Prospects that Mikhail Khodorkovsky, the former Russian billionaire jailed a decade ago, will be freed in an amnesty program are leading Swedbank Robur and Prosperity Capital Management to predict a stock market rally.
The government is considering pardoning Khodorkovsky, whose case came to represent investor concern about the rule of law in Russia, as soon as next week, Mikhail Fedotov, the human rights adviser to President Vladimir Putin, said yesterday. The benchmark Micex Index, which plunged 13 percent on the day the former owner of Yukos Oil Co. was arrested in 2003, pared losses yesterday on Fedotov’s comments before closing down 0.7 percent.
Freeing Khodorkovsky, whose oil company was seized by the government after he was convicted of fraud, would signal Putin is seeking to address the human rights and corporate governance concerns that have spurred the biggest outflows from Russian equity markets since 1996, according to Prosperity Capital. Putin returned to the Kremlin last year after serving a stint as prime minister with a pledge to push Russia to 20th in the World Bank’s Doing Business ranking by 2018 from 92nd.
“This would send a message around the world that Russia is not in fact a repressive society,” Mattias Westman, chief executive of Prosperity Capital Management, which manages about $4 billion and is the largest Russia-focused money manager, said by phone from London on Dec. 2. “If investors not active in Russia buy into that, it could be helpful for the market.”
The Micex sank to a three month-low yesterday, following the worst monthly decline since May, amid the weakest pace of economic growth since a recession in 2009. Redemptions for Russia-dedicated equity funds reached $3.52 billion this year through Nov. 29, according to EPFR Global, the most since the Boston-based research firm started tracking flows.
Russia detained more than two dozen people after a rally before Putin’s inauguration last year. Two members of female punk group Pussy Riot remain in prison after performing a song critical of Putin inside Moscow’s main cathedral in February 2012. The amnesty may be declared by year-end and will apply to between 30,000 and 100,000 people not convicted of violent crimes, according to estimates by Fedotov and Vladimir Lukin, human rights ombudsman, who met with Putin yesterday.
“I think so,” Fedotov told reporters yesterday outside Moscow, when asked if the amnesty would apply to Khodorkovsky and Pussy Riot.
The Micex erased an earlier gain of as much 0.6 percent, falling 0.7 percent to 1,429.25 by the close in Moscow after better-than-expected U.S. economic data boosted speculation the Federal Reserve will curb stimulus.
Naming people who may be covered by the amnesty is “premature,” Putin’s spokesman Dmitry Peskov told reporters yesterday. Khodorkovsky’s lawyer Vadim Klyuvgant said he had “no concrete information” about his client being freed.
Khodorkovsky, 50, was arrested on the tarmac of a Siberian airport in 2003 and is serving almost 11 years in prison after two convictions for fraud, tax evasion and oil embezzlement. The former Yukos owner maintains his innocence, saying the cases against him were retribution for his opposition to Putin, which the Kremlin denies. He is due to be freed from prison next August, unless fresh charges are brought against him.
If Khodorkovsky is freed in the amnesty program, “it will help to improve the stagnated negative sentiment to Russia,” Elena Loven, who helps manage more than 1 billion euros ($1.4 billion) in Russian stocks at Swedbank Robur, Sweden’s second-largest lender, said by e-mail on Dec. 3. “It may be seen as an attempt to move in the right direction.”
The benchmark stock gauge climbed as much as 1.6 percent in August 2008 on a report, later retracted, that Khodorkovsky had been given parole.
Russia is struggling to lure foreign investors to counter capital outflows amid disputes at companies including OAO Pharmstandard, Russia’s biggest drugmaker, and OAO Uralkali, the world’s largest potash producer.
The Micex trades at 4.1 times estimated earnings, the lowest valuation among 21 emerging markets tracked by Bloomberg. OAO Gazprom, the nation’s biggest company and natural gas producer, trades at 3.1 times estimated earnings, while OAO Rosneft (ROSN), the biggest oil producer, trades at 5.8 times estimated profits. This compares with 9.5 times for PetroChina Co., China’s biggest oil and gas producer.
“The big state companies like Gazprom and Rosneft have the lowest valuations, so it could have the biggest impact on them,” Prosperity’s Westman said.
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