Russia Stocks Drop for First Week in Three on Government Concern

Russian stocks declined for the first week in three on concern President-elect Vladimir Putin’s new government won’t undertake changes necessary to reform the economy amid signs the global recovery is slowing.

The 30-stock Micex Index (INDEXCF) added 0.3 percent to 1,473.50 by the 6:45 p.m. close in Moscow, paring its steepest weekly drop in a month to 2.1 percent.

OAO Mechel (MTLR), Russia’s biggest producer of coal for steelmakers, lost 0.1 percent, while OAO EON Russia, the Moscow unit of Germany’s biggest utility, traded down 0.2 percent. OAO Aeroflot, the country’s largest airline, gained 4.1 percent, the most since Dec. 30. The dollar-denominated RTS Index was little changed at 1,593.97. Markets are open today to replace the April 30 public holiday.

Russia’s new government lineup is due to be announced after Putin’s inauguration on May 7. The former KGB officer, who was president from 2000 to 2008 before having to step down because of term limits, pledged during his campaign to boost pensions and support for small business. Emerging-market stock funds posted their third consecutive week of outflows on concern the European debt crisis may worsen, according to EPFR Global.

“Everyone is looking for some kind of a game plan from the new government,” Roland Nash, chief investment strategist at Verno Capital in Moscow, who helps manage $200 million in Russian equities, said by phone today. “There is a lot of uncertainty right now and the markets tend to hate uncertainty.”

Putin, who won his third term as president on March 4, has backtracked on a promise by current President Dmitry Medvedev -- whom he asked to be his premier -- to return to direct elections for governors, saying on April 11 that he will retain the right to veto candidates.

Euro Confidence, U.S. Jobs

Urals crude, the country’s main export earner, rose 0.2 percent to $117.36 yesterday, gaining 1.5 percent from last week, the first weekly advance in seven.

Oil may decline next week after economic confidence in the euro region fell and more Americans than estimated filed applications for unemployment benefits, a Bloomberg survey showed. Sixteen of 37 analysts, or 43 percent, forecast oil will retreat through May 4. Russia’s budget relies on oil and gas for about 50 percent of its revenue.

Under an Economy Ministry development proposal submitted to the government for approval, the oil and gas industry would make up about 10 percent of the country’s gross domestic product by 2030, from 20 percent currently.

Putin vowed to boost pensions and salaries for state workers and the military during campaigning, pledges that will contribute to a 4.8 trillion-ruble ($164 billion) increase in spending through 2018, according to Capital Economics Ltd. He also vowed to reverse “repressive” state policies and reduce government holdings in major non-commodity companies.

‘Unsteady’

“We don’t know what reforms they are going to implement, what the new cabinet is going to look like,” Nash said. “Until we have an understanding what the new government is going to do, the market will remain unsteady.”

The Micex will be open for trading on May 7 and 8 and closed on April 30, May 1 and 9 due to public holidays.

Russian shares have fallen 2.9 percent so far this month and trade at 5.4 times estimated earnings. That compares with a 2.1 percent loss for the MSCI Emerging-Market Index (MXEF) which trades at 10 times projected earnings.

The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, gained 0.5 percent to $29.89 in New York yesterday, the highest level since April 20. Futures expiring in June on the RTS Index added 0.2 percent to 155,225.

Mechel, Aeroflot, OGK-3

Mechel fell to 260.8 rubles. Trading volumes totalled 97,787, or 22 percent of the average three-month trading activity for the shares. EON Russia declined to 2.655.

Aeroflot rallied 4.2 percent to 48.81 rubles, the biggest daily gain since Dec. 30. The company boosted passenger numbers by 29 percent to 3.6 million from January to March, compared with a year earlier, Russia’s aviation authority reported yesterday on its website. The stock’s trading volume totalled 3.85 million, equivalent to 169 percent of the three-month average.

OAO OGK-3, the Russian electricity utility majority-owned by OAO Inter RAO UES, fell 1.3 percent to 1.057 rubles, the lowest closing level since Feb. 14.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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