Bloomberg News

ETF Has First Drop of 2012 as Greece Slams Oil: Russia Overnight

February 13, 2012

Feb. 13 (Bloomberg) -- The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, declined for the first week this year as concern Greece will derail Europe’s debt-crisis recovery cut prices for oil and other commodities.

The exchange-traded fund lost 3.7 percent last week to $30.71, the biggest drop in eight weeks to complete the first weekly slide since Dec. 30. Futures expiring in March on Moscow’s RTS index were little changed at 159,765 in U.S. trading on Feb. 10, as coal producer OAO Mechel and Internet company Yandex NV led a 1.9 percent decline on the Bloomberg Russia-US 14 Index of Russian companies traded in New York.

Crude, Russia’s biggest export earner, retreated from a three-week high and copper slipped the most in two months as euro-area finance ministers refused to approve a second rescue package for debt-laden Greece, boosting concern the European crisis will cut demand for fuel and resources. The Russia ETF lost 30 percent last year, the most since a 74 percent tumble in 2008, as oil had its smallest annual advance since 2006.

“European debt headlines aren’t going to go away easily,” Aivaras Abromavicius, who helps manage $5.5 billion of eastern European assets -- 66 percent of them in Russia -- at Stockholm- based East Capital, said in an interview from Kiev, Ukraine on Feb. 10. “Up until this week, European actions to address liquidity and funding have been a source of renewed optimism for Russian equities as well as Turkey and Hungary. We can only hope that Greece and the EU can strike a deal to prevent a crisis.”

Rising Volatility

The Bloomberg Russia-US 14 Index fell to 106.39 on Feb. 10, the lowest level in six days, to leave it down 1.6 percent in the week, the first weekly drop since the last five days of December. The index has gained 17 percent in 2012 after losing 10 percent last year.

The RTS Volatility Index, which measures expected swings in the index futures, rose 12 percent to 32.43 points last week, the most since the week ended Dec. 9.

American depositary receipts of OAO RusHydro, Russia’s largest renewable energy producer, plunged 4.7 percent to $3.62 in New York on Feb. 10. The drop saw the ADRs trade at a discount to RusHydro’s Moscow shares for the first time in two weeks.

The company’s shares on Moscow’s 30-stock Micex Index dropped 3.1 percent to 1.0896 rubles on Feb. 10, the equivalent of 3.63 U.S. cents. One ADR is equal to 100 ordinary shares. RusHydro ADRs slid 7.9 percent last week, the most since the five days to Dec. 9.

Greek Tussle

Greek Prime Minister Lucas Papademos obtained approval from his Cabinet after U.S. markets closed on Feb. 10 for deeper budget cuts needed to secure a second bailout. The approval capped a week of to-ing and fro-ing in Athens as European Union and International Monetary Fund officials argued with Greek government officials over conditions required to secure the 130 billion-euro ($172 billion) rescue package.

Papademos reached agreement with the three party leaders supporting his interim government on Feb. 9, only to be told by euro-area finance ministers that the measures needed more work.

Crude for March delivery dropped 1.2 percent to $98.67 a barrel on the New York Mercantile Exchange as Brent oil futures fell 1.1 percent to $117.31 on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, lost 0.8 percent to $117.87 to leave it down 2.9 percent last week.

OAO Lukoil, Russia’s largest non-state oil producer, gained for an eighth consecutive week, rising 0.6 percent to $60.53 in New York. Lukoil shares on the Micex slipped 0.2 percent last week to 1,809.80 rubles, or $60.28. One ADR represents one ordinary share.

Mine Work Suspended

ADRs of OAO Gazprom, the world’s biggest natural gas exporter and the largest stock on the Bloomberg Russia-U.S. 14 measure, declined 1.4 percent last week, the first weekly retreat of the year, to $12.51 in U.S. trading, after shares in Moscow dropped 1 percent to 1878.79 rubles, or $6.26. One ADR represents two ordinary shares.

The Standard & Poor’s GSCI index of 24 raw materials fell 1 percent to 673.37 on Feb. 10, as copper and nickel retreated. Copper futures for March delivery slipped 2.9 percent to $3.862 a pound on the Comex in New York, the biggest decline for a most-active contract since Dec. 14.

Mechel, Russia’s largest coal producer for steelmakers, capped its worst week since the five days ended Nov. 18, plunging 6.8 percent to $10.68 on Feb. 10. Work was suspended at several facilities at Mechel’s New-Olzherassk mine in Siberia by order of the country’s safety regulator, according to a statement from the company.

‘Sweet Spot’

Mechel shares in Moscow fell 3.7 percent to 328.7 rubles, or the equivalent of $10.94. One ADR represents one ordinary share.

Yandex, operator of Russia’s most popular Internet search engine, dropped 2.5 percent last week to $21.27, the first weekly decline in four. The stock will probably rebound as risk appetite returns and investors seek out the cheaper valuations of Russian shares, analysts led by Peter Westin at Aton Llc in Moscow wrote in a Feb. 10 report.

Polyus Gold International Ltd., Russia’s biggest gold producer, slipped 2 percent to $3.35 on Feb. 10 as the Vedomosti newspaper reported that the owners of Polyus and Polymetal International Plc had shelved a plan to merge the companies. The shareholders may reopen talks at a later date, according to the report. Polyus was down 4 percent in New York last week.

Russian stocks will benefit at the expense of equities in Turkey and South Africa, according to Aton. “Russia is currently in a sweet spot to receive rotation of funds” out of emerging markets in Europe and Africa, the note said.

‘More Cautious’

The Eastern European Trust Plc, the stock fund run by BlackRock Inc. that beat the regional stock index by 19 percentage points in the past three years, has cut holdings in Russia before presidential elections scheduled for March 4. The fund is buying equities Turkey.

“We’ve turned a little more cautious on Russia,” Sam Vecht, a London-based money manager at BlackRock, said in an interview on Feb. 10.

The RTS Index recorded its first weekly decline for 2012 last week, slipping 1.4 percent to 1,603.25 while the Micex lost 2.6 percent in the week to 1,524.58.

The Micex has gained 8.7 percent in 2011 and trades at 5.6 times analysts’ earnings estimates for member companies. That compares with a 13 percent advance for Brazil’s Bovespa index, which trades at 10.3 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 9.7 times estimated earnings, and the BSE India Sensitive Index has a ratio of 15.7.

--Editors: Emma O’Brien, Marie-France Han

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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