Russia Stocks to Ruble Rally on Relief Sanctions Weren’t Tougher

July 30 (Bloomberg) -- Atul Lele, chief investment officer at Deltec International Group, discusses finding investment opportunities in conjunction with Russian sanctions and the moral and legal issues involved. He speaks with Tom Keene on “Bloomberg Surveillance.”

Russian stocks gained for a second day and the ruble strengthened for the first time in a week as some investors saw U.S. and European Union sanctions as milder than anticipated.

The benchmark Micex Index (INDEXCF) added 0.9 percent to 1,382.14. Russia’s currency rose 0.7 percent to 35.5365 per dollar as of 6 p.m. in Moscow. That pared its decline in July to 4.4 percent, still the steepest monthly loss since January and the worst drop in the period among 24 emerging-market peers tracked by Bloomberg.

EU governments agreed on sanctions yesterday that prevent Russian state-owned banks from selling shares or bonds in Europe, restrict the sale of machinery to modernize the oil industry and bar export of equipment with military uses. That was followed by U.S. penalties against three Russian banks, including VTB Group, and a state-owned shipbuilder. OAO Sberbank, Russia’s biggest lender, wasn’t on the U.S. list and syndicated loans weren’t included.

“The ruble was oversold beyond any real threat,” Pavel Demetchik, a foreign-exchange trader at ING Groep N.V. in Moscow, said in e-mailed comments. He said he saw investors closing long positions in the dollar.

The currency weakened yesterday to a level that indicates to some traders it’s oversold. The relative strength index exceeded 70 and topped the upper Bollinger band.

Sberbank gained 0.7 percent to 73.68 rubles. The lender has the third-biggest weighting in the 50-stock Micex gauge at 12 percent. VTB shares fell 1.3 percent, headed for a 3.6 percent retreat in the month.

Trading Halt

The trading session in Moscow was interrupted by an almost two-hour halt in stocks and bonds. The bourse said in an e-mailed statement that a technical fault was responsible for the shutdown.

“The markets were preparing for a much worse” outcome, Luis Costa, a London-based strategist at Citigroup Inc. in London, said in e-mailed comments. “The fact that Sberbank was not on the list suggests the EU and the U.S. continue to be very gradual with their sanctions approach.”

The EU is set to announce today the names of three organizations and eight more people to be hit by sanctions. The ruble advanced 1 percent to 47.5495 against the euro and gained 0.9 percent amount versus the central bank’s target basket of dollars and euros to 40.9426.

The Micex’s 14-day relative strength index fell below 30 on July 28.

‘Played Out’

“The sanctions turned out to be not as harsh as people had expected,” Vladimir Bragin, head of research at Alfa Capital in Moscow, said by phone. “The market has played out most of the negative news.”

The Micex trades at 5 times estimated earnings, making it the cheapest measure among 21 emerging markets tracked by Bloomberg. That compares with a multiple of 5.3 at the end of February, before Russia’s incursion in Crimea. The dollar-denominated RTS Index (RTSI$) added 2.4 percent.

Twelve stocks yesterday traded above the 50-day moving average. One closed at a new 52-week high and one closed at a new 52-week low. Of 50 stocks on the Micex, two closed with a relative strength index above 70 and five with an RSI below 30.

The yield on February 2027 bonds declined seven basis points to 9.4 percent. While generic 10-year yields fell five basis points to 9.46 percent, dropping for the first day in five, they are still poised for their biggest increase since May 2009, data compiled by Bloomberg show. The Finance Ministry scrapped its weekly debt auction yesterday, the first back-to-back cancellations since April.

Russia’s central bank is prepared to take “adequate” measures to support banks on the U.S. and EU sanctions list, the central bank said in a website statement.

The central bank unexpectedly raised its key one-week auction rate 50 basis points to 8 percent on July 25. External shocks, including rising geopolitical tension, may threaten policy makers’ 4 percent mid-term inflation target and persistent risks may trigger another rate increase, it said.

To contact the reporters on this story: Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Chris Kirkham, Gavin Serkin

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