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Market Vectors Russia ETF
Russian stocks surged the most in four months as oil rallied after European leaders moved closer to containing the region’s debt crisis, boosting investor appetite for equities in the world’s biggest energy exporter.
The Micex Index (INDEXCF) gained 3.3 percent to 1,387.52 by the close in Moscow, its strongest advance since Feb. 24. The gauge has lost 8.6 percent this quarter, compared with an 8.2 percent increase in the first three months of the year. Power stocks surged, with the MSCI Russia Utility Index (MXRU0UT) rising 5.9 percent, the most since Jan. 3. Banks rallied, with VTB Group and OAO Sberbank, the nation’s biggest lender, adding at least 6.9 percent.
Emerging-market stocks rallied after European Union President Herman Van Rompuy said leaders of the 17 euro countries dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks. Crude oil gained 5.8 percent to $82.23 a barrel in New York. Oil and gas contribute about 50 percent to Russia’s state revenue.
“The European decision is not a game changer, but it buys time,” Farhan Kazmi, head of emerging-market equities at Credit Suisse Group AG in Moscow, said by phone. “People will be closely watching how things develop in the fiscal union in Europe.”
MSCI Inc.’s Russia Energy Index (MXRU0EN) rallied 4.5 percent to 936.63, the most since Feb. 24. The RTS dollar-denominated index added 5.4 percent to 1,350.51, the most since May 2010.
OAO MRSK Holding, the country’s largest electricity distribution company, and Federal Grid Co., the high-voltage transmission monopoly, were the worst performers on the Micex this quarter, losing more than 38 percent. MRSK added 5.1 percent to 1.779 rubles today, while Federal Grid gained 3.1 percent to 19.57 kopeks.
“The market has been under pressure from escalating risk aversion driving risk premiums higher and valuation lower” this quarter, Alex Kantarovich, head of research at JPMorgan Chase & Co. in Moscow, said by e-mail on June 25. In the third quarter, “volatility may persist given the markets may continue to lack clarity on the Euro crisis development and the risks are on the downside.”
Among 30 stocks traded on the Micex, 26 declined in the third quarter. OAO Uralkali, the largest producer of potash by output, rose 12 percent this quarter. OAO Magnit increased 7.1 percent in the period as four-month net retail revenue jumped 32 percent through April.
Russian stocks trade at 5 times estimated earnings, having lost 1.1 percent this year. That compares with a 2 percent advance for MSCI’s emerging-market gauge which trades at 9.6 times projected earnings.
Russian equities will maintain the lowest valuations among emerging-market stocks next quarter as the nation delays state asset sales, according to analysts at Alfa Capital Partners Ltd., JPMorgan and Libra Capital.
Prospects for the government sale of a stake in MRSK Holding faded after the company said on May 11 that it would merge with Federal Grid.
In April the government postponed a roadshow for a stock offering for OAO Sberbank, Russia’s biggest lender, as the bank’s shares dropped below a level at which officials were willing to sell. Igor Shuvalov, Putin’s first deputy, said on April 16 that the Sberbank sale may be delayed until 2013 or 2014
“The government sends ambiguous signals on privatization,” Alex Kantarovich, head of research at JPMorgan in Moscow, said by e-mail on June 25. “The external conditions are unsupportive as valuations remain depressed.”
The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, lost 1.4 percent to $24.80. The RTS Volatility Index, which measures expected swings in the index futures, fell 2.9 percent to 36.86 points in New York.
-- Editors: Alex Nicholson, Ash Kumar
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