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Russia Stocks Erase Gains as Ruble Drops to 5-Year Low on China

Jan. 23 (Bloomberg) -- Russian equities dropped, erasing an earlier increase, as the nation’s currency sank to the lowest level in almost five years after an index of manufacturing in China trailed estimates.

The Micex Index declined 0.1 percent in Moscow to 1,496.90 by the close after rising as much as 0.9 percent earlier, with 27 stocks rising, 21 falling and two unchanged. United Co. Rusal, the world’s largest aluminum producer, dropped 3.6 percent to 118.50 rubles. OAO Sberbank, the nation’s biggest lender which has a 14 percent weighting on the Micex, lost 0.6 percent to 101.56 rubles.

The ruble lost 0.5 percent against the dollar at 6 p.m. in Moscow, the lowest on a closing basis since April 2009. Data today showed China’s manufacturing in January may contract for the first time in six months, curbing investors’ appetite for riskier assets. Most metals on the London Metal Exchange, including aluminum, fell today.

“The ruble let us down today,” Alex Debelov, chief investment officer at Moscow-based Third Rome LLC, which manages about $400 million in Russian assets, said by e-mail. “China manufacturing underperformed versus expectations and we are a market that’s dependent on global events.”

Rusal rallied 17 percent over the previous two days. Aluminum premiums are seen at record highs in the U.S. and Asia, researcher Harbor Intelligence said in a report dated Jan. 20.

‘Really Nervous’

With equity at 1.7 trillion rubles ($55 billion), Sberbank serves more than a fifth of Russian businesses and accounts for about 46 percent of retail deposits and 34 percent of corporate loans, the lender says on its website. A weaker ruble encourages Russians to withdraw and convert local-currency deposits, Sberbank’s main source of funding.

“People are really nervous about the ruble, especially in names like Sberbank, which is all rubles,” Bruce Bower, a partner at Verno Capital in Moscow, which manages about $500 million in assets, said by e-mail.

Bank St. Petersburg dropped 1.3 percent to 41.22 rubles. Oil producer OAO Surgutneftegas jumped 1.3 percent to 28.32 rubles.

Russia’s oil exporters benefit from a weaker ruble because their costs are in the local currency, Dmitry Vinogradov, an analyst at UBS, said in a report today. The bank forecasts the ruble will weaken to 40.70 versus Bank Rossii’s target basket of dollars and euros by year-end. The currency fell 0.9 percent versus the basket today to 39.7094.

UBS said it favors Surgutneftegas and OAO Lukoil in the weaker ruble environment and cited OAO Alrosa, OAO Phosagro and OAO Acron as other beneficiaries of the currency’s drop.

The dollar-denominated RTS Index fell 0.7 percent to 1,381.59, the lowest since Dec. 5.

Alrosa jumped 3.1 percent to 34.90 rubles, the biggest gain on the Micex after OAO Inter RAO UES. Russian equities have the cheapest valuations among 21 developing-nation economies monitored by Bloomberg, with shares on the benchmark Micex trading at 3.4 times projected 12-month earnings, compared with a multiple of 9.1 for the MSCI Emerging Markets Index.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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