Bloomberg News

Worst Stock Slump Since ‘08 on Putin Concerns: Russia

April 27, 2012

Russian stocks traded in the U.S. tumbled for an eighth straight week, the longest losing streak in almost four years, on concern President-elect Vladimir Putin won’t undertake the changes necessary to reform the economy.

The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies listed in the U.S. rose 1.3 percent to 102.78 yesterday, bringing its weekly decline to 0.9 percent. The gauge last tumbled for eight straight weeks between June and August 2008 as the global credit crisis loomed. Futures expiring in June on Russia’s dollar-denominated RTS Index rose 1.7 percent to 154,990 in Moscow trading yesterday.

Putin, who won his third term as president on March 4 after four years as prime minister will be inaugurated on May 7. He has already backtracked on a promise by current President Dmitry Medvedev -- who will be his premier -- to return to direct elections for governors, saying on April 11 that he will retain the right to veto candidates. Russia’s budget relies on oil and gas revenues for about 50 percent of its revenue.

“People are a little cautious and have an ‘I’ll believe it when I see it’ kind of approach,” said Ed Kuczma, who helps manage $35 billion at New York-based Van Eck Associates Corp., including shares of OAO Gazprom (OGZPY:US), OAO Lukoil (LUKOY:US) and OAO GMK Norilsk Nickel. (NILSY:US) “There are political question marks and there is a cyclicality in the Russian economy, which is driven by energy and commodities. There are a lot of opportunities for reforms.”

Yandex NV (YNDX:US), the country’s most-used Internet search engine, led declines on the Russia-US gauge this week along with OAO Gazprom Neft (GZPFY:US), the oil arm of Russia’s gas-export monopoly, and OAO RusHydro, the largest hydropower producer.

Yandex Profit

Yandex rose 5.6 percent in New York yesterday, the most this month, to $24.69, trimming this week’s decline to 7.4 percent. The Nasdaq-traded stock fell for the third time in four weeks, reducing this year’s gain to 25 percent. The company reported first-quarter net income of 1.26 billion rubles ($43 million) on April 26, below the median (YNDX:US) of four analysts’ estimates for 1.43 billion rubles.

American depositary receipts of Gazprom Neft added 2.1 percent to $24.31 yesterday, paring this week’s drop to 5.4 percent, as oil prices climbed.

Crude for June delivery climbed 0.4 percent to $104.93 a barrel on the New York Mercantile Exchange, the highest settlement since April 2. Futures gained 1.8 percent in the week. Brent oil for June settlement was little changed at $119.83 on the London-based ICE Futures Europe exchange yesterday.

Oil to Drop

Oil may decline next week after economic confidence in the euro region fell and more Americans than estimated filed applications for unemployment benefits, a Bloomberg survey showed. Sixteen of 37 analysts, or 43 percent, forecast oil will decline through May 4.

Urals crude, Russia’s main export blend, rose 0.2 percent to $117.36 yesterday, gaining 1.5 percent from last week, the first weekly advance in seven weeks.

The Market Vectors Russia ETF (RSX:US), a U.S.-traded fund that holds Russian shares, rose 0.5 percent to $29.89 yesterday, the highest level since April 20. The RTS Volatility Index, which measures expected swings in the index futures, fell 2.6 percent to 29.57 points in U.S. trading.

RusHydro ADRs fell for the first week in three, declining 4.1 percent to $3.50. The stock rose 1.2 percent yesterday in New York. The Moscow-based company said on April 26 that 2011 net income more than tripled to 31.4 billion rubles.

Usmanov and Norilsk

OAO GMK Norilsk Nickel, world’s biggest producer of nickel and palladium, rose 2.2 percent to $17.72 in the U.S. yesterday, the highest price in a week. Billionaire Alisher Usmanov, who controls OAO Metalloinvest, said he is adding to the iron-ore producer’s shares in Norilsk in an interview with Rossiya-24 state television.

RusHydro (HYDR) traded for 8.5 times estimated earnings yesterday, compared with a valuation of 10.5 times for Light SA, a Brazilian power utility, data compiled by Bloomberg show. OAO Surgutneftegas a Russian oil producer, trades for 16.4 times estimated earnings, while Brazil’s OGX Petroleo e Gas Participacoes SA’s has a multiple of 165, the data show.

“Russian companies, particularly energy companies, are inexpensive compared with their emerging markets peers. I expect the market to grow,” Ivan Mazalov, director of Prosperity Capital Management, which manages about $4 billion in assets, including Surgut shares, said by phone from London on April 26.

Reducing Energy

Russia’s new government lineup is due to be announced after Putin’s inauguration. The former KGB officer, who was president from 2000 to 2008 before having to step down because of term limits, pledged during his campaign to boost pensions and support for small business. He also vowed to reverse “repressive” state policies and reduce government holdings in major non-commodity companies.

Under an Economy Ministry development proposal submitted to the government for approval, the oil and gas industry would make up about 10 percent of the country’s gross domestic product by 2030, from 20 percent currently.

Industries such as education, communications and information technology would represent about 20 percent to 22 percent of all exports, from about 11 percent now, Deputy Economy Minister Andrei Klepach said in Moscow on April 13.

“Putin has been dominating the Russian political landscape for the past more than 10 years and there is a great opportunity for him to extend reforms further,’” Van Eck’s Kuczma said. “There is the need to take out that cyclicality of Russian economy, reduce its dependence on oil and commodities, and move towards developing value-added sectors of the economy, such as tech sector, financial services and real estate.”

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

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


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Companies Mentioned

  • OGZPY
    (Gazprom OAO)
    • $8.62 USD
    • -0.07
    • -0.81%
  • LUKOY
    (Lukoil OAO)
    • $60.2 USD
    • -1.15
    • -1.91%
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