Russia Stocks Drop to Month-Low as LSR, Inter RAO Fall on MSCI

Russian stocks slid to the lowest level in a month as builder LSR Group (LSRG) and power company OAO Inter RAO UES dropped after MSCI Inc. cut them from an index tracked by investors.

The Micex Index (INDEXCF) fell 1.1 percent to 1,493.08, the lowest since Oct. 8, by 10:58 a.m. in Moscow. Of 50 stocks, 48 declined and 2 were little changed. Inter RAO slumped 3.3 percent to 0.86 kopeks, the lowest since March 2009, while LSR sank 4.6 percent to 560.10 rubles. OAO TMK retreated 0.3 percent to 88.05 rubles.

All three stocks were removed by MSCI in its index rebalancing announced late yesterday. The changes take effect after the close on Nov. 26. The Micex rallied the most in almost three weeks yesterday as the European Central Bank lowered its benchmark interest rate to a record 0.25 percent.

“Inter RAO, LSR are falling because of their removal from MSCI as fund managers adjust their holdings,” Oleg Popov, who manages $1 billion of securities for Allianz Investments, said by phone in Moscow. “The market gained a lot yesterday on the unexpected ECB rate cut, so today people are fixing profits.”

OAO Moscow Exchange, which was added by MSCI, rose as much as 1.7 percent before trading little changed at 60.96 rubles.

Russia’s central bank will probably leave its main lending rates unchanged for a 14th month at its meeting today, according to all 24 economists in a Bloomberg survey.

Rates Meeting

Policy makers have held rates for more than a year in a bid to tame inflation, which probably eased to 6.1 percent this month, the Economy Ministry said in an e-mailed report Nov. 1. The rate was 6.3 percent in October. Russia cut its average annual economic growth forecast to 2.5 percent through 2030, Economy Minister Alexei Ulyukayev said yesterday.

“A rate cut would be very positive for the economy, especially the banks need growth stimulus,” Allianz’s Popov said.

Russia-dedicated equity funds lost $53 million in the week ended Nov. 6, the largest weekly outflow since September, according to an e-mailed note from UralSib Capital, citing EPFR Global data.

The RTS Index (RTSI$) dropped 1.6 percent to 1,444.90. Russian equities have the cheapest valuations among 21 emerging economies monitored by Bloomberg, with shares on the Micex trading at 4.2 times projected 12-month earnings, compared with a multiple of 10.5 for the MSCI Emerging Markets Index.

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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