Russia Stocks Set for Longest Rally Since 2005 as Ruble Weakens

The Micex Index (INDEXCF) rose for a 10th day, the longest winning streak in nine years, on bets President Vladimir Putin’s meeting with his Ukrainian counterpart next week will reduce tension. The ruble weakened.

The gauge added 1.1 percent to 1,463.73 at 4 p.m. in Moscow, bringing the 10-day advance to 9.8 percent, the biggest stretch of gains since the 11 days ended Sept. 2, 2005. The ruble lost 0.1 percent to 36.3295 per dollar.

Some investors are speculating the standoff over Ukraine may be closer to a resolution. President Petro Poroshenko andPutin agreed to meet in Minsk on August 26 to discuss de-escalation, RIA Novosti reported today. U.S.-based exchange-traded funds investing in Russian equities had inflows of $110 million since Aug. 7, equivalent to 4.9 percent of their market value, according to data compiled by Bloomberg.

“The geopolitical situation at this point is supporting the gains,” Joseph Dayan, head of markets at BCS Financial Group in London, said in e-mailed comments. “Investors feel more comfortable picking up more Russian equity.”

OAO Sberbank, the nation’s biggest lender, contributed most to the Micex rally, rising 1.4 percent to the highest level since July 22. U.S.-sanctioned independent gas producer OAO Novatek added 1.5 percent.

“There are some great levels for key assets in Russia such as Sberbank and Novatek,” Dayan said. “These are high quality blue-chip assets, priced exceptionally well.”

Ruble Weakens

The ruble, which declined for a third day today, is 0.7 percent away from a record low versus the dollar, weakened by falling oil prices. The commodity and gas account for half Russia’s budget revenue. Brent crude, to which the Urals blend is linked, fell 0.9 percent to $101.34 in London, 22 cents above the lowest level since June 2013 reached two days ago.

“The fundamental ruble dependency on oil prices is growing again” as they approach $100 a barrel, Vladimir Osakovskiy, chief economist for Russia and Commonwealth of Independent States at Bank of America Corp. in Moscow, said by e-mail. “Russia’s current account strongly depends on oil prices, and has risen in size and importance from last year.”

The government, which posted a budget surplus of 675 billion rubles in the seven months through July, plans to transfer 100 billion rubles ($2.75 billion) to 120 billion rubles into one of its sovereign wealth funds at the end of the year.

If oil prices stay near current levels until then, “there will be nothing left to transfer,” VTB Capital analysts Maxim Korovin and Anton Nikitin said in a research note.

Export Economy

The yield on 10-year local-currency bonds rose one basis point to 9.35 percent. The ruble declined less than 0.1 percent to 48.1970 per euro today and traded 0.1 percent weaker at 41.6784 against the central bank’s target basket of dollars and euros.

“A weaker ruble is not necessarily a bad thing for corporate Russia since it’s an export economy,” Dayan said.

The Micex trades at 5.2 times projected 12-month earnings, less than half the multiple for the MSCI Emerging Markets Index. Sberbank trades at 4.4 times forward earnings, compared with nine times for peers in the emerging-markets gauge.

“Russian shares are a proxy for perceived East-West tensions and any sign of a breakthrough -- however faint -- sparks a rally,” Nicholas Spiro, a managing director at Spiro Sovereign Strategy, said in e-mailed comments.

To contact the reporters on this story: Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net; Priyanka Sharma in London at psharma142@bloomberg.net

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

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