrowed to $9.28 a barrel, the smallest gap since March 8. The spread widened to a record of $27.88 on Oct. 14.

Urals crude, Russia’s chief export oil blend, slipped 1.7 percent to $110.80. The Standard & Poor’s 500 Index retreated 1.7 percent to 1,236.91, and the Dow Jones Industrial Average lost 1.6 percent to 11,905.59 as Fitch Ratings said further contagion from Europe’s debt crisis will pose a risk to American banks.

The Hague, Netherlands-based Yandex fell 5.2 percent to $23.51, the lowest level since Oct. 10 and leading decliners on the Bloomberg Russia-US 14 Index. Yandex filed for an initial public offering on April 28, and its 180-day lock up on the sale of shares bought by Baring Vostok Capital Partners and Tiger Global Management LLC expires on Nov. 21, according to a regulatory filing.

‘Stock Volatility’

“The upcoming expiration of the lock up increases Yandex’s stock volatility,” Konstantin Belov, a media analyst at UralSib Financial Corp. in Moscow, said in a phone interview yesterday.

OAO Mechel, Russia’s largest coal producer for steelmakers, fell 4.9 percent to $11.35 in New York trading. Mechel’s American depositary receipts have lost 14 percent this month. The company’s shares in Moscow lost 3.8 percent to 365.10 rubles, or the equivalent of $11.85.

OAO GMK Norilsk Nickel’s ADRs dropped 3.8 percent to $16.25, the lowest price since Sept. 23, after shares of the world’s largest nickel producer dropped 4.2 percent on Moscow’s Micex index to 5,055 rubles, or $164.25. One Norilsk ADR represents one-tenth of an ordinary share. The Standard & Poor’s GSCI index of 24 raw materials rose 0.9 percent to 672.89 yesterday, the highest level since Aug. 31.

‘Hit Twice’

“When people get rid of risky assets they sell both Russia and commodities, so Russian commodities-related stocks get hit twice as much,” Maxim Matveev, an analyst at ING Bank in Moscow, said by phone.

Russian stocks may fall as looming end-of-year tax payments sap free cash from the market, according to Rye, Man and Gor Securities in Moscow.

“Liquidity squeeze and capital flight add pressure on the market,” Vladimir Aleksandrov, a trader at Rye, Man and Gor in Moscow, said in a phone interview. “It’s very volatile. We expect declines in blue chip prices in the near future.”

Russia’s three-month MosPrime interbank rate, the cost banks say they are charging to lend to one another, rose to 6.86 percent yesterday, the highest level since December 2009. The shortage of cash on the Russian market may intensify through December as companies and banks face tax deadlines, Natalia Orlova, chief strategist at Alfa Bank in Moscow, said in a phone interview.

Cheapest Index

Companies need to pay about 1.29 trillion rubles ($42 billion) of taxes through to the end of 2011, according to Alfa. Capital flight from Russia may double this year to a net $70 billion, according to the central bank’s estimates.

Russia’s benchmark Micex index, which trades at 5.3 times analysts’ earnings estimates for member companies, is the cheapest of the 21 major emerging markets tracked by Bloomberg. The 30-stock index lost 0.3 percent to 1,483.24 yesterday, a one-week low. The gauge may climb 1 percent at the open today, according to Alfa Bank. The RTS Index fell 0.4 percent to 1,527.59.

The Micex has lost 12 percent in 2011 compared with a 16 percent slide for Brazil’s Bovespa index, which trades at 10.5 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 11.6 times estimated earnings, and the BSE India Sensitive Index has a ratio of 14.5.

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, fell for the second time in three days, losing 2.1 percent to $29.86, while the Bank of New York Mellon Russia ADR Index dropped 1.6 percent to 728.69.

The RTS Volatility Index, which measures expected swings in the index futures, slipped for a second day, falling 1.6 percent to 46.22 points.

--With assistance from Ksenia Galouchko in New York. Editors: Emma O’Brien, Marie-France Han

To contact the reporters on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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