Russian equities traded in New York fell, paring their biggest weekly advance in almost two months, as signs the global economy is slowing pushed crude oil to a two-month low. OAO Gazprom dropped the most in three weeks.
The Bloomberg Russia-US 14 Index of Russian companies fell 0.6 percent to 99.30 on Jan. 20, reducing the week’s rally to 4.1 percent, the most since the five days ended Dec. 2. OAO Rostelecom, Russia’s biggest fixed-line phone provider, had the biggest drop on the index on Jan. 20, on a report the company will be merged by the government and after UBS AG cut profit estimates.
Crude, Russia’s biggest export earner, slid to the lowest settlement price in New York since Dec. 20 as a Chinese purchasing managers’ index indicated manufacturing in the world’s second-largest economy contracted for a third month. Concern a debt-swap accord between Greece and private creditors will fail to resolve Europe’s debt crisis also eroded demand for commodities. Europe is Russia’s largest trading partner.
“Even if there isn’t a hard landing in China, you can expect a slowdown in its growth rates,” Bruce Bower, a partner at Moscow-based hedge fund Verno Capital, which manages more than $150 million in Russian assets, said by phone on Jan. 20. “The restructuring terms for Greece look pretty bad. People have been worried about this and now here it comes, and it’s worse than expected.”
Futures expiring in March on Moscow’s dollar-denominated RTS index were little changed at 148,790 in U.S. trading on Jan. 20. The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, fell 0.8 percent to $28.93.
Crude for February delivery dropped 1.9 percent to settle at $98.46 a barrel on the New York Mercantile Exchange. Brent oil for March settlement lost 1.5 percent to $109.86 on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, fell 1.5 percent to $108.56, down 1 percent last week.
American depositary receipts of state-controlled Gazprom, the world’s largest producer of natural gas, declined 1.6 percent to $11.71 on Jan. 20, trimming their rise in the week to 4.8 percent.
Investors sold Gazprom stock following reports the shares were moving on speculation Chief Executive Officer Alexei Miller will leave the position and be replaced by the billionaire shareholder and OAO Novatek head Leonid Mikhelson, Bower said.
Dmitry Peskov, Russian Prime Minister Vladimir Putin’s spokesman, denied the reports. Mikhelson said he’d never been offered a job at Gazprom and planned to stay at Novatek, the Interfax newswire cited the businessman as saying. Gazprom spokesman, Sergei Kupriyanov, declined to comment when contacted by Bloomberg News on Jan. 20.
Hit by ‘Rumors’
“Gazprom was hit because of rumors that Gazprom potentially will lose its CEO,” Luis Saenz, chief executive officer of the U.S. unit of Moscow-based brokerage Otkritie Financial Corp., said by phone in New York on Jan. 20. “Gazprom remains our favorite among oil and gas stocks as it’s dirt cheap and prices remains high.”
Gazprom shares on Moscow’s Micex index retreated 1 percent to 183.65 rubles, or the equivalent of $5.86. One Gazprom ADR represents two ordinary shares. The ADRs drop pushed the discount with its Moscow shares to two U.S. cents. The company’s shares trade at 3.4 times current earnings, up from a 12-month low of 2.6 times on Oct. 5.
The Chinese purchasing managers’ index compiled by HSBC Holdings Plc and Markit Economics showed a preliminary reading of 48.8 for January. The dividing line between contraction and expansion is 50. Economic growth in China eased to the slowest pace in 10 quarters in the three months to Dec. 31 as Europe’s debt crisis curbed export demand.
Premier Wen Jiabao this month reiterated a pledge to “fine-tune” policies to support growth, measures that could ease access to credit and lending in China and help support prices for oil and gas, sales of which contributed almost 50 percent of Russian government revenue last year.
The Standard & Poor’s GSCI Spot Index of commodities declined 1 percent to 653.46 on Jan. 20.
“Commodities are going to be under pressure in 2012 because of the slowdown in the global economy, and because inflation will remain low,” Komal Sri-Kumar, chief global strategist at TCW Group Inc., which oversees about $120 billion, said by phone in New York.
ADRs of Rostelecom dropped 1.8 percent to $28.75 in New York, and were down 2 percent last week. UBS lowered its earnings estimates for the phone company by 13 percent for 2011 and 10 percent for 2012, according to a report dated Jan. 16. Russia will merge Rostelecom with state-run OAO Svyazinvest, the company’s biggest shareholder, giving the government more than 50 percent of Rostelecom, the Kommersant newspaper reported on Jan. 20, citing an unnamed government official.
Rostelecom shares in Moscow lost 2.4 percent to 148.45 rubles, or the equivalent of $4.74. One ADR equals six ordinary shares.
OAO Mechel, Russia’s largest coal producer for steelmakers, retreated 1 percent to $10.42 in New York, paring the ADRs 2012 advance to 23 percent. Shares in Moscow fell 0.3 percent to 323.10 rubles, or the equivalent of $10.31. One Mechel ADR represents one ordinary share.
The RTS Index declined 0.5 percent on Jan. 20 to 1,496.41, trimming the weekly gain to 3.5 percent, while the 30-stock Micex lost 0.8 percent to 1,491.15, up 1.9 percent last week. The RTS Volatility Index, which measures expected swings in the index futures, snapped a four-day drop, climbing 1.2 percent to 35.17.
The Micex has gained 6.3 percent this year and trades at 5.6 times analysts’ earnings estimates for member companies. That compares with a 5.4 percent advance in 2012 for Brazil’s Bovespa index, which trades at 9.9 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 9.5 times estimated earnings, and the BSE India Sensitive Index has a ratio of 14.7.