Dec. 5 (Bloomberg) -- Prime Minister Vladimir Putin’s success in retaining a majority in parliament in yesterday’s legislative elections guarantees stability and will provide a boost to the cheapest developing-nation stock market, according to Prosperity Capital Management.
Support for Prime Minister Putin’s United Russia party fell to about 50 percent in the Duma elections, from 64 percent in a 2007 vote, the electoral commission said on its website after 72 percent of the votes had been counted. Putin’s disapproval rating rose to the highest since he entered office in opinion polls last month.
Putin’s party “will still have the majority in the parliament, if there was some uncertainty, it now goes away,” Mattias Westman, managing director of Prosperity Capital, which has about $5 billion under management and calls itself the largest Russia-focused equity investor, said by phone from London yesterday. “Many politicians have been thrown out of their offices throughout the world following the crisis, while United Russia managed to keep the majority in the parliament.”
Futures on the country’s dollar-denominated RTS index expiring in December fell 0.8 percent to 153,065 by 2:50 p.m. on Dec. 2 as the Bloomberg Russia-US 14 Index of Russian companies traded in the U.S. lost 0.6 percent to 99.88, paring last week’s advance to 10 percent. Moscow’s 30-stock Micex index, which is down 11 percent this year, trades at 5.3 times analysts’ earnings estimates for member companies, the cheapest of the 21 emerging-market stock indexes tracked by Bloomberg.
Confirmation Putin’s party is still in control should be a “slight positive” for Russian stocks in trading today, said Westman, who likes consumer and energy companies such as OAO Gazprom, the world’s largest natural gas producer, and OAO Magnit, Russia’s largest food retailer.
The result was the worst for United Russia since 2003, when the party garnered 37.6 percent of the vote. Putin, a former KGB officer, announced in September that he would run for a third term as president, swapping jobs with President Dmitry Medvedev, who succeeded him in 2008 because of a constitutional limit on serving more than two consecutive terms.
The results of yesterday’s elections don’t “change the investment equation” for Russia, Ian McCall, a managing partner at Geneva-based Quesnell Capital SA, which manages the equivalent of about $116 million of emerging-market assets, said in a phone interview yesterday.
“United Russia has given us stability for two terms and we will get a third term of stability,” he said. “The weakening of their position is also a good sign. It is a sign of democracy.”
Gazprom, Russia’s gas export monopoly, fell 0.4 percent on Dec. 2 to $11.76 in New York, the biggest drop since Nov. 25. The company’s American depositary receipts climbed 14 percent last week, snapping two weeks of declines. Gazprom shares in Moscow gained 1.1 percent to 183.32 rubles, or the equivalent of $5.93. One Gazprom ADR represents two ordinary shares. Stock in New York has jumped 23 percent this quarter.
Putin’s disapproval rating is the highest since he took office in 2000 and opinion polls signaled a 65-seat reduction in United Russia’s representation to 250 of the 450-seat Duma, according to surveys by Russia’s Levada Center last month.
“It’s not really Russian factors, its uncertainty over European problems that drive the Russian markets now,” Westman said.
“Russian companies are continuing to perform very well,” he said. “Gazprom is extremely cheap.”
Moscow-based Gazprom has a price-to-earnings ratio of 3.4, compared with nine for Houston-based oil company ConocoPhilips, 10.6 for PetroChina Co., that nation’s second-largest oil trader, and 5.9 for London-based BP Plc, according to data compiled by Bloomberg.
Oil, which along with gas makes up about 17 percent of Russia’s economy, climbed to a two-week high on Dec. 2 and had its first weekly gain in three on concern tensions between Iran and the West will threaten shipments from the Organization of Petroleum Producing Countries’ second-largest producer.
Crude for January delivery climbed 0.8 percent to settle at $100.96 a barrel on the New York Mercantile Exchange, the highest settlement price since Nov. 16 and bringing its advance in the week to 4.3 percent. Oil prices in New York have jumped 27 percent this quarter, bound for the best quarter since the three months to June 30, 2009. The Bloomberg Russia-US 14 index has gained 16 percent in the fourth quarter.
Brent oil for January settlement increased 0.9 percent to $109.94 a barrel on the London-based ICE Futures Europe exchange on Dec. 2, while Urals crude, Russia’s chief export blend, gained 1 percent to $110.59. Brent added 3.6 percent in the week and Urals 4.1 percent.
MTS Debt Load
ADRs of OAO Mobile TeleSystems, Russia’s largest mobile-phone operator known as MTS, lost 3.8 percent to $16 on Dec. 2, the biggest one-day drop since Nov. 9. The company’s shares on the Micex declined 1.9 percent to close at 209.02 rubles, or the equivalent of $6.76. One MTS ADR is equal to two ordinary shares. The ADRs climbed 3.4 percent in the week.
MTS acquired CJSC Sistema-Inventure, which owns 29 percent of Moscow City Telephone Network, for 10.6 billion rubles ($342 million), the Moscow-based company said in a Dec. 1 statement on its website. As part of the deal, MTS also agreed to repay 10.4 billion rubles of CJSC Sistema debt by the end of the year owed to AFK Sistema, CJSC Sistema’s former owner and the controlling shareholder in MTS, the statement said.
“While the price of the acquisition seems adequate, MTS had to take on a debt load equal to the purchase price, and this is concerning the investors,” said Kirill Bakhtin, an analyst at Moscow brokerage TKB Capital.
OAO Lukoil, Russia’s second-largest oil producer, rose for the fourth day in five after Deutsche Bank AG and VTB Capital, the investment banking arm of the nation’s second-largest lender VTB Group, reiterated “buy” recommendations on the stock and Moscow brokerage Renaissance Capital maintained a “hold” recommendation.
Lukoil forecasted an average 3.5 percent increase in production during the next 10 years in a spending and strategy plan released on Dec. 1.
ADRs of Lukoil rose 1.2 percent on Dec. 2 to $55.46, posting a 7.5 percent weekly gain after four weeks of declines. On the Micex, Lukoil climbed 0.1 percent to 1,705.50 rubles, or the equivalent of $55.11. Each of Lukoil’s ADRs is equal to one ordinary share.
VTB Capital set Lukoil’s 12-month target price at $136.30. more than three times its current level.
Tim Ash, head of emerging markets at Royal Bank of Scotland Group Plc and Viktor Szabo, a money manager at Aberdeen Asset Management, say that the loss of United Russia’s so-called supermajority, which gave them power to amend the constitution, will spur increased government spending as Putin strives to shore up support before running for president in March. Westman disagrees, saying the government will stick to its budget targets.
“I expect at least a balanced budget next year,” he said.
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