Gazprom’s Selloff Spurs ADRs Underperformance: Russia Overnight

Russian equities are underperforming emerging-market stocks by the most in four years as concern the government isn’t safeguarding shareholder interests curbs foreign investment in the market.

Russia’s Micex Index has gained 11 percent this year in dollar terms while the Bloomberg Russia-US Equity Index is set for an 8 percent advance, trailing the 15 percent rally in the MSCI Emerging Markets Index. The gap is the biggest since 2008, according to data compiled by Bloomberg. American depositary receipts of OAO RusHydro, the state-run hydropower producer, were the worst performers in the Russia-US index this year while OAO Gazprom, the natural-gas monopoly, lost 11 percent.

Russia is ranked the most corrupt nation among the Group of 20 advanced economies in Berlin-based Transparency International’s 2012 Corruption Perceptions Index. President Vladamir Putin’s government approached Goldman Sachs Group Inc. to help rehabilitate the nation’s image and attract investment.

“People have avoided stocks, like Gazprom, where there is massive interference in the business by the government,” Jonathan Neill, who helps oversee $250 million at FPP Asset Management, including Gazprom shares, said yesterday by phone from London. “People fear that the company isn’t independent.”

More than half of trading in the Russian companies takes place in London and its stocks’ valuations are the cheapest among the biggest emerging markets.

Lower Dividends

Gazprom spent $53 billion on capital projects last year, more than PetroChina Co.’s $46 billion and $36.8 billion at Exxon Mobil Corp., leaving just 7 percent of earnings to pay as dividends, the least of the world’s 10 largest energy companies. Gazprom lost 0.1 percent to $9.47 in New York yesterday. Gazprom shares traded in Moscow fell 0.6 percent to 143.91 rubles, or $4.74, and have plunged 16 percent this year. One ADR equals two ordinary shares.

George Rizhinashvili, a deputy chairman at RusHydro, said on Dec. 18 that the government’s share in the company will increase to as much as 66 percent from the current 60.5 percent, after completing an additional share issuance. RusHydro dropped 0.9 percent to $2.32 in New York, adding to an annual decline of 23 percent. Shares traded in Moscow were little changed at 73 kopecks, or 2 U.S. cents. One ADR equals 100 shares.

“Russian companies are undervalued, but they’re undervalued for a reason,” Michael Kotov, a trader at Alfa Bank in Moscow, said by phone yesterday. “There is corruption, lack of transparency, a defunct justice system.”

Emerging Valuations

The Bloomberg Russia-US gauge fell 0.1 percent to $97.88 in New York as futures expiring in March on Moscow’s dollar-denominated RTS Index advanced 0.4 percent to 153,590. The 50-stock Micex Index slipped 0.2 percent to 1,474.72, a second day of declines.

The Russian benchmark trades at 5.5 times estimated profit, trailing the Bovespa’s 17.8, the Sensex’s 15.4, and the Shanghai Composite’s 11, according to data compiled by Bloomberg.

The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, increased 0.4 percent to $29.40, the highest price in a week. The RTS Volatility Index, which measures expected swings in the stock futures, added 0.9 percent to 24.22 points.

Ruble futures rose 0.1 percent to 30.773 per dollar yesterday. The currency has gained 5.7 percent against the dollar this year.

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