Russia Stocks Gain on Oil, UBS Lift to ‘Overweight’ as Risk Ebbs

Russian stocks strengthened for the first day this week as climbing crude lifted the outlook for companies in the world’s biggest energy exporter and UBS AG upgraded the country’s equities to “overweight.”

The 30-stock Micex Index (INDEXCF) rose 0.4 percent to 1,555.11 by the 6:45 p.m. close in Moscow, paring yesterday’s 0.9 percent drop. OAO Lukoil (LKOH), Russia’s largest oil producer, increased 1.3 percent. United Co. Rusal, the world’s biggest aluminum producer, surged 6.4 percent after the company’s deputy chief executive officer said demand for the metal will keep rising.

Oil advanced as much as $1.60 to $100.01 a barrel in New York after the American Petroleum Institute said late yesterday supplies last week fell for the first time in three weeks to 4.53 million barrels. Greek Prime Minister Lucas Papademos will meet with the nation’s political leaders to negotiate terms required for a 130 billion-euro ($172 billion) rescue package.

“Investors hope that confidence about an imminent Greek debt restructuring deal can be sustained or even validated today,” Chris Weafer, chief strategist at Troika Dialog, wrote in an e-mailed report.

UBS AG raised its recommendation on Russian stocks to “overweight” as the market benefits from a decline in equity risk premium and the shares trade at a discount to global markets, Nicholas Smithie, an analyst, wrote in an e-mailed report. The report didn’t give the previous recommendation.

Increasing Beta

“Russia still suffers from a lack of reform and from poor governance that detract from its investment potential,” Smithie wrote. At the same time “it acts as a trading vehicle and serves as a relatively easy way to increase portfolio beta,” he said.

The Micex is up 11 percent this year and trades at 5.7 times analysts’ earnings estimates for member companies.

The gauge retreated 17 percent in 2011, compared with an 18 percent drop for Brazil’s Bovespa index, which is valued at 10.5 times estimated earnings according to data compiled by Bloomberg. The Shanghai Composite Index trades at 9.6 times estimated earnings, and the BSE India Sensitive Index has a ratio of 15.7.

“There’s a lot of potential in Russia both on valuations and a gradually progressing reform agenda, you can make money, very good money, from having things go from being ‘not great’ to ‘not too bad,” Ed Conroy, who helps oversee $1.2 billion of Russian assets as a fund manager at HSBC Global, said by phone from London yesterday. “Russia trades at a 50 percent discount to emerging markets, making this a reasonably good entry point for investors with a two- to three-year view.”

Prime Minister Vladimir Putin has promised to reverse “repressive” state policies and protect private business in his campaigning. Putin is running for president amid protests against December elections that saw his United Russia party returned with a reduced majority.

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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