Bloomberg News

Russia Stocks in Bear Market as RTS Tumbles 20% From Year High

May 14, 2012

Russian stocks tumbled, driving the dollar-denominated RTS Index down more than 20 percent from this year’s high as the slump in oil to a five-month low curbed appetite for equities in the world’s biggest energy exporter.

The RTS dropped 3.6 percent to 1,401.73 compared with this year’s March 15 peak of 1,754.81, breaching the threshold analysts say marks a so-called bear market. The 30-stock Micex Index (INDEXCF) retreated 3.5 percent to 1,337.42 by the close in Moscow, the lowest since Oct. 6. Federal Grid Co. sank 7.2 percent after Goldman Sachs Group Inc. cut the stock to sell from buy. United Co. Rusal, the world’s largest aluminum producer, slumped 3.9 percent after posting an 84 percent first-quarter earnings decline.

Oil fell as much as $2.48 to $93.65 a barrel in New York, the lowest intraday price since Dec. 19. Russia-focused equity funds recorded this year’s biggest outflows for the week ended May 9, posting redemptions of $188 million, according to EPFR Global. Prime Minister Dmitry Medvedev plans to present President Vladimir Putin with his proposed government candidates tomorrow, RIA Novosti reported.

“Oil is still not offering support to the market,” Andrey Kuznetsov, an equities analyst at Citigroup Inc., said by phone from Moscow. “There’s a lot of uncertainty surrounding the new government cabinet. If the new cabinet consists of market- oriented people, the market will rejoice.”

National Transmission Plan

Federal Grid, also known as FSK, the state monopoly for high-voltage power transmission, retreated to the lowest level in more than three years after Goldman Sachs cut the stock on concern the company will acquire power distributor OAO MRSK Holding and on slower-than-expected tariff growth.

Federal Grid fell to 21.42 kopeks, the weakest price since July, 2009. The shares have fallen 24 percent this year. MRSK dropped 6 percent to 2.007 rubles.

Russia is considering the creation of a national electricity transmission company, Interfax reported today, citing acting Deputy Prime Minister Igor Sechin, without giving a timeline for the deal. The government, which owns 56 percent of MRSK, according to data compiled by Bloomberg, ordered that the company be put under the management of Federal Grid, MRSK said in a statement May 11.

Cabinet Changes

Medvedev held meetings today to discuss the makeup of the new government RIA reported, without citing anyone.

Tatyana Golikova, the acting health minister, may be appointed finance minister, Nezavisimaya Gazeta reported, citing unidentified officials. Arkady Dvorkovich, an aide to Medvedev when he was president, may head the Economy Ministry, while acting economy minister Elvira Nabiullina will be moved to the post of health minister, the Moscow-based newspaper reported.

Russia received almost 50 percent of budget revenue from oil and gas sales last year, according to government estimates. Brent crude for June settlement dropped 1.6 percent to $110.43.

Oil fell for a second week through May 11, retreating below $95 a barrel for the first time since December, as Greece struggled to form a government after inconclusive elections, prompting concern that the country may withdraw from the euro.

WTI may decline to $90 a barrel, and Brent to $105, as central banks struggle to resolve the debt turmoil, Bank of America Corp. said in a report e-mailed today.

Protests continued in the Moscow capital over the weekend with Russian novelists and poets yesterday leading thousands in a walk along Moscow’s central boulevards aimed at defending people’s rights to gather on the streets without permission from the authorities.

Police detained hundreds on May 6 after clashes between riot officers and demonstrators who gathered in thousands to rally against Putin 24 hours before his inauguration. More arrests followed in the next three days as protesters held a series of unauthorized gatherings.

Global Concern

“Global factors will continue to pressure the Russian market,” Ilya Zharskiy, who manages $3.3 million at Astercom Asset Management in Moscow, said by phone. “We may see a large drop this week and the index may fall to 1,200 by the middle of July.”

A move by Chinese policymakers to spur growth failed to bolster global equities amid signs the country’s economic expansion is losing steam. Reserve ratios will fall 50 basis points, effective May 18, the People’s Bank of China said on its website on May 12. The level for the nation’s largest lenders will decline to 20 percent based on previous statements.

Valuations

China’s industrial output rose 9.3 percent in April from a year earlier, the statistics bureau reported on May 11. That missed a 12.2 percent median estimate in a Bloomberg News survey of 32 economists.

Trading on the Micex slumped 30 percent in April from the month before compared with a 22 percent drop in the same period a year earlier.

Russian stocks trade at 5.1 times estimated earnings, having lost 4.6 percent this year. That compares with a 4 percent gain for the MSCI Emerging-Market Index which trades at 9.6 times projected earnings.

-- With assistance from Jason Corcoran; Editors: Alex Nicholson, Gavin Serkin

To contact the reporter on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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