Stocks and the ruble pared quarterly declines after Russian and U.S. officials held talks at the weekend, prompting optimism the Ukraine crisis won’t escalate.
The Micex Index (INDEXCF) added 0.3 percent to 1,347.59 by 11:01 a.m. in Moscow, trimming its drop this quarter to 10 percent, the most since the three months ended September 2011. The gauge entered a bear market in March. The ruble strengthened 0.5 percent to 35.5940 against the dollar, curbing an 7.8 percent slump this quarter, the worst performance among 24 emerging-market peers monitored by Bloomberg after Argentina’s peso.
The U.S. and EU will hold off applying direct economic sanctions against Russia, according to a Bloomberg survey of 20 economists. During four hours of meetings yesterday in Paris with Russian Foreign Minister Sergei Lavrov, U.S. Secretary of State John Kerry said “ideas and suggestions” were discussed and he would consult with President Barack Obama on next steps.
“No news has been good news over the past week,” Andrey Vashevnik, who manages $25 million as chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. “This quarter, the events surrounding the Ukraine crisis and the world community’s reaction have created risks for the Russian market. If the U.S. and Russia come to an agreement, the market will rise.”
Local markets are returning to levels seen before President Vladimir Putin’s decision to annex Ukraine’s Crimea region. Russia-dedicated stock funds received $219 million in inflows in the week ended March 26, according to e-mailed EPFR Global data.
The nation’s equities trade at 3.3 times estimated earnings, the cheapest valuations among 21 developing countries monitored by Bloomberg. That compares with a multiple of 9.9 times for the MSCI Emerging Markets index.
OAO Mechel (MTLR), the nation’s biggest coking-coal producer, gained 3.2 percent to 38.20 rubles. VTB Group, the country’s second-largest lender, rose 3.1 percent to 3.94 kopeks.
Kerry said Russia must pull forces back from Ukraine’s border as both sides seek a diplomatic solution, while Lavrov urged the government in Kiev to consider devolving power to give Ukraine’s regions more autonomy. Kerry and Lavrov met two days after Putin and Obama spoke by phone.
“The news of President Putin’s conversation with President Obama and the meeting of the two foreign secretaries in Paris yesterday offers encouragement to investors,” Chris Weafer, a partner at Macro Advisory in Moscow, said in an e-mailed note today. “Even though the threat of further sanctions remains on the table, the risk of moving into the economy-trade damaging category has eased considerably over the past few days.”
The U.S. and EU have imposed two rounds of asset freezes and travel bans on Russian and Ukrainian officials and associates of Putin, with the threat of economic sanctions if the confrontation escalates.
Russia fund inflows last week were the strongest since May 2013, UralSib Capital said March 28. Investors pulled $4.03 billion from Russian equities and bonds this year through March 26, approaching the total outflow of $6.1 billion for all of 2013, according to data compiled by EPFR Global.
Economists have reduced their expectations for Russia’s economic growth this year, projecting expansion of 1.2 percent, down from 2.2 percent last month, according to the median of 37 forecasts in a Bloomberg survey.
The dollar-denominated RTS Index (RTSI$) added 0.5 percent to 1,192.58, trimming a 17 percent slump this quarter. The yield on state debt due February 2027 fell three basis points to 9.06 percent.
The ruble climbed 0.5 percent to 41.6040 versus the central bank’s target basket of dollars and euros today.
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