Russia Stocks Advance as Citigroup Upgrades to Buy on Valuations

Russian equities, the cheapest among emerging markets, advanced after Citigroup Inc. (C) raised the nation’s stocks to overweight, citing low valuations.

The 50-stock Micex Index (INDEXCF) climbed 0.5 percent to 1,349.51 by 11:58 a.m. in Moscow after adding 0.9 percent last week. The dollar-denominated RTS Index (RTSI$) rose 0.6 percent to 1,275.92. The volume of shares traded on the Micex was 66 percent below the 30-day average. OAO Raspadskaya, a coal producer, was the biggest gainer with a 3.8 percent increase after resuming work at its flagship mine after a two-month halt.

The Micex trades at 5.1 times its 12-month estimated earnings, compared with a multiple of 9.5 for the MSCI Emerging Markets Index. Oil prices and dividend yields are the key drivers for Russian stocks, according to Citigroup analysts, who have an overweight recommendation on the nation’s financial and energy sectors. Crude oil traded near the highest price in 14 months, rising 0.1 percent to $103.36 as the U.S. added more jobs than forecast in June.

“Russia sits as our preferred central and eastern Europe, Middle East and Africa market for the second half of 2013 due to valuation reasons,” Citi strategist Richard Schellbach said in an e-mailed report. “We note that investor skepticism towards the market is high, and underperformance relative to emerging markets has continued throughout the first half of 2013.”

OAO Magnit, Russia’s biggest food retailer, added 1.8 percent to 7,162.10 rubles. OAO Dixy Group increased 1.7 percent to 475 rubles.

Economic Growth

The Micex dropped 0.5 percent on July 5 as U.S. payrolls rose by 195,000 workers, exceeding the median estimate of analysts for a 165,000 gain. The Micex dropped 2 percent on June 20 after comments by Fed Chairman Ben S. Bernanke that the regulator may wind down its bond buying if the economy performs in line with projections.

The Micex climbed to a five-week high on July 4 after European Central Bank President Mario Draghi pledged to keep interest rates low. Europe is Russia’s biggest trade partner.

Russia’s economy grew 1.6 percent in the first three months, the slowest pace since 2009. Bank Rossii held its refinancing rate at 8.25 percent on June 10. Brent oil fell 0.2 percent to $107.56 a barrel in London. Urals crude was little changed at $107.92.

Volatility Rises

The Russian Volatility Index, which measures expected swings in RTS futures, increased 5.8 percent, rising for the first day in 10, the longest streak of declines since December 2011.

The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. added 0.3 percent to 84.77 on July 5.

The 14-day relative strength index on the Micex climbed to 54. The RSI measures how rapidly prices have advanced or dropped during a specified time period and readings below 30 indicate a security may be poised to rise.

Twenty six stocks, or 52 percent, were trading above their 50-day moving average on the Micex on July 5. None closed on July 5 at a 52-week low or at a one-year high, according to data compiled 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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