Most Russian stocks dropped as OAO Magnit slid the most in five months on concern food-import bans imposed in retaliation for U.S. and European sanctions will hurt earnings of retailers. The ruble fell for a sixth day.
Magnit, the nation’s largest supermarket chain, retreated 5.2 percent and its shares in London slumped. OAO Dixy Group and Lenta Ltd. lost 1.8 percent and 4.1 percent. The Micex Index (INDEXCF) slid as much as 2.1 percent before trimming declines after an unconfirmed report that a leader of a pro-Russian separatist group in Ukraine resigned. The ruble weakened 0.3 percent versus the dollar by 6 p.m. in Moscow, when the central bank stops market operations.
Investors already deterred by the escalating crisis in Ukraine are selling retailers’ shares on concern the import restrictions will cut into revenue, ING Groep NV and BNP Paribas SA say. Russia’s import curbs include all cheese, fish, beef, pork, fruit, vegetables and dairy products from the U.S., the European Union, Canada, Australia and Norway.
The restrictions “will amplify the effects of financial and sectoral sanctions imposed on Russia,” Dmitry Polevoy, an economist at ING Bank in Moscow, said in an e-mailed note. “This will likely add to overall sanction costs via higher food inflation and so will have a widespread effect on households.”
Russia’s dollar-denominated RTS Index (RTSI$) retreated as much as 2.3 percent before closing down 0.3 percent, while Ukraine’s UX Index decreased 1.3 percent. The ruble depreciated to 36.2985 per dollar, the weakest on a closing basis since March 20, the day before President Vladimir Putin signed legislation completing the annexation of Ukraine’s Crimea peninsula and triggering the worst standoff between Russia and the U.S. since the Cold War.
The Micex has tumbled 7.7 percent since Putin’s incursion into Crimea began on March 1, compared with an 8.8 percent advance in the MSCI Emerging Markets Index. Ten of the Micex’s 50 stocks were trading above the 50-day moving average yesterday, the fewest since March 28.
An unconfirmed Twitter feed under the name of Alexander Borodai said the account was hacked and Borodai is still the prime minister of the self-styled Donetsk People’s Republic. An earlier post, later removed, said he planned to resign.
“The report that Borodai has resigned moved the market,” Vadim Bit-Avragim, who helps oversee about $4.1 billion at Kapital Asset Management LLC in Moscow, said by phone. “He is the main ideologist of the separatist movement and his resignation would signal a de-escalation of the conflict.”
Putin yesterday ordered import restrictions in response to deeper sanctions by the U.S. and European Union, which last week limited the ability of state-controlled lenders to sell bonds and shares in the 28-nation bloc.
The ban comes as the U.S. joined NATO and Poland in warning about the risk of Russia sending troops into Ukraine even as Russia called reports of a military buildup on its western border “groundless.” In Ukraine’s eastern regions, government troops are pressing ahead with an offensive against pro-Russian insurgents that prompted officials in Kiev to say this week that victory was near.
X5 Retail Group NV (FIVE), Russia’s second-largest supermarket chain, fell 5.5 percent to $16.90 in London trading, the most since March 3. O’Key Group SA (OKEY)’s global depositary receipts dropped 2.4 percent.
“The initiative will drive negative sentiment toward retail chains, particularly those with a higher share of imports,” Sberbank CIB analysts, led by Mikhail Krasnoperov, said in an e-mailed note today.
Still, food imports make up only 10 percent of sales at Magnit, with the EU and U.S. comprising about 1 percent, Sberbank estimates. “Magnit is the least exposed,” it said. “Putting aside negative sentiment, the decree should not have material implications for the retail chains we cover.”
Imported goods account for as much as 25 percent of retail sales in Russia, Andrey Karpov, executive director of the Retail Companies Association, said by phone yesterday. Russia imported $43.1 billion of food and raw agricultural materials last year, including $36.9 billion from countries outside the former Soviet republics in the Commonwealth of Independent States, according to Federal Customs Service data.
“On Ukraine, it is clear the only way is an internal political solution based on a certain degree of federalism,” Martial Godet, head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “In the meantime, investors will continue to reduce their Russian holdings.”