Russia Stocks Retreat on European Debt Crisis, Kim Jong Il Death

Russian stocks fell for a second day on fears that the European debt crisis is worsening and reports North Korean dictator Kim Jong Il has died damped demand for riskier assets.

The 30-stock Micex Index declined 0.04 percent to 1,382.88 by the 6:45 p.m. close in Moscow, paring an earlier loss of as much as 1.8 percent. OAO Gazprom, Russia’s natural gas export monopoly, slid 2.5 percent after Vedomosti reported its spending may rise to o 1.75 trillion rubles ($55 billion) in 2013. Oil producer OAO Surgutneftegas slipped 1.3 percent, while OAO Sberbank, the country’s biggest lender, gained 1.1 percent. The dollar-denominated RTS Index retreated 0.3 percent to 1,370.11.

Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness, the official Korean Central News Agency said. Euro area finance ministers are seeking to meet a self-imposed deadline for drawing additional aid to the debt crisis through the International Monetary Fund. France sold 7 billion euros ($9.1 billion) of bills after Fitch Ratings last week reduced its outlook for the nation’s credit grade to negative from stable.

“Asia is under pressure this morning on the death of the North Korean leader Kim Jong II,” Leonid Slipchenko, a senior analyst at UralSib Financial Corp., wrote in a report e-mailed today. “The euro zone will also be on center stage this week, as European sovereign debt problems continue to dominate the markets.”

Market Merger

The Micex Stock Exchange merged with the RTS Exchange on Dec. 16 and will maintain their separate indexes in Moscow, with the so-called main market to trade ruble-denominated Micex-listed equities and bonds and the standard market to buy and sell RTS-listed company stock denominated in dollars, according to a statement on the RTS website. As many as 10 companies are considering initial public offerings in Russia, Ruben Aganbegyan, president of the Micex-RTS, said in an interview.

The combined company was valued at $4.5 billion ahead of the merger, according to an emailed statement from Micex today. The bourse is targeting an IPO in 2013, it added.

“Russia still needs to address the most important issue of building a much bigger pool of domestic capital,” Chris Weafer, chief strategist at Troika Dialog in Moscow, wrote in a report today. “Only then will the volatility fall, the valuation discount with emerging-market peers close and more issuers look to raise money at home rather than on international bourses.”

Selective Buying

The Micex lost 18 percent this year and trades at 4.7 times estimated earnings, the cheapest valuation among major emerging markets. That compares with 10 times for Brazil’s Bovespa index, 10.6 for the Shanghai Composite Index and 13.7 in the case of the BSE India Sensitive Index, according to data compiled by Bloomberg.

Now is a good time to be “selectively buying assets” Ian McCall, managing partner at Quesnell Capital SA, an emerging markets investment adviser in Geneva that manages 100 million Swiss francs ($107 million) of assets, including Russian stocks, said by phone on Dec. 16. “There’s value there for sure.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE