Worsening Outlook Sinks ADRs as CTC Tumbles: Russia Overnight

Worsening Outlook Sinks ADRs as CTC Tumbles
The RTS Volatility Index, which measures expected swings in the index futures, rose 0.9 percent to 28.98. Photographer: Alexander Zemlianichenko Jr/Bloomberg

The worsening outlook for Russia’s economy sent CTC Media Inc. on its biggest weekly decline in five weeks in New York trading and VimpelCom Ltd.’s American depositary receipts down the most in a month.

The Bloomberg Russia-US Equity Index of the most-traded Russian companies in New York lost 1.1 percent to 89.03 on July 6, the lowest level since June 29 as U.S. unemployment data sank oil, Russia’s biggest export earner. CTC Media, which owns the fifth most-watched television channel in Russia, posted the biggest weekly retreat in five weeks, while VimpelCom, the world’s sixth-biggest mobile phone provider, sank 4.1 percent. Futures expiring in September rose 0.5 percent to 134,975.

“A decline in oil price affects not just energy stocks, it has a lot of impact on the whole market because oil means economy in Russia,” Vladimir Savov, an analyst at Otkritie Financial Corp., said by phone on July 6 from Moscow.

Russia depended on revenue from oil and gas for 50 percent of its 2011 budget, and crude’s 15 percent decline this year contributed to a tumble in the ruble, which weakened 9.5 percent against the dollar in the second quarter, the most among 25 emerging-market currencies tracked by Bloomberg. Finance Minister Anton Siluanov said in Moscow on July 6 that the 2013 budget will be based on a Urals crude price of $92 a barrel, down from a previous target of $97.

Slowing Growth

The Micex Index dropped 1.5 percent to 1,414.28 in Moscow on July 6, trimming its gain for the week to 1.9 percent. The dollar-denominated RTS Index declined 2.2 percent to 1,357.71, paring the weekly climb to 0.5 percent.

The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, fell 2.6 percent to $26.16 on July 6. The RTS Volatility Index, which measures expected swings in the index futures, rose 0.9 percent to 28.98.

Economic growth in Russia will probably slow to 3.8 percent this year from 4.3 percent in 2011, according to the median estimate of 21 economists surveyed by Bloomberg.

Russia needs an average oil price of $117 a barrel to balance its 2012 budget, according to the government. Urals has averaged $111.40 per barrel so far in 2012, data compiled by Bloomberg show.

The ruble depreciated 1.1 percent to 32.8650 per dollar on July 6 in Moscow, extending last week’s loss to 1.2 percent. The Russian currency weakened against the euro for the first time in six days on July 6, easing 0.3 percent to 40.42. The Russian currency dropped 0.6 percent to 36.2455 against the central bank’s target dollar-euro basket.

‘Buying Opportunity’

CTC Media, the Nasdaq-listed Russian media company, retreated 5.3 percent during the week, its 11th consecutive five-day slump.

The company said last week that its audience fell to 8.9 percent in the second quarter, down from 11.1 percent in the same period in 2011 and 11.5 percent in 2010.

“We do not view this underperformance as a buying opportunity given the weakness in terms of new products, uncertain business environment, including economic concerns, ruble depreciation,” Svetlana Sukhanova, an analyst at UBS AG in Moscow, wrote in a July 3 report, cutting her recommendation on the stock to neutral from buy. “It is unclear how quickly CTC will be able to win back a loyal audience after the new season begins in August.”

VimpelCom fell 1.8 percent to $7.78 in New York on July 6, extending its retreat to 4.1 for the week, its biggest weekly decline since the five days to May 25.

UBS cut its 12-month target price on the stock to $8.50 from $11, reiterating its neutral recommendation on the stock, according to a July 6 report.

Falling Oil

Oil for August delivery fell 3.2 percent to $84.45 a barrel on the New York Mercantile Exchange on July 6. Crude, which fell 0.6 percent last week, gained 0.6 percent today.

Brent oil for August declined 2.5 percent to settle at $98.19 a barrel on the London-based ICE Futures Europe exchange. Russia’s Urals export blend fell 2 percent to $98.12 per barrel, trimming a weekly gain to 1.5 percent.

Oil may rise next week as U.S. inventories fell the most in six months, a Bloomberg survey showed. Crude stockpiles decreased 4.27 million barrels last week, the biggest decline since Dec. 16, the Energy Department reported.

Thirteen of 27 analysts, or 48 percent, forecast crude prices will increase through July 13. Eleven respondents, or 41 percent, predicted that futures will drop and three said there will be little change in prices.

“We see upside to oil from stable demand and returning geopolitical risk,” Alex Kantarovich, head of research at JPMorgan Chase & Co. in Moscow, said by e-mail on July 6. “Our scenario for the second half of 2012 involves firmer fundamentals and less risk aversion.”

United Co. Rusal, the world’s largest aluminum producer, dropped 1.2 percent to HK$4.31 in Hong Kong trading as of 11:06 a.m. local time. The MSCI Asia Pacific Index fell 1 percent today after Japanese machinery orders sank the most in more than five years and Chinese Premier Wen Jiabao said the nation’s economy faces “relatively large” downward pressure.

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