Putin’s Government Appointments Spur ADR Rally: Russia
Russian stocks traded in New York rebounded from an eight-month low after President Vladimir Putin retained key ministers from the previous government to advance plans of state-assets sales and reform of the pension system.
The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. climbed 3.5 percent to 86.67, rebounding from the lowest level since Oct. 5. Futures expiring in June on Moscow’s dollar-denominated RTS Index rose 0.3 percent to 131,990 yesterday. OAO Mechel (MTLR), the nation’s largest producer of coal for steelmakers, led gains while OAO Sberbank (SBRCY), Russia’s biggest lender, surged the most in almost six months.
Putin, who returned to the presidency this month after four years as premier, appointed the country’s new Cabinet yesterday, keeping the same ministers for the finance, defense and foreign offices. The decision comes as Russian stocks entered a bear market after tumbling oil prices and anti-Putin protests intensified capital flight from the world’s biggest energy exporter.
“This looks encouraging,” Mattias Westman, founder of London-based Prosperity Capital Management, a Russia-focused fund manager with about $5 billion of assets, said by telephone from London. “The composition of the government proves that they are serious about reforms. The Russian shares are trading at valuations that are unheard of and cannot be sustainable.”
The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, rose 4.3 percent, the most since Dec. 20, to $25.20 yesterday. The RTS Volatility Index, which measures expected swings in the index futures, fell 1.7 percent to 41.38 points in New York.
OAO Mechel (MTL) advanced 11 percent to $6.07 in New York yesterday, gaining the most since Feb. 3. The company’s stock rose 2.4 percent in Moscow to 191.40 rubles, or the equivalent of $6.15. One ADR is equal to one ordinary share.
Sberbank gained 7.2 percent to $10.60, the most since Nov. 30, to trade at a premium to its Moscow-listed shares for the first time in eight sessions. The stock rose 4.5 percent to 81.90 rubles, or $2.63, in Moscow yesterday, gaining for the first time in four sessions.
Sberbank trades at 2.3 times estimated earnings, compared with the 8.5 valuation for the average company on the MSCI Emerging Markets Financial Companies Index.
“The Russian shares are very cheap,” Westman said. “They are trading at valuations that are unheard of and cannot be sustainable.”
Anton Siluanov kept the post of finance minister, Sergei Lavrov the foreign minister’s job and Anatoly Serdyukov remained as defense minister. Among other appointments, Putin named Andrei Belousov as economy minister and Alexander Novak as energy minister.
Putin replaced Igor Sechin with Arkady Dvorkovich as a deputy prime minister in charge of energy and appointed Olga Golodets, ex-deputy mayor of Moscow, as prime minister in charge of social policies. Putin reappointed First Deputy Prime Minister Igor Shuvalov.
“Markets react positively to the appointment of the new government because it removes uncertainty,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc in Moscow, said by phone. “From the market point of view, this new government is more reform-oriented, particularly because of Deputy Prime Ministers Dvorkovich and Golodets.”
Russia’s government will proceed with its planned state asset sales, even as markets remain volatile, Prime Minister Dmitry Medvedev said at a government meeting in Moscow yesterday. Russia plans to sell stakes in its largest companies including Sberbank and RusHydro, as soon as this year.
Oil gained in New York for the first session in seven yesterday, with crude for June delivery adding 1.2 percent to $92.57 a barrel on the New York Mercantile Exchange. Brent oil for July settlement increased 1.6 percent to $108.81 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s main export blend, rose 2 percent to $108.29.
The Standard & Poor’s GSCI Spot Index rose 0.7 percent to 633.68 yesterday, gaining the most since April 26.
Russia was the first of the so-called BRIC countries to enter a bear market in 2012 last week after the dollar- denominated RTS Index extended a 20 percent decline on May 14 from a March 15 peak. Equities slumped after oil, the nation’s largest export earner, fell to a six-month low.
Russia’s economy grew at an average annual rate of 7 percent during Putin’s presidency from 2000 to 2008 before plunging 7.8 percent in 2009. The government reduced its projection for economic growth this year to 3.4 percent, from 3.7 percent, because investment will be weaker than initially estimated.
United Co. Rusal (486), the world’s largest aluminum producer, rose 1.6 percent to HK$4.55 in Hong Kong trading as of 11:15 a.m. local time. The MSCI Asia Pacific Index gained 1.2 percent today on speculation China and Europe will take more steps to bolster economic growth.
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