Russia’s dollar-denominated stock index dropped as much as 20 percent from this year’s high as OAO Mechel plunged after a report signaling the nation’s manufacturing sector is slowing for the third straight month.
The RTS Index fell as much as 2.1 percent before retreating 0.9 percent at 1,319.01 by the close in Moscow, a 19 percent drop from this year’s high on Jan. 28. The ruble-based Micex Index slipped 1 percent to 1,337.40, the lowest since April 22. Mechel, a coking coal producer and steelmaker, lost as much as 8.3 percent and closed down 7.9 percent at 100.60 rubles, a January 2009 low and the biggest decliner.
Manufacturing conditions in Russia, the world’s biggest energy exporter, deteriorated in May, with the Purchasing Manager’s Index dropping to 50.4, showing a “loss of growth momentum in the Russian manufacturing sector,” HSBC Holdings Plc said in a statement today. Chinese manufacturing indexes showed small businesses struggling, damping the economy of the world’s second-biggest oil user.
“Russia is falling on concerns of lower commodity demand from China, since it’s a key energy user,” Oleg Popov, who manages $1 billion in assets for Allianz Investments, the asset-management arm of Europe’s biggest insurer, said by phone from Moscow. “Energy companies have a major weighting in the RTS Index and since Russia has such a high dependency on commodities, it’s taking a tumble today.”
HSBC and Markit Economics said their Chinese manufacturing index, released today, fell to 49.2 in May from 50.4 in April. A reading below 50 signals contraction. Manufacturing in the U.S. unexpectedly contracted in May at the fastest pace in four years, the Institute for Supply Management’s report showed today.
MSCI Inc. cut Mechel’s American depositary receipts, OAO Novolipetsk Steel’s global depositary receipts and OAO Russian Grids from its Russia Index, effective today. Mechel’s ADRs rose 2.7 percent to $3.08 today. NLMK retreated 1 percent to 44.32 rubles, while its GDRs tumbled 1.2 percent to $13.76 in London. The Micex dropped 2.6 percent last month, a fourth monthly retreat.
Russia’s economy will probably expand 2.3 percent in the second quarter, according to the median estimate of 9 economists in a Bloomberg survey. That’s less than the 2.5 percent forecast a month earlier.
Total fund outflows from Russia in the week ending May 29 reached $267 million, compared with $652 million from Brazil, Sberbank CIB said in an e-mailed note on May 31.
Russia’s economy grew at the weakest pace since 2009 in the first quarter as the euro area’s longest recession hurt demand for commodity exports, federal data showed on May 17. Russia’s central bank kept its main interest rates on hold for an eighth month in May.
The Micex tumbled the most in a year on May 23, the day after U.S. Federal Reserve Chairman Ben S. Bernanke said the central bank could reduce the pace of its asset purchases if officials see signs of sustained improvement in growth. The Fed buys $85 billion of debt a month to support the economy by putting downward pressure on interest rates.
The Bloomberg Russia-US Equity Index slumped 7 percent in May, capping a fourth monthly decline and extending this year’s drop to 11 percent. OAO Lukoil, which has the second-biggest weighting on the measure after OAO Mobile TeleSystems, capped the longest stretch of monthly losses since 2011. OAO GMK Norilsk Nickel, the world’s biggest producer of the nickel, slumped to the lowest price since May 16.
Consumer services shares led the declines among nine industry groups on the Micex, dropping 2.4 percent on average.
OAO Magnit, Russia’s biggest food retailer and the best performer on the Micex this year, dropped 2.8 percent to 6,941.30 rubles, the lowest since May 8. MSCI lifted Magnit’s global depositary receipts to 9 percent from 4.7 percent in its Russia 10/40 Index last week. Magnit is up 44 percent in Moscow this year and 33 percent in London. Its GDRs lost 2.5 percent to $53.40.
“Even strong stocks, like Magnit, can’t hold up to today’s retreat,” Aleksei Belkin, who helps manage about $6.8 billion in assets as chief investment officer at Kapital Asset Management LLC in Moscow, said by phone.
The volume of shares traded on the Micex was 23 percent above the gauge’s 30-day average, while 10-day price swings subsided to 27.808.
Russian equities have the cheapest valuations among 21 emerging markets tracked by Bloomberg. The Micex trades at 5 times its 12-month estimated earnings and has dropped 9.3 percent this year, compared with a 10.2 multiple for the MSCI Emerging Markets Index, which has retreated 5.4 percent.
The Russian Volatility Index surged 9.5 percent to 27.59. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. lost 0.2 percent to 87.47 today.