Oil Retreat Sinks ADR Valuations Below Peers: Russia

Russian stocks traded in New York fell, pushing valuations to the lowest versus emerging-market companies in four months, as oil tumbled to a six-month low.

The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. declined to a seven-month low, losing 11 percent to 83.71 in the week. Futures expiring in June on Moscow’s dollar-denominated RTS Index slid 2.9 percent to 127,010 on May 18. OAO RusHydro, Russia’s largest hydropower producer, retreated 20 percent to $2.46 in New York last week, widening the discount to the company’s Moscow-listed shares to 4.6 percent, the most in three days.

Russian ADRs’ valuations dropped to 4.7 times estimated earnings, about half the 9.7 multiple for members of the MSCI Emerging Markets Index, after oil, the nation’s largest export earner, sank 3.5 percent last week as Europe’s debt crisis worsened. Almost $4 trillion has been wiped from global equity markets in May amid mounting concern that Greece will have to leave the euro after elections next month.

“No matter how cheap Russian equities already are, and they are extremely cheap, it’s not time to buy yet,” Rustam Botashev, deputy head of research at UniCredit Bank AG, said by phone from Moscow on May 18. “We have to expect even more volatility in this down trend. There are overall worries about slowdown in global growth and decline in oil prices.”

Bear Market

Russia was the first of the so-called BRIC countries to enter a bear market in 2012 last week after the dollar-denominated RTS Index extended a 20 percent decline on May 14 from a March 15 peak.

OAO Mechel, Russia’s largest producer of coal for steelmakers, fell 24 percent to $5.48 in New York last week, the worst performer on the Bloomberg Russia-U.S Index. The company’s Russian stock declined 17 percent in Moscow to 187.00 rubles, or the equivalent of $5.97. One ADR is equal to one ordinary share.

American depositary receipts of OAO RusHydro were the second-biggest decliners on the gauge last week. RusHydro lost 7.2 percent in New York on May 18, after dropping 3.4 percent to 80.74 kopeks, or 2.58 U.S. cents, in Moscow. One ADR is equal to 100 ordinary shares.

Activists who clashed with police before President Vladimir Putin’s May 7 inauguration are protesting non-stop in Moscow, using the Occupy Wall Street movement’s tactics.

“Russian equities are under double pressure as two factors are in play, including overall worries about a slowdown in global growth and a decline in oil prices, as well as investors’ worries over Russian domestic policies,” Botashev said. “The new government has not been formed yet and the delay adds to the uncertainty.”

Sberbank, Gazprom

OAO Sberbank, the country’s biggest lender, sank 18 percent to $9.89 last week, the most since the five-days to Sept. 23, and traded at a 1.2 percent discount to its Moscow-listed shares.

OAO Gazprom, the world’s biggest natural gas exporter and Russia’s biggest company, tumbled 16 percent to $8.74, the lowest since July 2009. The stock has dropped for a record ninth consecutive week, losing 35 percent since March 16.

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, fell 10 percent last week to $24.16, the lowest level since September 2009. The RTS Volatility Index, which measures expected swings in the index futures, rose 2.9 percent to 45.76 points in New York, the highest since Dec. 19.

Oil, Russia’s major export commodity, dropped for a third consecutive week and the Standard & Poor’s GSCI Spot Index sank 2 percent to 629.50 last week to the lowest since Dec. 19.

Crude oil for June delivery slumped 1.2 percent to $91.48 on the New York Mercantile Exchange on May 18, the lowest since Oct. 26. Urals crude, Russia’s chief export blend, fell 0.6 percent to $106.19, the lowest since January. Brent oil for July settlement slipped 0.3 percent, to $107.14 a barrel on the London-based ICE Futures Europe exchange on May 18.

United Co. Rusal, the world’s largest aluminum producer, lost 0.9 percent to HK$4.40 at 1:30 p.m. in Hong Kong trading today. The MSCI Asia Pacific Index rose 0.2 percent.

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