Russian equities dropped to the lowest level in more than three months as Bank of America Merrill Lynch cut its recommendation for the shares, calling the nation a “net loser” in the Cyprus bailout.
The Micex Index erased earlier gains, falling 0.9 percent to 1,428.46 by the close in Moscow, the lowest level since Dec. 4. OAO Sberbank, the nation’s largest lender, lost 0.7 percent, while VTB Group slid 1.8 percent. OAO Gazprom, Russia’s biggest company by market value, sank 1.1 percent. The dollar-denominated RTS Index retreated 0.8 percent to 1,458.80.
Bank of America analysts cut Russian stocks to marketweight after Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from its euro partners. The Micex retreated 3.6 percent last week as Cyprus -- Russia’s biggest direct investor because of a dual tax-avoidance treaty -- proposed a levy on savings accounts that was later rejected by lawmakers. The revised accord spares bank accounts below the insured limit of 100,000 euros ($128,880).
“While the rest of the world welcomes the Cypriot bailout, the major haircuts and freezing of deposits over 100,000 euros is clearly worse for Russia than the originally proposed Cypriot bailout,” Bank of America strategists said in an e-mailed note today.
Russian President Vladimir Putin today ordered the government to start talks with Cypriot authorities on restructuring a 2.5 billion-euro loan granted by Russia in December 2011, the president’s spokesman, Dmitry Peskov, said by phone. Terms sought by Cyprus would amount to a 10 percent writedown of the loan, Finance Minister Anton Siluanov said today.
Russian lenders and companies had about $31 billion placed in Cypriot banks or their own units at the end of 2012, according to a March 13 report from Moody’s. Bank loans to Cypriot companies of Russian origin created at least $30 billion in further exposure, the ratings company said.
Bank of America could take a “more bullish” view on Russia in the second quarter, depending on the effect of the bailout, it said.
The Bloomberg Russia-US Equity Index of the most-traded Russian stocks listed in the U.S. fell 2.6 percent last week. The Russian Depositary Index of companies erased gains, trading down 1.1 percent as OAO GMK Norilsk Nickel depositary receipts tumbled 2.4 percent.
The Moscow Exchange, which is modernizing to lure more foreign investors, debuted two-day, or T+2, settlement for sovereign debt and 15 of the more than 1,000 equities today, bringing it into line with markets such as the U.S. and Brazil. The entire exchange will shift to T+2 by Jan. 1 next year, Deputy Chief Executive Officer Andrey Shemetov said by e-mail on March 22. The bourse shares added 0.5 percent to 51.83 rubles, the first advance in three days.
Russian companies from Gazprom to OAO Mobile TeleSystems also list stock in London and New York as foreigners are deterred by rules requiring Moscow trading accounts to be set up through local custodians. While Euroclear Bank SA, Europe’s largest settlement agency, started working with Russian government bonds last month, stocks won’t be accessible on the bank’s international platform until July 2014.
Crude traded up 1.2 percent at $94.79 per barrel in New York. Oil and gas contribute about 50 percent of Russia’s state revenue. OAO Rosneft, Russia’s largest oil producer, added 1.5 percent.
The RTS Volatility Index, which measures expected swings in the index futures, surged 3 percent to 21.93.
The Micex trades at about 5.3 times estimated earnings and has lost 3.1 percent this year. That compares with a multiple of 10 times for the MSCI Emerging Markets Index, which dropped 3.1 percent over the same period.