Russian stocks rose the most in six weeks in New York after talks on Ukraine yielded an accord aimed at easing the conflict, prompting investors to snap up shares of the cheapest major emerging market.
The Bloomberg index of Russian shares listed in the U.S. surged 4.1 percent to 83.89 yesterday while the Market Vectors Russia (RSX:US) exchange-traded fund soared 6.1 percent for the biggest advance since November 2011. VimpelCom Ltd., Russia’s third-biggest mobile operator and OAO Mobile TeleSystems, the largest wireless carrier, both jumped 8.6 percent. U.S. equity markets are closed today for a holiday.
Talks in Geneva yesterday between representatives of Russia, Ukraine, the U.S. and the European Union ended with an agreement to “de-escalate tensions and restore security,” the four said in a joint statement. Deadly clashes in the east of Ukraine this week halted a record inflow of money into the Market Vectors ETF after investors had been betting sanctions imposed on Russia wouldn’t curb economic growth. The Market Vectors fund this week posted its first outflow since March 3.
“Traders are rushing in with the belief that this is a watershed event and this will solve the issue,” Tim Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, which helps manage about $1.5 billion in assets, said by phone yesterday. “I’m not surprised to see Russian equities rally on any piece of good news because it’s been a lot of bad news and there are real attractive valuations here.”
Russia’s benchmark Micex Index (INDEXCF), which tumbled 12 percent this year through April 17, is the cheapest among 21 developing countries monitored by Bloomberg, trading at 4.9 times estimated earnings. That compares with a valuation of 14 for India’s S&P BSE Sensex Index and of 10 for Brazil’s Ibovespa. VimpelCom had tumbled 8.2 percent in the month to April 16, while MTS plunged (MBT:US) 10 percent in the same period.
The Bloomberg U.S.-Russia gauge added 1.9 percent in the week, while the Market Vectors fund climbed 2.1 percent to $23.99. The Micex rose 2.3 percent to 1,360.52 by 11:04 a.m. in Moscow today.
The Geneva statement called for all illegal armed groups in Ukraine to be disarmed, all seized buildings to be returned to their legitimate owners and occupied public places to be vacated. An amnesty will be granted to protesters. A mission from the Organization for Security and Cooperation in Europe will help oversee the measures. A new constitutional process will aim to establish “a broad national dialogue.”
The U.S. and its European allies have accused Russia of stoking unrest and threatened to ratchet up sanctions. Pro-Russian separatists seized government buildings in eastern Ukraine and NATO estimates 40,000 Russian troops are massed on the border. The east and south of Ukraine are historically parts of Russia, Putin said in a televised question-and-answer session in Moscow yesterday.
“Putin has shown he’s unpredictable and seemingly listens to no one and is pretty much in control here,” Ghriskey said.
Investors pulled $34 million (RSX:US) from the Market Vectors ETF on April 16, the first outflow from the ETF since March 3. That is a change from last month when a record $574 million was deposited into the ETF, according to data compiled by Bloomberg.
Russia’s economy may expand less than 0.5 percent or may not grow at all this year, Finance Minister Anton Siluanov said in Moscow on April 15. Capital outflows rose to $50.6 billion in the first three months of the year from $27.5 billion a year earlier, the central bank said. The ruble has tumbled 7.7 percent this year, the most among 24 developing-country currencies after Argentina’s peso.
MSCI Inc., whose indexes are used by money managers with an estimated $8 trillion of assets, said this week it may start a public review of how to treat Russian and Ukrainian stock benchmarks if investor access to those markets becomes restricted.
The RTS Volatility Index, which measures expected swings in futures, sank 9.4 percent to 32 in U.S. hours while RTS stock-index futures expiring in June rose 3.6 percent to 118,200.
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