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Crimea-Induced Trading Surge Stokes Moscow Exchange Rally

Moscow Exchange
A logo sits on display at the entrance to the headquarters of the Moscow Exchange in Moscow. Photographer: Andrey Rudakov/Bloomberg

OAO Moscow Exchange is emerging as one of the winners from the rout sparked by Russia’s worst confrontation with the U.S. since the end of the Cold War.

Shares of the bourse have rallied 20 percent since March 13, before voters in Crimea moved to join Russia. The stock is among the best performers on the Micex index, which has risen 6.8 percent in that period, according to data compiled by Bloomberg. Moscow Exchange stock gained 0.8 percent to 58.53 rubles by 1:43 p.m. in the Russian capital, reducing its month-to-date decline to 6.9 percent.

Daily equity trading volumes at the exchange surged to a record 72 billion rubles ($2 billion) in the first three weeks of March, compared with an average of 35 billion in February, the bourse said yesterday. Russian stocks have posted the biggest price swings since 2011 in the period, according to data compiled by Bloomberg.

“The Moscow Exchange is clearly benefiting from the current volatile environment,” David Nangle, the head of research at Renaissance Capital in Moscow, wrote in an e-mail yesterday. “There is nothing negative for their business in the short term, from all that is going on on a geopolitical level. Revenues will be correlated with volume increases.”

Further Sanctions

The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. rallied 2.5 percent to 82.62 in New York yesterday, led by OAO Gazprom. The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, climbed 3 percent to 23.02. While the Micex advanced 0.7 percent to 1,333.29, extending yesterday’s gains, the measure is down 11 percent this year and entered a bear market this month.

The world’s top industrial powers are threatening further sanctions to deter President Vladimir Putin from taking over eastern regions of Ukraine and has suspended Russia from participating in the Group of Eight.

“We’re seeing different types of behavior of the customers,” Alexander Afanasiev, the chief executive officer of the Moscow Exchange, said in a Bloomberg Television interview yesterday. “Some of them are exiting the market, some of them are using the volatility, some are seeking new opportunities because they think that the Russian assets are currently definitely undervalued.”

Discount Valuation

Investors pulled $5.5 billion from Russian equities and bonds this year through March 20, already approaching the total outflow of $6.1 billion for all of 2013, according to data compiled by EPFR Global, a Cambridge, Massachusetts-based company that tracks fund flows.

Companies on the Micex Index trade at an average valuation of 5.5 times estimated earnings, about half the multiple for stocks on the MSCI Emerging Markets gauge, according to data compiled by Bloomberg.

The RTS Volatility Index, which measures expected swings in the stock-index futures, has more than doubled this year. The gauge fell 13 percent to 37.23 in U.S., after reaching the highest since 2009 on March 3. The RTS gained 1.5 percent.

The Moscow Exchange posted a 41 percent profit gain to 11.6 billion rubles in 2013 as revenue increased 14 percent to 24.6 billion rubles, the bourse said in a March 14 statement. The bourse, which raised 15 billion rubles in a February 2013 initial public offering, has been revamping its operations and is set to make equities available through Euroclear Bank SA in July to lure trading from offshore platforms.

Repatriating Volumes

The bourse is trying to overcome foreign investors’ preference for equities traded outside Russia, which has left the 30-day average value of London trades in 10 of the biggest Russian companies, including OAO Gazprom and OAO Lukoil, about 44 percent greater than in Moscow as of yesterday.

“In the long term, the Moscow Exchange’s growth story is tied to its ability to bring trading volumes over to Russia from abroad and to the development of the stock market,” Olga Naydenova, an analyst at BCS Financial Group in Moscow, said by phone yesterday. That “is hardly possible in the absence of a long-term positive scenario of investment climate development.”

Moscow Exchange’s revenue is expected to increase to a record 25.6 billion rubles in 2014, according to the mean estimate of 10 analysts surveyed by Bloomberg.

“We see a strong trend for trading more in Russia and more original shares,” Afanasiev said.

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