Russia Stocks Retreat as Crude Oil Falls on U.S. Budget Talks

Russian equities dropped the most this month as oil declined on concern that the deadlock over the U.S. budget will threaten growth in the world’s biggest economy.

The 50-stock Micex Index fell 0.7 percent to 1,477.44 by the close in Moscow, the biggest decline since Nov. 28. The gauge has added 5.4 percent this year and 0.8 percent this week. OAO Pharmstandard, Russia’s largest drugmaker, tumbled as much as 5 percent, while preferred shares of OAO Mechel, the country’s largest coking-coal producer, lost 1.7 percent. Preferred shares of OAO Surgutneftegas declined 1 percent and OAO Uralkali, the largest potash producer by output, retreated 3.7 percent.

Crude, Russia’s biggest export earner, slid 2 percent to $88.34 a barrel in New York, the first drop in six days. U.S. House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach an agreement to avert tax increases and spending cuts set to take effect in January. House Speaker John Boehner urged President Barack Obama and Senate Majority Leader Harry Reid to come up with legislation to avoid the fiscal cliff.

“The worst part about today’s news is that Boehner’s own party didn’t back his plan,” Stanislav Kopylov, who helps manage about $3.4 billion at UralSib Capital in Moscow, said by phone. “They need to resolve this issue between themselves first and then go to Obama. Oil is falling on this, weighing on the Russian market.”

Severstal, Dixy

Russia-dedicated equity funds posted an 11th week of outflows, losing $60 million in the week ended Dec. 19, according to an e-mailed note from Sberbank CIB, citing EPFR Global data. Standard & Poor’s GSCI Index dropped 0.7 percent to 638.84.

OAO Severstal climbed 1.8 percent to 384.80 rubles, adding 8.9 percent in the week, the biggest weekly gainer. Federal Grid Co. dropped 1.4 percent to 20.62 kopeks, the biggest decline since Nov. 26. The shares lost 3.8 percent in the week, the biggest drop for the period on the Micex.

OAO Dixy Group added 1.7 percent to 407.94 rubles, rising 8.2 percent in the week, the second-biggest weekly advancer. The food retailer’s November revenue jumped 17.5 percent to 12.2 billion rubles, according to a statement yesterday.

Russia’s antitrust watchdog may allow retailers to exceed the 25 percent market-share limit if they build new shopping areas, Interfax reported on Dec. 17, citing Igor Artemyev, head of the anti-monopoly service. At present retailers can’t add outlets in a region if they have more than a quarter of the area’s total trade volume.

The RTS Index, Russia’s dollar-denominated equity gauge, declined 1.1 percent to 1,512.18. The Bloomberg Russia-US stocks gauge climbed 0.9 percent to 98.72 yesterday. The Market Vectors Russia ETF, the biggest U.S. exchange traded fund that holds Russian shares, added 1.2 percent to $29.97, the highest close since Sept. 18.

Norilsk Dividend

OAO GMK Norilsk Nickel added 6.2 percent in Moscow this week. New Chief Executive Officer Vladimir Potanin told reporters on Dec. 17 the miner will target dividends equivalent to at least 50 percent of its annual earnings before interest, taxes, depreciation and amortization with distributions made twice a year starting in 2014. Norilsk posted Ebitda of $7.2 billion in 2011.

“As has been the case for several weeks, investors will be more interested in any news of the budget talks,” Chris Weafer, Sberbank CIB’s chief strategist in Moscow, said in an e-mailed report. “This is effectively the last full important trading day before the start of the New Year.”

Russia receives about half of its budget revenue from the oil and gas industry. The country’s markets are closed for New Year and Christmas holidays in the first week of 2013.

The amount of shares traded on the Micex was 14 percent below the 10-day average, according to data compiled by Bloomberg.

The Micex trades at about 5.4 times estimated earnings. That compares with a multiple of 10.6 times for the MSCI Emerging Markets Index, which has gained 14 percent.

Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.

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