Bloomberg News

MTS’s Biggest Gain in a Month Widens Premium: Russia Overnight

January 06, 2012

Jan. 6 (Bloomberg) -- OAO Mobile TeleSystems rose the most in a month and Russia’s stock futures gained as signs of a stronger U.S. job market stoked optimism about global growth and prompted investment in the cheapest major emerging market.

American depositary receipts of Mobile Telesystems, known as MTS, advanced 6.2 percent to create the largest premium with the company’s Moscow shares since December 2010. The advance limited losses on the Bloomberg Russia-US 14 Index of Russian companies traded in New York, which slid 0.3 percent to 93.42. RTS index futures expiring in March added 0.5 percent yesterday.

Consumer confidence in the U.S. rose last week to a five- month high and the pace of firings declined, showing that an improving job market is supporting the world’s largest economy. Russia’s Micex Index trades at 5.4 times analysts’ earnings estimates for member companies, the lowest among the so-called BRIC nations, which include India, Brazil and China.

“We’re in a new year, so fund managers have put risk back on,” Arjun Jayaraman, who manages $400 million in emerging- market equities at Causeway Capital Management in Los Angeles, said in a phone interview. “Russian stocks are so cheap, and assuming Europe doesn’t do very badly over the next year, many of them are due for a rebound.”

The Micex lost 17 percent in 2011 as the debt crisis in Europe, Russia’s largest trading partner, buffeted growth.

Jayaraman said Causeway bought shares of OAO Lukoil, Russia’s largest non-state oil producer, and OAO Gazprom, the world’s biggest natural gas exporter, in the past two months. Both stocks fell yesterday in New York as crude declined after U.S. inventories increased and borrowing costs in France rose, stoking concern Europe will struggle to contain the debt crisis.

U.S. Premium

United Co. Rusal, the world’s largest aluminum producer, dropped 1.6 percent to HK$4.80 in Hong Kong trading as of 11:13 a.m. local time. The MSCI Asia Pacific Index fell 1 percent before reports today that are expected to show European retail sales fell in November and German factory orders declined, according to the median forecasts in Bloomberg surveys of economists.

MTS rose the most since Nov. 30 in New York to $15.86 after shares in Moscow gained 1.1 percent to 189.03 rubles, or $5.91. MTS’s ADRs, which represent two ordinary shares, closed at a $4.04 premium to the mobile carrier’s Moscow stock.

The premium for the ADRs is due to a lack of trading in the Russian shares, which makes them less attractive for investors, Ilya Kravets, a research analyst ED Capital in New York, which manages almost $100 million in assets, said in an interview.

‘Liquidity Issue’

“It’s a liquidity issue,” he said. “You don’t get the volumes in Moscow that you get in the U.S., so Moscow investors in a stock like MTS get a liquidity discount.”

Rival mobile-phone carrier VimpelCom Ltd. also gained in New York yesterday, adding 4.6 percent to $10.01 after Reuters reported that Algeria’s Post and Telecommunications Minister Moussa Benhamadi signaled progress in the government’s talks with the company over its local unit.

The company didn’t respond to an e-mail and phone call from Bloomberg News seeking comment on a national holiday.

MTS, which trades at 10.6 times analysts’ earnings estimates, and VimpelCom, at a ratio of 9 times, are among the cheapest cellular-phone operators in Europe, according to data compiled by Bloomberg.

MTS operates in Russia and former Soviet states including Ukraine, Uzbekistan, Turkmenistan and Armenia. The company’s subscriber base rose less than 0.1 percent in November from October to 105.3 million, according to a Dec. 30 data report by Advanced Communications & Media in Moscow.

Oil Prices

“The Russian mobiles have among the strongest earnings outlooks for this year,” said Zoltan Palfi, a London-based analyst at Credit Suisse AG, who has an “outperform” rating on Vimpelcom and MTS. “Both Russian mobile stocks are cheap relative to their own history.”

Oil for February delivery declined 1.4 percent to settle at $101.81 a barrel on the New York Mercantile Exchange, dragging Lukoil down 0.8 percent to $54.15 in New York. Oil futures dropped 0.4 percent today.

Brent oil for January settlement slipped 0.8 percent to $112.74 a barrel on the London-based ICE Futures Europe exchange while Urals crude, Russia’s chief export blend, lost 1 percent to $110.36.

Gazprom, the largest weighted stock on the Bloomberg Russia-US 14 Index, fell the most in a week, declining 0.6 percent to $11.11.

Volatility Index

The RTS Index in Moscow declined 1.3 percent yesterday to 1,415.48 while the 30-stock Micex Index lost 0.9 percent to 1,434.91. The RTS Volatility Index, which measures expected swings in the index futures, rose 0.7 percent to 41.47 points.

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, fell for the first time in three days, dropping 1.8 percent to $27.18.

The Micex has lost 15 percent in 2011, compared to an 18 percent slide for Brazil’s Bovespa index, which trades at 9.2 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 8.7 times estimated earnings, and the BSE India Sensitive Index has a ratio of 13.8.

--With assistance from Darren Boey in Hong Kong. Editors: Brendan Walsh, 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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