Bloomberg News

RTS Futures Fall on Europe as Mechel Advances: Russia Overnight

December 06, 2011

Dec. 6 (Bloomberg) -- Russian stock futures declined as oil gave up its advance after Standard & Poor’s said Germany and France may be stripped of their AAA credit ratings.

Futures expiring in December on the dollar-denominated RTS index lost 0.7 percent to 154,680 during U.S. trading hours. The Bloomberg Russia-US 14 Index of Russian companies traded in New York added 1.5 percent to 101.39, led by OAO Mechel, Russia’s largest coal producer for steelmakers, after iron ore prices increased.

Crude futures in New York dropped as much as 0.6 percent in after-hours trading today after S&P said it would change the rating outlook for 15 euro nations, including the two largest. Russia, the world’s biggest energy exporter, counts Europe as its top trading partner and the largest market for state-run OAO Gazprom. Companies in the Moscow-based Micex index trade at an average 5.3 times analysts’ profit estimates, the lowest valuation among 21 major emerging markets tracked by Bloomberg.

“Investors collectively remain skeptical about how fixable the problems are in Europe,” said Lewis Kaufman, a Santa Fe, New Mexico-based money manager at Thornburg Investment Management, who oversees the Thornburg Developing World Fund and helps manage $79 billion. “There is relatively good value in a lot of blue-chip Russian stocks but it’s very hard to quantify adverse developments in Europe and what they could mean if things go awry.”

Kaufman’s fund owns shares in OAO Sberbank, Russia’s largest lender, and Yandex NV, the operator of Russia’s most popular Internet search engine.

Brent, Urals Drop

Crude for January delivery on the New York Mercantile Exchange lost 0.5 percent to $100.47 a barrel as of 11:43 a.m. Hong Kong time. Prices are up 9.9 percent this year.

Brent oil for January settlement slid 13 cents to $109.81 on the London-based ICE Futures Europe exchange while Urals crude, Russia’s chief export blend, retreated 0.4 percent to $110.19. Oil and natural gas contribute about 17 percent of Russia’s gross domestic product.

Germany, France, the Netherlands, Austria, Finland and Luxembourg, the euro area’s six AAA rated countries, are among the nations being placed on “CreditWatch negative,” pending the result of a summit of European Union leaders on Dec. 9, S&P said.

S&P’s downgrade warnings come as German Chancellor Angela Merkel and French President Nicolas Sarkozy push for a rewrite of EU cooperation rules that would institute automatic penalties for deficit violators while locking limits on debt into euro states’ constitutions.

Rusal Declines

The Hong Kong-listed shares of United Co. Rusal, the world’s largest aluminum producer, sank 3 percent to HK$5.52. The MSCI Asia Pacific Index slumped 1.3 percent, the most since Nov. 23.

The RTS Volatility Index, which measures expected swings in the index futures, rose for a second day yesterday, gaining 1.2 percent to 46.08 points. The Market Vectors Russia ETF, a U.S.- traded fund that holds Russian shares, advanced for the first time in three days, adding 1.8 percent to $30.85.

Standard & Poor’s GSCI index of 24 raw materials fell 0.1 percent to 657.52 while copper futures rose to a four-week high. Copper for March delivery climbed 0.9 percent to close at $3.6155 a pound on the Comex in New York.

The Micex has lost 10 percent in 2011, which compares with a 15 percent slide for Brazil’s Bovespa index, which trades at 10.6 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 11.1 times estimated earnings, and the BSE India Sensitive Index has a ratio of 14.4.

The Micex, which climbed to a one-month high in Moscow yesterday, is beating all emerging-markets benchmark measures this quarter for indexes in Thailand, Brazil and Hungary, with an increase of 11.1 percent since Sept. 30.

Putin Setback

Russian Premier Vladimir Putin’s United Russia party suffered its first election setback in a Dec. 4 parliamentary vote, winning 49.5 percent compared with 64.3 percent four years ago. Putin, who is seeking to switch jobs next year with President Dmitry Medvedev by running for president, may have to contend with a more fractured legislature than when he was president between 2000 and 2008.

“The results remove uncertainty as to what the government will look like, and allows investors to recognize that for the first time in 15 years, Russian companies are paying shareholders to be shareholders,” said Roland Nash, chief investment strategist at Moscow-based hedge fund Verno Capital, which manages more than $150 million in Russia.

Russian companies including Moscow-based Gazprom are increasing dividends to attract investors while OAO GMK Norilsk Nickel has bought back shares, signs that Russia’s companies are responding to international money managers’ demands to improve corporate governance, Nash said.

VimpelCom

VimpelCom Ltd., the Russian mobile-phone operator with more than 200 million subscribers worldwide, rose 2.3 percent to $11.81 in New York after UralSib Financial Corp. reiterated its “buy” recommendation on the stock.

“Investors have an opportunity to enter VimpelCom at fundamentally attractive levels,” UralSib analysts, including Konstantin Chernyshev, Konstantin Belov and Nikolay Dyachkov said in the report. “Growth in both mobile and fixed-line broadband is set to become the company’s key growth driver in established markets. We expect 8 percent per annum average organic sales growth in 2012 and 2013.”

VimpelCom said Jon Fredrik Baksaas, president and chief executive officer of Telenor Group, will replace Jan Edvard Thygesen on its supervisory board, according to a statement filed yesterday.

Mechel’s American depositary receipts advanced 5.6 percent to $11.74 after shares in Moscow gained 3.5 percent 354.90 rubles, or the equivalent of $11.49. One ADR represents one ordinary share.

Yandex, CTC

Yandex NV increased 0.6 percent to close at $21.48 in New York after UralSib raised its recommendation on the stock to “buy” from “hold,” the bank said in an e-mailed report yesterday.

“Yandex has good exposure to the rapidly growing Russian online advertising market, which we expect to expand,” UralSib analysts said in the report. “Russia is the only country in Europe where Google lags the local player in search. Yandex should be the main beneficiary from internet penetration growth in the regions.”

CTC Media Inc., the Russian television network listed in the U.S., gained 1 percent to $10.06 in New York after UlraSib maintained its “buy” rating on the stock.

--With assistance from Darren Boey in Hong Kong. Editors: Marie- France Han, Laura Zelenko

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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