Bloomberg News

RTS Futures Gain as Valuation Draws Fund Flows: Russia Overnight

May 26, 2013

Russian stock futures climbed and a measure of expected swings in the contracts (VEA) declined on speculation demand for the cheapest emerging-market equities may revive after the benchmark index’s biggest drop in a year.

Contracts on Moscow’s dollar-denominated RTS Index due in June rose 0.4 percent to 139,220 in New York hours May 24 while the RTS Volatility Index dropped 5.1 percent to 23.24. The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. sank 2.2 percent last week to 92.01, plunging for a third week. OAO Rostelecom had the steepest decline on the gauge, while CTC Media Inc. surged. Russia’s benchmark Micex Index (INDEXCF) tumbled 1.5 percent for a second week of declines.

Russia-dedicated funds posted a third consecutive week of inflows in the period ended May 22, the longest stretch since the third quarter of 2012, said Cameron Brandt, research director at EPFR Global. Stocks on the Micex, the cheapest of 21 emerging-market benchmarks tracked by Bloomberg, trade at an average multiple of 5.2 times estimated earnings, compared with a ratio of 13.8 for India’s S&P BSE Sensex index.

“That is quite a shift,” Brandt said on May 24 by phone from Cambridge, Massachusetts, referring to the inflows. “Russian equities represent a pocket of value to some people.”

The Bloomberg Russia-US gauge has retreated 7.4 percent this year, compared with a 1.4 percent gain for the Sensex. The Micex is down 6.4 percent. The Market Vectors Russia ETF (RSX:US), the largest dedicated Russian exchange-traded fund, lost 0.8 percent to $26.92 on May 24 and was unchanged from the previous week. The Micex gauge fell to 1,380.88, the lowest since May 16.

CTC, Rostelecom

“Chances are the market will gain,” Igor Nuzhdin, an analyst at Alfa Capital Management, which oversees 80 billion rubles of equities and fixed-income securities, said by phone from Moscow on May 24. “We are seeing a return in interest to emerging markets and particularly Russia as inflows in Russia-dedicated funds increase.”

CTC Media Inc. (CTCM:US), the Nasdaq-listed Russian television network, climbed 8.1 percent to $12.54 last week in New York. The Moscow-based company, which will repurchase 2.5 million shares on the market by March 4, 2014, has gained 61 percent this year.

Rostelecom, the Moscow-based phone provider, slid 6.8 percent to a one-month low of $20.50 on the week.

Yandex NV (YNDX:US), the nation’s biggest Internet company, fell 6.8 percent last week to $27.04, the first drop in five weeks.

Russian regulator Roskomnadzor included VKontakte, the country’s biggest social network, to the list of banned websites “by mistake”, making it unavailable in St. Petersburg, the Chita and Urals regions for several hours on May 24, the regulator’s spokesman spokesman Vladimir Pikov said by phone May 24.

Borrowing Costs

Lowering the refinancing rate to between 5 percent and 6 percent from 8.25 percent would allow banks to reduce loan costs and make “a big difference for the industry,” Andrey Kostin, chief executive of VTB Group, Russia’s second-largest state bank, said in an interview with Bloomberg TV’s Ryan Chilcote in London May 21.

Kostin’s appeal added to months of government calls for policy makers to cut borrowing costs to spur economic growth amid Russia’s slowest expansion since a 2009 contraction. First Deputy Chairman Alexey Ulyukaev said at an investment conference in London May 21 “the situation from the economic point of view has more or less stabilized” and further easing isn’t warranted.

Crude Sinks

Futures expiring in June on Russia’s ruble showed the currency little changed at 31.74 per dollar, after gaining 0.3 percent to 31.32 in Moscow on May 24. The currency strengthened 0.2 percent to 35.467 against the dollar-euro basket used by the central bank.

Crude for July delivery dropped 1.9 percent last week, the most in a month, to $94.15 a barrel on the New York Mercantile Exchange. Brent oil for July settlement increased 0.2 percent to $102.64 on London’s ICE Futures Europe exchange May 24. Urals crude, Russia’s major export blend, slid 1.6 percent last week to $102.10.

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

To contact the editor responsible for this story: Laura Zelenko at lzelenko@bloomberg.net


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Companies Mentioned

  • RSX
    (Market Vectors Russia ETF)
    • $23.1 USD
    • -0.45
    • -1.95%
  • CTCM
    (CTC Media Inc)
    • $8.85 USD
    • -0.24
    • -2.71%
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