Russian stocks dropped to the lowest level in more than four weeks as Bank of America Merrill Lynch cut its outlook for equities in the world’s biggest energy exporter on concern oil prices will fall.
The Micex Index (INDEXCF) retreated 0.4 percent to 1,499.95 by the close in Moscow, the lowest since Oct. 7. OAO Pharmstandard, the nation’s biggest drugmaker, fell 4.3 percent to 1,637 rubles. OAO TMK, the world’s largest pipemaker by output, declined 2.1 percent to 87.12 rubles. OAO Inter RAO UES, this year’s worst Micex performer, lost 2.3 percent to 0.90 kopeks.
Bank of America cut its recommendation for Russia to a “modest” overweight from a “big” overweight on concern the price of Brent crude will drop, according to an e-mailed note today. Oil in New York added 1 percent to $94.32 after tumbling 1.3 percent yesterday, while Brent increased 0.3 percent to $105.59. Russia receives about half its budget revenue from natural gas and oil.
“We can envision a scenario where weakness in China, a return to dollar strength and progress with Iran negotiations leads to falling Brent and a bout of Russian underperformance,” Bank of America analysts led by Michael Harris, said in an e-mailed note.
Bank of America’s top picks among local shares are OAO Magnit’s local shares, OAO Mobile TeleSystems Russian-traded stock and OAO Sberbank’s preferred shares. TMK, Inter RAO and LSR Group may be removed from MSCI Inc.’s Russia Index, VTB Capital said Oct. 31. MSCI announces the index rebalancing results tomorrow.
Russia’s central bank will probably leave borrowing costs unchanged for a 14th month at its Nov. 8 meeting, holding the one-week auction rate, its new benchmark, at 5.50 percent at an Nov. 8 meeting, according to all 24 economists in a Bloomberg survey. The Micex has climbed 1.7 percent this year and trades 17 percent higher than this year’s low in June.
“The market isn’t going anywhere, it’s consolidating because there’s not much news,” Sergey Kucherenko, who manages about $50 million in Russian equities at OAO Nomos Bank in Moscow, said by phone. “Rates are likely to be kept unchanged, investors are closely watching the macroeconomic data.”
Russia’s November consumer-price growth will probably be 6.1 percent from a year earlier, the Economy Ministry said in an e-mailed report on Nov. 1. Policy makers led by Chairman Elvira Nabiullina have pointed to heightened inflation expectations in holding interest rates for more than a year, as their counterparts from Mexico to Hungary opted for stimulus to aid slumping economies.
Russian equities have the cheapest valuations among 21 emerging economies monitored by Bloomberg, with shares on the Micex trading at 4.3 times projected 12-month earnings, compared with a multiple of 10.6 for the MSCI Emerging Markets Index. Ten-day price swings on the Micex fell to 6.217 from 9.559 yesterday.
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