Russian equities dropped the most in three months and OAO GMK Norilsk Nickel led declines after iron-ore producer Metalloinvest was said to be seeking to swap its Udokan copper deposit for shares in the country’s biggest miner.
The Micex Index lost 1.2 percent to 1,519.22 by the close in Moscow, after rising 0.8 percent earlier. Of 50 stocks, 41 declined and 9 rose. The dollar-denominated RTS Index dropped 1.5 percent to 1,588.31.
Metalloinvest, which already holds 4 percent of the world’s largest nickel producer, is in preliminary discussions with other Norilsk shareholders about the proposal, three people said, asking not to be identified because the information is private. OAO Gazprom, Russia’s largest company, lost as much as 2.6 percent as the euro-area recession deepened more than economists forecast.
“This news is very negative, it means Europe is not growing,” Andrey Vashevnik, who manages $25 million as chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone from Moscow. “Europe is Russia’s main trading partner, so the trouble there would affect the Russian economy. Gazprom is one of Russia’s most liquid stocks and it’s reacting to the growth concerns.”
Gazprom has the second-biggest weighting on the index at 13.5 percent. The Russian Depositary Index sank 1 percent, led by Norilsk’s depositary receipts.
Metalloinvest’s acquisition of Norilsk shares would contradict “the current Norilsk story of minimum capital expenditure and maximum dividends” and is seen as “negative,” Alfa Bank analysts said in a note today.
VTB Group, the country’s second-largest lender, rose as much as 5.1 percent before closing up 1.5 percent at 5.64 kopeks after the Telegraph reported Qatar’s sovereign wealth fund is in advanced talks to invest between $3 billion to $3.5 billion into the bank. VTB’s press service declined to comment when contacted by e-mail. The stock gained 6.1 percent in London yesterday and 5.3 percent in Moscow.
“If such a deal is successful, the bank might be able to avoid coming to the market with a new share issue,” Jason Hurwitz, an analyst at Alfa Bank, said in an e-mailed report. Yesterday’s “surge in VTB’s GDRs may have been a result of advanced knowledge of this potential transaction by market participants.”
Ten-day price swings on the Micex rose to 13.381, the highest since Jan. 18. The number of shares traded on the gauge was 3 times above the gauge’s 10-day average, data compiled by Bloomberg show.
MSCI Inc. announced its quarterly index rebalancing after the market closed yesterday, with no additions or deletions or weight changes made to the Russia indices. The changes come into effect on Feb. 28.
Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg. The Micex trades at about 5.7 times estimated earnings and has added 3 percent this year. That compares with a multiple of 8.7 times for the MSCI Emerging Markets Index, which has gained 1 percent over the same period.
The Moscow Exchange, which was created out of a merger between competing bourses in 2011 and operates the Micex and RTS indexes, is seeking to raise at least 15 billion rubles ($499 million) in an initial public offering, which closes today. Its shares are due to debut in the capital tomorrow under the MOEX RX ticker, according to a Feb. 4 statement.
The Standard & Poor’s GSCI Index of commodities was steady at 678.60. Tin and nickel dropped in London, while lead and copper climbed.
As it modernizes the Moscow Exchange in a bid to lure more investment, Russia will scrap regulations that limit depositary receipts’ conversions to a portion of a company’s stock by July 2014, Elena Kuritsyna, the deputy head of the market regulator, said in Moscow yesterday. Rules requiring that trading accounts be set up through local custodians and immediate settlement procedures are among quirks of the Russian market that spur foreigners to buy company receipts traded in developed nations.
Current regulations limit receipt conversions to 25 percent of a Russian company’s shares and 50 percent of their listed stock. American depositary receipts of OAO Mobile TeleSystems, the country’s biggest mobile phone company, traded at a 14 percent premium to the company’s locally listed shares yesterday, the smallest gap since Jan. 30. Global receipts of food retailer OAO Magnit traded at a 15.7 percent premium Feb. 12, the narrowest spread since April 5.
The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, rallied 1.4 percent to $30.67 yesterday. The RTS Volatility Index, which measures expected swings in futures, dropped 0.2 percent to 21.75 points. The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. rose 0.4 percent yesterday.