Russia will lure overseas funds to equity markets once laws improve to give foreign investors confidence they will be treated as a local stockholder, according to JPMorgan Chase & Co.
“Is a foreign investor in the Russian market going to be treated equally with a local investor or local counterparty? Legal certainty is absolutely a key aspect,” Alex Krunic, an executive director at JPMorgan in charge of technical sales, direct custody and clearing, said at a conference organized by the Moscow Exchange in London yesterday. “Liquidity would shift back to the local market once international investors get confidence in that market.”
The average value of shares in Russia’s biggest companies is 57 percent higher in London than in Moscow, data compiled by Bloomberg show. The Moscow Exchange, which runs the 30-stock Micex Index, is trying to modernize its trading systems and open up access to the domestic market. The Micex has the cheapest valuations among the four biggest emerging markets and volumes are about a third of the level for Brazil’s Bovespa Index.
The Bloomberg Russia-US Equity Index of the most-traded Russian companies in New York slipped 1.1 percent yesterday to 90.65, as American depositary receipts of OAO Gazprom tumbled to a five-month low. The Micex has retreated 2 percent this year, while the Bovespa is up 1.3 percent and the BSE India Sensitive Index has jumped 20 percent. The Shanghai Composite Index of Chinese stocks is down 7.1 percent in 2012.
Equity futures on Russia’s dollar-denominated RTS Index gained 0.6 percent in New York to 136,880.
Russia was ranked the most corrupt nation among the Group of 20 advanced economies in Berlin-based Transparency International’s 2011 Corruption Perceptions Index. The jailing of Mikhail Khodorkovsky, the former billionaire owner of Yukos Oil Co. arrested in 2003, is a touchstone for investors concerned about the independence of Russia’s judiciary.
“The legal regime in Russia is pretty complex,” Philippe Laurensy, a regional director at Euroclear Bank SA, the world’s largest system for settling debt, said at the exchange conference in London. “There are many different regulations which are often conflicting with one another. That doesn’t give a lot of confidence to investors, they don’t know what judge A would say versus judge B.”
Russian stocks will be traded on Euroclear’s platform from July 2014, Elena Gusalova, the National Settlement Depository’s director of research and development, said in London yesterday at another conference organized by BCS Financial Group. The exchange will move to settling transactions over two days by the end of 2013, from the current immediate settlement, Sergey Sinkevich, the head of primary markets at the exchange, said yesterday.
The country merged its two competing depositaries on Nov. 6 to bring settlement procedures into line with international norms.
The establishment of a central depository is “the most important liberalization measure in the domestic market since the ruble became convertible,” Robert Barnes, a managing director at UBS AG, said in London yesterday. The move “enhanced the legal certainty over the ownership of stock,” he said.
The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, fell 2.4 percent to $26.65 yesterday, the lowest level since Aug. 2. The RTS Volatility Index, which measures expected swings in futures, slipped 1.3 percent to 28.17 points. Futures on the ruble showed the currency strengthening 0.2 percent to 31.926 per dollar.
Oil dropped for a second day in New York yesterday as the International Energy Agency cut its demand estimate for the fourth quarter for a second time. Crude for December delivery slid 0.2 percent to $85.38 a barrel on the New York Mercantile Exchange yesterday. Prices are down 14 percent this year.
Brent oil for December settlement declined 0.7 percent to $108.26 a barrel on the London-based ICE Futures Europe exchange, while Urals crude, Russia’s chief export oil blend, fell 0.8 percent to $106.84 yesterday.
Gazprom ADRs sank 4.2 percent to $8.77, the lowest level since June 1. The shares lost 3.6 percent to 139.68 rubles in Moscow, or the equivalent of $4.42. One ADR equals two shares.
OAO Mobile TeleSystems, Russia’s biggest mobile phone company by subscribers, rose 2.9 percent to $17.46. The gain widened the premium over the company’s Moscow-listed shares to 22.6 percent, the most since Sept. 13. The stock in Moscow fell 1.3 percent to 226.14 rubles, or $7.12. One ADR represents two shares. VimpelCom Ltd., Russia’s third-biggest mobile phone company, rose 0.4 percent to $10.71, rebounding from the lowest level since Sept. 4.
The two companies are scheduled to report third-quarter earnings today.
Aluminum producer United Co. Rusal sank 1.8 percent to HK$4.44 in Hong Kong trading as of 11:06 a.m. local time. The MSCI Asia Pacific Index gained 0.2 percent.