OAO Sberbank (SBRCY:US) led declines in New York-traded Russian companies as protests against President Vladimir Putin deepened the country’s second bear market in less than a year.
American depositary receipts of Sberbank, Russia’s biggest lender, sank 8.3 percent yesterday to trade at the largest discount to its Moscow shares in six months. The Bloomberg Russia-US Equity Index (RUS14BN) of the most traded Russian stocks in New York fell 4 percent to 84.97, the lowest level since Oct. 7 while futures expiring in June on Russia’s RTS Index slid 2.1 percent to 128,085.
Activists are protesting in Moscow against alleged fraud in parliamentary elections, fueling political stability concerns in the world’s biggest energy exporter and deepening an equity slump that’s been sparked by evidence of a global economic slowdown. Putin won’t attend this week’s Group of Eight meeting in the U.S. Russia’s benchmark Micex Index (INDEXCF) dropped 3.5 percent yesterday, extending its decline from this year’s peak to 21 percent, as oil sank to a six-month low.
“The political factor plays a very significant role as Putin’s refusal to attend the G-8 summit has a negative impact on investors’ mood,” Veronika Chekina, an analyst at Infina Investment Company, said by phone from Moscow yesterday. “Investors are fleeing the market and Russia’s biggest companies are getting hurt the most.”
First Bear Market
Russia was the first of the so-called BRIC countries to enter a bear market in 2012 after the dollar-denominated RTS extended a 20 percent decline on May 14 from a March 15 peak. Brazil’s Bovespa Index followed the Russian gauge yesterday, completing a 21 percent drop from its peak. The BSE India Sensitive Index is down 13 percent from its high. The Shanghai Composite Index has been in a bear market for more than a year.
Russia-focused equity funds recorded $251 million of outflows in the seven days to May 9, the most this year, while China lost $127 million, India $148 million and Brazil $167 million, EPFR Global data show.
Putin, who was re-elected for his third term in the office in March, will skip the G-8 summit hosted by President Barack Obama this week. He’s set to become the first Russian leader to completely miss the meeting since the country was included in the group in 1998. Since Putin’s May 7 inauguration, activists have protested non-stop in the streets of Moscow.
“Investors see more potential political risks ahead in Russia should global growth sentiment collapse, and that also aggravates the valuations of Russian assets,” Sergey Dergachev, who helps oversee $8.5 billion in emerging-market funds at Union Investment Privatfonds in Frankfurt, said by e-mail yesterday.
Yesterday’s retreat was the second time the Micex entered a bear market in the past 12 months. The Micex fell more than 20 percent in August 2011 from that year’s high.
The Market Vectors Russia ETF (RSX:US), a U.S.-traded fund that holds Russian shares, fell 4.8 percent to $24.38 yesterday, the lowest since Sept. 4, 2009. The RTS Volatility Index, which measures expected swings in the index futures, rose 7.7 percent to 43.98 points in New York, the highest since Jan. 11.
Sberbank’s ADRs fell to $10.23, the lowest level in 2012, pushing the discount versus Moscow to 1.4 percent, the most since Dec. 13. The shares dropped 7.2 percent to 80.63 rubles, or $2.59. One ADR equals four ordinary shares.
OAO Mechel (MTLR), Russia’s largest coking coal producer, sank 7.9 percent to $5.91 yesterday, the lowest since April 2009. The retreat widened the discount to the Moscow-listed shares to 5.5 percent, the most since Jan. 26. The stock fell 4.4 percent to 194.40 rubles, or $6.25 in Moscow yesterday. One depositary receipts equals one ordinary share.
Oil, Russia’s major export commodity, fell to a six-month low and the Standard & Poor’s GSCI Spot Index of commodities dropped to the lowest since Dec. 19 as Moody’s downgraded 16 Spanish banks and the Federal Reserve Bank of Philadelphia’s general economic index shrank, bolstering concern that economic growth and fuel demand will weaken.
Crude oil for June delivery dropped 0.3 percent to $92.56 on the New York Mercantile Exchange yesterday, the lowest since Nov. 2, 2011. Urals crude, Russia’s chief export blend, fell 1.6 percent to $106.80. The S&P’s GSCI Index retreated 0.4 percent to 630.07 yesterday.
Brent oil for July settlement slipped 2.1 percent to $107.49 a barrel on the London-based ICE Futures Europe exchange yesterday, the lowest level since Dec. 30. Brent’s premium to the July West Texas Intermediate contract in New York narrowed to $14.55 a barrel.
Putin won’t attend the G-8 meeting in Camp David on May 18 through May 19 because he needs to continue forming the country’s new government, the Kremlin said in a May 16 statement on its website. Prime Minister Dmitry Medvedev, who stepped down as president to allow Putin’s Kremlin return, will travel to the U.S. for the summit.
The final composition of the government is expected to be released next week, after Medvedev returns to Moscow, Chris Weafer, chief strategist at Troika Dialog, the investment bank owned by state-run Sberbank, said in a May 17 e-mailed note.
“It seems the net result will be a mix of rotation of people between the Kremlin and White House and job-hopping within the existing cabinet,” Weafer wrote in the note. “Those hoping for a more extensive change with a big influx of new faces look set to be disappointed.”
United Co. Rusal (486), the world’s largest aluminum producer, sank 5.2 percent to HK$4.40 in Hong Kong trading as of the city’s noon break. The MSCI Asia Pacific Index slid 2.5 percent.
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