Bloomberg News

Surgut Leads ADR Tumble as Commodities Slump: Russia Overnight

May 11, 2012

Russian stocks traded in New York posted the longest run of declines since at least 2005 after commodities erased this year’s gains and oil retreated for a second week.

The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. dropped for a 10th week, losing 0.4 percent to 94.03 yesterday. Futures expiring in June on Moscow’s dollar-denominated RTS Index fell 0.7 percent to 143,030 yesterday. OAO Surgutneftegas (SGTPY:US), Russia’s fourth-largest oil producer, retreated for an eighth day, widening the discount versus the Moscow shares by the most since June 2009.

The Standard & Poor’s GSCI Spot Index of 24 commodities slid for an eighth day and crude oil sank to the lowest level this year after industrial output slowed in China and shrunk in India, while JPMorgan Chase & Co (JPM:US) said that it had a $2 billion trading loss. Russia, the world’s biggest energy exporter and the largest producer of nickel and palladium, got almost 50 percent of government revenue from oil and gas sales last year. Markets in Moscow are open today.

“Russia is very sensitive to commodities prices,” Alec Young, a global equity strategist at S&P Capital IQ, said by phone from New York. “We are seeing general risk aversion in global markets. Oil is down, commodities fell and that is having negative impact on Russia.”

The Bloomberg Russia-US Equity Index lost 2.9 percent this week, trimming this year’s gain to 3.8 percent.

The Market Vectors Russia ETF (RSX:US), a U.S.-traded fund that holds Russian shares, fell for a third week, retreating 2.6 percent to $26.95. The RTS Volatility Index, which measures expected swings in futures, rose 0.5 percent to 33.42 points.

Ruble Down

American depositary receipts of Surgutneftegas fell 0.4 percent to $5.38 in New York yesterday, widening their discount to the Moscow-traded shares to 12 percent, the most since June 2009. The company’s preferred shares in Moscow rose 1.9 percent to 18.38 rubles or 61 cents. Ten preferred shares equal one ADR.

The GSCI Spot Index of commodities posted its longest slump since December 2008 and dropped to 640.46, the lowest since Dec. 22. Crude for June delivery fell 1 percent to $96.13 a barrel on the New York Mercantile Exchange, the lowest since Dec. 19. Prices declined 2.4 percent this week and are down 2.7 percent this year.

The ruble fell to the weakest level against the dollar in almost three months yesterday, as the currency depreciated as much as 0.6 percent before trading down less than 0.1 percent at 30.113 per dollar by the close in Moscow.

‘Sentiment Worsens’

“As far as sentiment goes, it worsens, as the market equates Russia with commodities,” Chris Osborne, head of Troika Dialog’s U.S. unit, said by phone yesterday from New York. “The impact on the economy is more nuanced -- when oil comes off, the ruble depreciates and exports become more competitive.”

OAO Lukoil (LUKOY:US), Russia’s second-biggest oil producer, lost 9.6 percent to $55.47 in a four-week drop through yesterday in New York, the longest losing streak since Nov. 25, 2011. Lukoil fell 0.6 percent to 1,734.90 rubles, or $57.56, on Russia’s Micex Index.

“The recent weakness in the share prices of the Russian oil companies was mainly driven by a decline in risk appetite and the recent drop in crude oil prices,” Zoltan Palfi, an analyst at Credit Suisse Group AG in London, said by phone yesterday.

Brent oil for June settlement dropped 0.4 percent to $112.26 on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, was little changed at $110.19 yesterday, dropping 0.7 percent in the week.

‘Intriguing’

The Russia-US Index trades at 6.1 times estimated earnings, nearly half the 10.3 valuation for the average company on the MSCI Emerging Markets Index and the 12.6 multiple for the BSE India Sensitive Index’s stocks.

“On the valuation side, Russia is intriguing,” Nelson Saiers, who oversees $639 million at Alphabet Management LLC in New York, said by phone. “It’s one of the cheapest markets in the world and one can argue it’s the cheapest. This low market valuation is a byproduct of the material political and economic uncertainty surrounding Russia and the euro zone along with its sensitivity to energy.”

Polyus Gold International Ltd. (PLZLY:US), Russia’s biggest gold producer, fell 2.5 percent to $2.78, the lowest since July 2011. Gold slid to a four-month low, capping the biggest weekly drop since March. Gold futures for June delivery fell 0.7 percent to settle at $1,584 an ounce. Prices were down 3.7 percent for the week.

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

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net;


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Companies Mentioned

  • SGTPY
    (Surgutneftegas OAO)
    • $7.44 USD
    • -0.03
    • -0.4%
  • JPM
    (JPMorgan Chase & Co)
    • $59.02 USD
    • -0.14
    • -0.25%
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