Russian Stocks Erase Gains as Utilities Retreat Outweighs Oil

Russian equities erased earlier gains, as utilities’ shares dropped and U.S. lawmakers resume talks to avert a budget dispute threatening the economy of the world’s biggest crude consumer.

The 50-stock Micex Index lost less than 0.1 percent to 1,478.24 by the close in Moscow, after rising 0.3 percent, with 24 stocks climbing and 26 dropping. The gauge has added 5.4 percent this year. Utilities retreated 0.6 percent on average, the most of nine industry groups. Federal Grid Co. declined 1.5 percent, while OAO Inter RAO UES retreated 1.3 percent.

U.S. Democrats and Republicans convene today for negotiations aimed at avoiding more than $600 billion in tax gains and spending cuts, known as the fiscal cliff, which are scheduled to take effect Jan. 1. Manufacturing fell the most in four years in December, HSBC Plc said today in an e-mailed statement, citing data compiled by Markit Economics.

“Investors are awaiting a decision about the fiscal cliff,” Victor Markov, an analyst at Kapital Asset Management LLC, said by phone from Moscow. “There’s hope that we’ll see a decision by the end of the year. Today’s Russian manufacturing data shows that the economy is starting to lose steam.”

Inter RAO, Russia’s third-largest power producer, declined as Interfax reported the government values its stake in OAO Irkutskenergo below its estimate. The company’s press service didn’t respond to e-mailed requests for comment.

The amount of shares traded on the Micex was 30 percent below the 10-day average, according to data compiled by Bloomberg. Failure to reach a budget agreement would push the U.S. into recession for the first half of 2013, the nonpartisan Congressional Budget Office has said.

Manufacturing Drop

The manufacturing measure dropped to 50, compared with 52.2 last month, according to HSBC. A reading above 50 signals expansion, while below 50 indicates contraction.

Russian markets close after Dec. 28 for New Year and Christmas holidays, with trading restarting Jan. 8.

“Activity will continue to be low until the end of the year,” Markov said.

The Russian government estimates Inter RAO’s 40 percent in Irkutskenergo at 27.8 billion rubles ($918 million), Interfax reported yesterday, citing Economy Minister Andrei Belousov’s Dec. 18 letter to deputy prime minister Arkady Dvorkovich. Inter RAO estimates the value of its stake in Irkutskenergo Inter RAO at about 50 billion rubles, Interfax reported Dec. 25, citing Boris Kovalchuk, Inter RAO’s chairman.

Health-Care Stocks

Health-care stocks led the gaining shares, rising 5.6 percent on average, as OAO Pharmstandard, Russia’s largest drugmaker, advanced after Vedomosti reported the country plans to limit exposure of foreign pharmaceutical companies to the local market.

AFK Sistema added 2.9 percent to 25.375 rubles. The company received approval to buy 100 percent of United Petrochemical Co. from Russia’s Federal Anti-Monopoly Service, according to a statment on the watchdog’s website.

The Russian Depositary Index climbed 0.6 percent, led by Sistema’s depositary receipts, which added 5.2 percent.

The RTS Index, Russia’s dollar-denominated equity gauge, increased 0.6 percent to 1,533.472. The Bloomberg Russia-US stocks measure rose 0.2 percent to 97.18 yesterday.

Crude oil, Russia’s main export, climbed 0.4 percent to $91.35 in New York. Russia receives about half of its budget revenue from the oil and natural gas industry. Standard & Poor’s GSCI Index gained as much as 0.3 percent. Most metals, including copper and nickel increased on the London Metal Exchange today.

Preferred shares of OAO Sberbank, Russia’s largest lender, rose 1.1 percent.

Mechel Shares

OAO Mechel, Russia’s biggest producer of steelmaking coal, is posting the smallest price swings in 15 months on prospects higher prices for the metal will boost earnings. American depositary receipts of Mechel gained 2.3 percent to $6.76 in New York yesterday, as its 100-day volatility retreated to 49.45, the lowest since September 2011, data compiled by Bloomberg show.

Mechel shares rose 1 percent to 205.60 rubles in Moscow, with the 100-day volatility at 39.948. The company will probably report that 2012 sales fell 6.5 percent to $11.7 billion this year, according to the mean estimate of 22 analysts surveyed by Bloomberg. The company is expected to return to profit in 2013 after an estimated $237 million loss in 2012, according to the survey.

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 15 percent this year.

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

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