ETF Bearish Bets Drop to Year Low on Discount: Russia Overnight

Options traders are making the fewest bearish bets in 15 months on a Russian exchange-traded fund in New York after oil sinking to a seven-month low pushed valuations to half the multiple for emerging-market stocks.

Ownership of puts on the Market Vectors Russia ETF fell below call open interest on May 30, retreating to the lowest level since February 2011, according to data compiled by Bloomberg. Russian stock futures expiring in June on the dollar-denominated RTS index slipped 0.2 percent to 122,045 on June 1 while the Bloomberg Russia-US 14 Index of Russian stocks traded in New York lost 2.2 percent to 79.15. The gauge plunged 22 percent in May, the most since October 2008.

Crude oil, Russia’s biggest export earner, dropped to the lowest level in almost eight months as Brent closed below $100 for the first time since October on mounting concern a global economic slump will cut demand for fuel. The tumble sent valuations on the Micex Index to 4.8 times estimated earnings for member companies, less than half the average multiple for MSCI Emerging Markets Index stocks. A European Union official said the group is targeting July 9 as the start date for its rescue fund.

“Yes, Russian equity prices went down a whole lot in May but people may be forgetting that markets don’t go in a straight line forever,” Ian McCall, who overseas $109 million as managing partner at Quesnell Capital SA, said by phone from Geneva on June 1. “If we get some action that shows that European authorities are doing something proactive, then people can begin to take a stab at some of the valuations in Russia.”

The U.S-traded ETF, which holds Russian shares, fell 2.9 percent to $23.24 on June 1, extending a 20 percent drop in May. The gauge’s volatility index, which measures expected swings in the index’s futures contracts, dropped 2 percent to 45.78.

‘Heavily Oversold’

The ratio of outstanding puts to sell versus calls to buy dropped to 0.95 on May 30, the lowest since February 2011, data compiled by Bloomberg shows. Put open interest on the exchange-traded fund plummeted 80 percent since May 17. The put-to-call ratio dropped from a two-year high of 2.36-to-1 on April 26.

The 30-stock Micex, the cheapest of the 21 emerging markets tracked by Bloomberg, dropped 0.6 percent to 1,298.08 on June 1. The gauge, which has lost 7.4 percent this year, lags behind Brazil’s Bovespa index’s 5.9 percent decline and the Shanghai Composite Index 7.9 percent gain.

Russian manufacturing expanded in May at the fastest pace since March 2011 as new business orders prompted companies to boost output and hire workers.

“We see equities that have been heavily oversold even though there’s nothing on the macro side in Russia,” Jonathan Neill, who helps manage $250 million at FPP Asset Management LLP in London, said in a phone interview on June 1. “The sell-off has more to do with general risk aversion.”

Fewest Workers

The Standard & Poor’s 500 Index plummeted the most since November, tumbling 2.5 percent to 1,278.04 as U.S. employers added the fewest workers in a year and the jobless rate rose to 8.2 percent from 8.1 percent. The Dow Jones Industrial Average lost 2.2 percent to 12,118.57.

United Co. Rusal, the world’s largest aluminum producer, dropped 2 percent to HK$4.52 in Hong Kong trading as of 11:34 a.m. local time. The MSCI Asia Pacific Index fell 2.1 percent today after a non-manufacturing purchasing managers’ index in China fell May from from the previous month.

OAO Surgutneftegas, Russia’s fourth largest oil producer, fell the most in three weeks, dropping 4.6 percent to $4.75 as crude futures for July delivery declined 3.8 percent to $83.23 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 7. Surgutneftegas shares in Moscow slipped 0.1 percent to 15.97 rubles, the equivalent of 47 cents. One ADR equals 10 ordinary shares.

Commodities Tumble

Brent for July settlement tumbled 3.4 percent to $98.43 a barrel on the London-based ICE Futures Europe exchange, the lowest close since Jan. 27, 2011. The European benchmark fell 7.9 percent last week and has lost 8.3 percent this year. Urals crude, Russia’s chief export blend, slid 3 percent to $96.86.

Standard & Poor’s GSCI Spot Index fell 2.6 percent to 580.99 as China led a slowdown in manufacturing across Asia. Copper futures fell for a fifth straight week as the contract for July delivery fell 1.5 percent to settle at $3.3135 a pound on the Comex in New York on June 1. Nickel declined 0.8 percent to $16,100 a ton on the London Metal Exchange.

Sberbank dropped 4.5 percent to $9.46, an eight-month low, as the ruble tumbled for an eighth day to the lowest since 2009 against the dollar, prompting “intensive” central bank interventions. The ruble slid 0.6 percent to 33.68 per dollar by the 7 p.m. close in Moscow on June 1. A weaker ruble encourages Russians to withdraw and convert ruble deposits, Sberbank’s main source of funding.

The RTS Index in Moscow declined 1.2 percent on June 1 to 1,227.42.

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