March 31 (Bloomberg) -- The ruble jumped and stocks gained after Russia’s foreign minister met with his U.S. counterpart, spurring optimism the Ukraine crisis won’t escalate, and as Federal Reserve Chair Janet Yellen said the U.S. economy will need further support.
The ruble strengthened the most since September 2012, adding 1.6 percent to 35.2230 per dollar by 6 p.m. in Moscow and trimming its quarterly decline to 6.8 percent. The Micex Index added 1.9 percent to 1,369.29 by the close, the highest since Feb. 28. That cut its three-month drop to 9 percent.
Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry yesterday discussed “ideas and suggestions” to diffuse the Ukraine crisis. Yellen said in a speech in Chicago that the Fed’s bond-purchase program, which has supported emerging-market asset prices, will be needed for “some time.”
“It looks like the Fed isn’t in a rush to curb its stimulus program and the markets like that,” Oleg Shagov, head of equity research at OAO Promsvyazbank, said by phone from Moscow.
Russian markets are returning to levels seen before President Vladimir Putin’s decision to annex Ukraine’s Crimea region. Russia-dedicated stock funds received $219 million in inflows in the week ended March 26, according to EPFR Global.
The U.S. and the European Union will hold off applying direct economic sanctions against Russia, according to a Bloomberg survey of 20 economists.
“No news has been good news over the past week,” Andrey Vashevnik, who manages $25 million as chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. “If the U.S. and Russia come to an agreement, the market will rise.”
The nation’s equities trade at 3.4 times estimated earnings, the cheapest valuations among 21 developing countries monitored by Bloomberg. That compares with a multiple of 10 times for the MSCI Emerging Markets index.
OAO Novatek, the country’s second-biggest natural gas producer, advanced 2.5 percent to 351 rubles. The stock jumped 6.5 percent to $110 in London.
Kerry said Russia must pull forces back from Ukraine’s border as both sides seek a diplomatic solution, while Lavrov urged the government in Kiev to consider devolving power to give Ukraine’s regions more autonomy. Kerry and Lavrov met two days after Presidents Putin and Obama spoke by phone.
“The news of President Putin’s conversation with President Obama and the meeting of the two foreign secretaries in Paris yesterday offers encouragement to investors,” Chris Weafer, a partner at Macro Advisory in Moscow, said in an e-mailed note today. “Even though the threat of further sanctions remains on the table, the risk of moving into the economy-trade damaging category has eased considerably over the past few days.”
VTB Group, the country’s second-largest bank, rose 3.7 percent to 3.96 kopeks, while London shares increased 6 percent. Federal Grid Co. surged 8.4 percent to 7.699 kopeks, the highest since Feb. 25. The stock is down 15 percent this year.
The U.S. and EU have imposed two rounds of asset freezes and travel bans on Russian and Ukrainian officials and associates of Putin, with the threat of economic sanctions if the confrontation escalates.
German Chancellor Angela Merkel said today “that a process of reflection has begun” in Russia as it faces possible increased sanctions.
Russia fund inflows last week were the strongest since May 2013, UralSib Capital said March 28. Investors pulled $4.03 billion from Russian equities and bonds this year through March 26, approaching the total outflow of $6.1 billion for all of 2013, according to data compiled by EPFR Global.
The dollar-denominated RTS Index added 3.4 percent to 1,226.10 by the close, trimming its slump this quarter to 15 percent.
The ruble strengthened 1.4 percent to 41.2384 versus the central bank’s target basket of dollars and euros, moving into the zone where the central bank stops its interventions aimed at slowing the currency’s drop.
“It seems like the currency market is starting to forget the consequences of the Crimea crisis,” Aram Kazaryan, a foreign-exchange trader in Moscow at OAO MDM Bank, said by e-mail.
Government ruble bonds, known as OFZs, advanced as they became eligible to join Barclays Plc’s Global Aggregate Index today. The inclusion of the securities will prompt investors who track bond indexes to buy the notes to meet the new weightings.
The yield on ruble-denominated government debt due February 2027 fell 20 basis points to 8.89 percent, the biggest drop in two weeks.
“OFZs are rising today on the entry into the Barclays index,” Alexander Myulberger, head of foreign-exchange trading at BCS Financial Group in Moscow, said by phone. “It’s a supportive factor.”
To contact the reporter on this story: Ksenia Galouchko in Moscow at email@example.com
To contact the editors responsible for this story: Wojciech Moskwa at firstname.lastname@example.org Alex Nicholson, Chris Kirkham