Bloomberg News

Russian Stocks Surge Most in 3 Months on Crude; Lukoil Rallies

May 29, 2012

Russian stocks rose for a second day, pushing the benchmark gauge to its strongest advance in three months, as crude climbed and OAO Lukoil jumped on a plan to list in Hong Kong.

The Micex Index added 2.8 percent to 1,327.08 by the close in Moscow, the biggest gain since Feb. 24. Lukoil, Russia’s second-biggest oil producer, increased 3.6 percent on the plan to list more than $1 billion of its existing shares within a year. The oil company has the largest weighting on the Micex at 16 percent. Federal Grid Co. and OAO MRSK Holding sank more than 1.8 percent after Kommersant reported Rosneftegaz may take control of the utilities.

Crude for July delivery climbed as much $1.35 to $92.21 a barrel in New York. U.S. home values fell in the 12 months ended in March at the slowest pace in more than a year, signaling that the housing market is stabilizing. Russia, the world’s biggest energy exporter, received almost 50 percent of budget revenue from oil and gas sales last year.

“This growth may last until the end of May,” Dmitry Mikhailov, who manages $130 million in assets at Renaissance Capital in Moscow, said by phone. “Right now investors are buying back excessively cheap shares of Sberbank and Lukoil, which got completely sold off in the past two weeks.”

The nation’s benchmark stock gauge dropped more than 20 percent from a March 14 high, and sank to 1,287.79 on May 17. The retreat below 1,260 sets the stage for a retracement level of 61 percent to 1,485, Richard Ross, a technical strategist at Auerbach Grayson & Co., said by e-mail from New York on May 25.

MRSK, Federal Grid Fall

Russia’s Micex Index (INDEXCF), the first of the largest emerging markets to enter a bear market in 2012, will gain 15 percent by the end of the year, Ross said.

“We’re seeing the market bounce back a little and oil is rising,” Mark Rubinstein, an analyst at IFC Metropol in Moscow, said by phone. “The Micex will remain in the 1,300 area, we might see a drop by the end of the week.”

MRSK Holding, the country’s largest electricity distribution company, fell to 1.71 rubles, the lowest level since August 2009. Federal Grid, Russia’s monopoly for high- voltage power transmission lines, dropped to 19.15 kopeks.

The government plans to propose a single team of directors for the two companies’ boards, Kommersant reported, citing people familiar with the situation. At the same time, stakes in MRSK and Federal Grid will be transferred to a unit of Rosneftegaz, the state company chaired by former Deputy Prime Minister Igor Sechin, the paper said.

OAO Sberbank, Russia’s biggest lender, rose 4.7 percent to 84.11 rubles, the most since Nov. 30. Bank Rossii may sell its 7.6 percent stake in the state-controlled lender as early as September after the goverment approves the timeline on May 31, a person familiar with the matter said.

State Stakes

The Russian government’s updated state asset sales plan has been approved and will be signed by Prime Minister Dmitry Medvedev before May 30, Interfax reported, citing an unidentified person in the government. The government will proceed with the asset sales, adjusting the timing of the deals, even as markets remain volatile, Medvedev said at a government meeting in Moscow on May 21.

Russian President Vladimir Putin added state stakes in OAO RusHydro, Federal Grid and MRSK and one share of OAO Rosneft, to a list of strategic assets that precludes their sale, Interfax reported on May 22, citing a government decree.

Russia’s energy companies added to the list of strategic assets may be prepared for privatization by the government as there are no legal obstacles to their sale, Interfax reported today, citing Elvira Nabiullina, President Vladimir Putin’s chief economic aide.

Strategic List

“The inclusion of companies in the strategic assets list is Putin’s way of maintaining his control over which companies get privatized,” Mikhailov said.

Russian stocks trade at 4.5 times estimated earnings, having lost 5.4 percent this year. That compares with a 0.7 percent gain for the MSCI Emerging-Market Index which trades at 9.4 times projected earnings.

The MSCI Emerging Markets Index rose 1.5 percent to 922.79 today, while the MSCI BRIC Index of shares traded in India, Brazil, Russia and China, gained 1.1 percent, the highest level since May 16.

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

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


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