Russian stocks recorded the biggest weekly drop since June and the ruble slumped as OAO Mechel, the nation’s biggest coking-coal producer, fell to a record and tension with neighboring Ukraine showed little sign of abating.
The Micex Index of equities slid 0.3 percent to 1,444.71 by the close in Moscow, extending its loss in the five days to 2.9 percent and the retreat in February to 0.7 percent. Mechel lost as much as 40 percent before trading down 23 percent to 40.50 rubles. OAO Lukoil, Russia’s second-largest oil company, slipped 1.8 percent to 1,967.60 rubles.
Ukraine’s acting President Oleksandr Turchynov said today Russian troops are “directly involved” in a conflict in Crimea. Tensions flared in southern Ukraine as an armed group occupied parliament and government buildings in the region’s capital. They replaced the Ukrainian flag with the tricolor from Russia, which on Feb. 26 began a series of military exercises in the western and central regions, while saying the move was unrelated to events in Ukraine.
“With Ukraine, the uncertainty persists as investors are afraid that Russia will use force to intervene,” Anvar Gilyazitdinov, who manages about $10 million at Rye, Man & Gor Securities in Moscow, said by phone.
OAO Moscow Exchange halted trading in Mechel’s shares for 30 minutes from 11:36 a.m., according to a statement on the bourse’s website. The authorities switched to a discretionary auction as the stock belongs to a A1 equities investment list and fell more than 20 percent over 10 minutes, it said.
Mechel sees no fundamental reason behind the drop as its financial situation is stable and obligations are being met, it said in an e-mailed statement today. Mechel is going to ask the market regulator to investigate the plunge in shares, the company said.
Mechel plans to sell a stake in its Elga coal mine to an Asian investor this year to help repay debt, Chief Financial Officer Stanislav Ploschenko told reporters in Moscow Feb. 26. It agreed with lenders to extend or refinance some loans in December, facilitating a cut in this year’s repayments to $1 billion from $2 billion. The shares have slid for four straight days during this week, slumping 36 percent.
“Mechel continues to search for cash to repay its borrowings and the market is skeptical of its success,” Gilyazitdinov said. “What happened today looks like a margin call.”
Russia-focused equity funds recorded $111 million of outflows in the five days ended Feb. 26, the 11th week of negative flows, according to UralSib Capital’s e-mailed note, which cited EPFR Global data.
Brent crude slid 0.2 percent to $108.78 in London. Russia receives about half of its budget revenue from oil and natural gas sales. The ruble fell 0.5 percent to 42.3059 to a record against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, when the central bank stops its market operations.
The Russian currency has depreciated 8.5 percent against the dollar this year, the second-worst performance among 24 emerging-market peers tracked by Bloomberg after Argentina’s peso, as U.S. Federal Reserve stimulus cuts curbed appetite for developing-nation assets.
Russia’s equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 5.2 times projected 12-month earnings, compared with a multiple of 10.3 for the MSCI Emerging Markets Index.