March 14 (Bloomberg) -- The Micex Index headed for the biggest weekly drop in two and a half years, while the ruble and bonds fell before an interest rate decision and as Western nations pressed Russia against moving to annex Ukraine’s Crimea.
The Micex index fell 4.2 percent to 1,196.48 by 12:30 p.m. in Moscow, 24 percent below its January 2013 high. The gauge is poised for its largest weekly slide since September 2011. Bonds fell for a sixth day, driving up the yield on the 10-year note by 34 basis points to 9.75 percent, the highest level since 2009. The ruble weakened 0.2 percent to 43.0495 against Bank Rossii’s target basket of dollars and euros.
U.S. Secretary of State John Kerry told a Senate panel in Washington yesterday that the U.S. and Europe will take “very serious” steps the day after the Crimea vote “if there is no sign” of a resolution to the crisis. Analysts on average expect the central bank to keep its main lending rates unchanged after a surprise hike on March 3.
“Investors are scared of potential sanctions that may follow the Sunday vote,” Dmitry Mikhailov, who helps oversee about $3 billion as a money manager at Alfa Capital Partners Ltd. in Moscow, said by phone today. “People are selling Russian shares as a preventative measure in case sanctions are imposed.”
Power utility OAO Inter RAO UES tumbled 10 percent to 0.65 kopeks, while OAO Mechel, the nation’s biggest coking coal producer, slumped 11.1 percent to 35.40 rubles.
Russian equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 4.3 times projected 12-month earnings, compared with a multiple of 10.2 for the MSCI Emerging Markets Index.
The ruble declined 0.3 percent against the dollar to 36.6553 and fell 0.2 percent against the euro to 50.8558. The local currency has slumped 10.3 percent against the dollar this year, the worst-performer after Argentina’s peso among 24 emerging-market currencies tracked by Bloomberg.
The ruble is trading above the upper level of the central bank’s last announced corridor of 42.95, meaning the regulator may sell an unlimited amount of foreign currency during the session.
Bank Rossii, which unexpectedly raised its benchmark interest rate by 150 basis points on March 3 to 7 percent, is shifting the ruble corridor by 5 kopeks after spending $1.5 billion. The corridoer must have already been shifted once today, Dmitry Dorofeev, a money manager at BCS Financial Group in Moscow, said by phone.
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