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Russia Missing Opportunity to Boost Trading in Micex Revamp

Russia’s stock exchange is missing an opportunity to boost trading as it reorganizes its benchmark equity index, according to the asset management arms of OAO Sberbank, Alfa Bank and VTB Group.

The Moscow Exchange will add 20 new stocks to the ruble- denominated Micex Index (INDEXCF) from tomorrow, making its composition identical to the 50-stock RTS Index (RTSI$), which will remain priced in dollars. The move won’t increase trading volumes, as the Micex will remain skewed toward the biggest companies, according to Sberbank Asset Management, VTB Capital and Alfa Capital.

OAO Lukoil, OAO Gazprom and Sberbank, the largest stocks on the Micex, have a combined weighting of about 40 percent, compared with an average of 26 percent for the three leading companies in the benchmark gauges of Brazil (IBOV), India and China, data compiled by Bloomberg show. The Moscow Exchange should reduce the number of stocks and rebalance both indexes based on the liquidity of the shares, Alfa and Sberbank said.

“The changes will hardly be able to boost liquidity and will barely be noticeable for the current 30 Micex shares,” Ilya Piterskiy, an analyst at VTB Capital, the investment banking arm of Russia’s second-largest bank with about 90 billion rubles ($2.9 billion) under management, said by phone from Moscow on Dec. 14. “Investors may be concerned they’ll have to follow an index with more illiquid stocks.”

Putin’s Hub

The Micex Index rose 0.2 percent to 1,469.53 by the close in Moscow. The Micex has gained 4.8 percent this year, while the RTS has climbed 7.9 percent. That compares with a 25 percent rally in India’s BSE Sensex 30 Index (SENSEX), the Brazilian Bovespa Index’s 5.4 percent gain and a drop of 1.8 percent for the Shanghai Composite Index. (SHCOMP) The amount of shares traded on the Micex last month fell 21 percent from a year ago, data compiled by Bloomberg show.

The changes in composition, announced by the stock exchange Nov. 22, are aimed at unifying the Micex and RTS gauges as President Vladimir Putin pursues his goal of turning Moscow into a global financial hub. The Moscow Exchange, created in 2011 when the Micex Stock Exchange merged with the RTS Exchange, offers stock, bond, currency and futures trading.

The Moscow Exchange is working on solving the issue of the Micex’s weighting toward the largest stocks, Sergey Golovanev, head of the exchange’s index and market data department, said by e-mail Dec. 6. While the bourse introduced a rule limiting the index weighting of the top five stocks to 55 percent in September, the gauge “reflects the reality” of Russia’s market, which is dominated by big energy companies, Golovanev said.

More Liquid

Russia, the world’s biggest energy exporter, receives about 50 percent of federal budget revenue from the oil and natural gas sector.

“The introduction of new stocks into the Micex will make them more liquid” as a result of demand from hedge funds and asset managers which trade the index, Golovanev said.

The exchange should have reconsidered the index composition based on the liquidity, free-float and capitalization of each stock, said Anton Rakhmanov, general director at Sberbank Asset Management, which oversees about 80 billion rubles in assets.

“The increase in the number of companies in the index needs to be done in a smart way, the exchange needs to look at the liquidity of each stock,” Rakhmanov said by phone in Moscow Dec. 5. “If this is done in a stupid way, just based on a mathematical model, nothing good will come out of this, because we’ll just see a skew toward several big stocks.”

‘Weird Step’

Russia needs to stoke interest in its equity market to attract investors who are more interested in trading the country’s stocks abroad. Daily trading volumes for OAO MegaFon, the last Russian company to sell shares to the public, have averaged 3.9 million shares in London since Nov. 29, compared with about 23,500 in Moscow, data compiled by Bloomberg show.

“This is a weird step on behalf of the exchange,” Vladimir Bragin, the head of research at Alfa Capital (ALFCAPE) in Moscow, which manages $2.6 billion, said by phone. “While we’re forced to buy these stocks, their weighting will be very small and even if they turn a huge profit, we’ll barely feel it. For some reason, the exchange didn’t focus on these issues.”

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

To contact the editor responsible for this story: Wojciech Moskwa at gserkin@bloomberg.net

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