Russia Stocks Decline as Crude Retreats on U.S. Budget Concern

Russian (INDEXCF) equities declined, erasing earlier gains, as oil traded near the lowest level in almost a week on concern U.S. lawmakers will run out of time to resolve a budget dispute.

The 50-stock Micex Index lost 0.4 percent to 1,471.73 by the close in Moscow, the lowest level since Dec. 17. The gauge has added 5 percent this year. OAO Mechel (MTLR), Russia’s largest coking-coal producer, dropped 2.3 percent. Federal Grid Co. declined 2.2 percent. The amount of shares traded on the gauge was 51 percent below the 10-day average, according to data compiled by Bloomberg.

“The normal seasonal lull this week will be interrupted by expected intensifying negotiations between the U.S. presidential administration and Congress over terms to avert the consequences of higher taxes and spending cuts scheduled for Jan. 1,” Chris Weafer, Sberbank CIB’s chief strategist, said in an e-mailed report.

House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach agreement to avert the more than $600 billion of tax increases and spending cuts. The Congressional Budget Office has said that a failure to avert those changes, known as the fiscal cliff, will probably lead to a recession in the first half of 2013.

Rosneft Loan

Crude, Russia’s biggest export earner, slid 0.5 percent to $88.25 a barrel in New York, the second day of declines, near the lowest level in almost a week.

Russia receives about half of its budget revenue from the oil and gas industry. The country’s markets are closed for New Year and Christmas holidays in the first week of 2013 until Jan. 8. The last day of trading this year is Dec. 28.

OAO Rosneft, Russia’s largest oil producer, climbed 1.1 percent to 265.09 rubles, the biggest gainer and the highest level since April 8. The shares have added 24 percent this year. Rosneft today said it signed two loan agreements for a total of $16.8 billion to finance the purchase of BP Plc’s share of TNK- BP.

The RTS Index (RTSI$), Russia’s dollar-denominated equity gauge, rose 0.2 percent to 1,515.87. The Bloomberg Russia-US stocks gauge dropped 1.3 percent to 97.49 on Dec. 21, the most since Nov. 27. The Market Vectors Russia ETF (RSX), the biggest U.S. exchange-traded fund that holds Russian shares, decreased 1.4 percent to $29.55 on that day.

The Micex trades at about 5.4 times estimated earnings. That compares with a multiple of 10.6 times for the MSCI Emerging Markets Index, which has gained 14 percent.

Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.

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 wmoskwa@bloomberg.net

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