Russian stocks fell the most in four weeks as crude oil and metals declined and investors awaited details of a U.S. Federal Reserve meeting.
The Micex Index retreated 1.3 percent to 1,455.31 by the close in Moscow. Utilities and consumer stocks led the drop, losing more than 2.2 percent on average. OAO EON Russia, a power producer controlled by Germany’s biggest utility, declined 4.6 percent as Interfax reported growth will slow next year, citing Chief Executive Officer Maxim Shirokov. OAO Raspadskaya, a coal producer, retreated 3.5 percent.
Crude oil dipped 2.9 percent to $86.18 a barrel after sinking 1.5 percent yesterday, trading near three-month low. Russia receives about 50 percent of budget revenue from oil and gas sales. Standard & Poor’s GSCI Index of 24 commodities lost 1.9 percent. The Fed Open Market Committee, which sent the Micex to a bull market last month by announcing a third stimulus round, starts a two-day meeting today.
“It’s a concern that commodities aren’t rising, it signals economic growth isn’t fast enough,” Dmitry Malykhin, who oversees $30 million in Russian assets as chief investment adviser at Moscow-based hedge fund Da Vinci CIS Opportunities, said by phone today. “Investors are expecting strong actions from global banks.”
Russia’s Micex climbed an average 77 percent during the Fed’s first two courses of so-called quantitative easing and slipped 0.6 percent during periods without stimulus, the biggest difference of 46 emerging and developed markets tracked by Bloomberg. Since the announcement of QE3 on Sept. 13 to yesterday’s close, the Micex has gained 0.2 percent, compared with a 2.6 percent advance in the MSCI Emerging Markets Index.
OAO Rosneft rose 2.7 percent to 225.77 rubles, the highest level since March 5. Russia’s largest oil producer yesterday agreed to buy TNK-BP, a 50-50 venture between BP Plc and a group of billionaires, for $54.8 billion in the third-biggest oil acquisition on record. TNK-BP Holding fell 17 percent to 64.96 rubles, the biggest drop on record.
“We’re not confident yet that Rosneft will be able to fully implement best practices from BP which has been the major success driver for TNK-BP,” Renaissance Capital analysts led by Ildar Davletshin, said in an e-mailed report today.
Rosneft’s chairman Igor Sechin said today TNK-BP’s dividend policy may not continue, while Rosneft will maintain a 25 percent dividend payout. Rosneft made no promises to TNK-BP’s minorities, Sechin said.
“The main attraction of TNK-BP has been its high dividend yield or the potential for a tender from Rosneft,” Julian Rimmer, a trader at CF Global Trading UK Ltd., said by e-mail from London. “Now neither seem likely so its prospects look bleak.”
Bank of America Corp. raised its recommendation on Rosneft to buy from neutral, lifting the price estimate to $9 per global depositary receipt, according to an e-mailed report. Bank of America sees the deal boosting Rosneft’s earnings and valuations. Rosneft trades at 7.2 times estimated earnings.
Buying TNK-BP will give Rosneft production and reserves that surpass Exxon Mobil Corp., the world’s largest publicly traded oil company. An enlarged Rosneft will employ more than 210,000 people, almost three times as many as Exxon. Rosneft’s oil and natural gas reserves will be 7 percent larger, while the traded value of Russia’s state-run oil company will be $292 billion less than Exxon.
RenCap is concerned the oil sector’s regulatory environment will be influenced by Rosneft’s needs because the oil producer will control about 40 percent of total Russian oil output after the deal, according to today’s report.
OAO Gazprombank cut TNK-BP to underweight, citing concern the company’s dividend payouts will end this year and minorities won’t receive a payout, according to an e-mailed note.
OAO Mechel dropped for a second day, losing 3.9 percent to 211.50 rubles, the biggest decline in a month, after Russia’s largest producer of coal for steelmaking halted mining at Bluestone facilities.
Mechel temporarily suspended mining at some facilities of its Bluestone mining complex in the U.S., including Keystone, Justice Energy and Dynamic Energy, citing “accumulated” coal inventories, the company said in a statement yesterday. The suspension may result in about $120 million in lost revenue, Alfa Bank said in an e-mailed note today.
EON Russia slumped 4.6 percent to 2.6595 rubles, the biggest drop since June 20. The power company sees 2013 growth close to this year’s, Interfax reported, citing CEO Shirokov.
The dollar-denominated RTS Index fell 2.7 percent to 1,456.73.
The Micex trades at 5.6 times estimated earnings after gaining 3.8 percent this year. That compares with a multiple of 10 times for the MSCI Emerging Markets Index, which has added 8.7 percent.
Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.