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Russian Stocks End Four-Day Rally as Investors Mull China Deal

May 22 (Bloomberg) -- Russian stocks declined for the first time in five days as investors sought more details of OAO Gazprom’s $400 billion accord to supply gas to China.

The Micex Index fell 0.7 percent from yesterday’s three-month high to 1,430.54 by the close in Moscow. Gazprom slipped 1.2 percent to 144.78 rubles, paring its gain this month as investors anticipated the China deal to 12 percent.

Russia’s state-controled gas monopoly reached an agreement to supply fuel to China for 30 years after more than a decade of talks. While the precise terms of the contract signed with China National Petroleum Corp. in Shanghai yesterday weren’t published, the price of gas was “about $350” per 1,000 cubic meters, Economy Minister Alexei Ulyukayev said on Bloomberg TV.

“The market is taking a break from the rally on Chinese deals news,” Evgeny Loktyukhov, an analyst at OAO Promsvyazbank in Moscow, said by phone. “Gazprom saw a visible inflow of funds before the deal was signed, now we’re expecting the stock to drop 3-5 percent. Fundamentally, the news is positive as the deal diversifies Gazprom’s exports markets.”

President Vladimir Putin said he will ease the way for Ukraine’s May 25 presidential election by pulling back Russian troops from Ukraine’s border, though previous promises went unfulfilled. The latest pledge came as attacks by pro-Russian separatists resumed overnight in the Luhansk region with three assaults by about 30 gunmen on government forces, the Border Service said in a statement on its website.

Ukraine Elections

“Ukraine elections are approaching and geopolitical tension persists,” Loktyukhov said. Russia sees “big problems” with the election, Russian Foreign Ministry spokesman Alexander Lukashevich told reporters today in Moscow.

OAO Russian Grids jumped 6.6 percent to 49.9 kopeks. The company’s Siberian subsidiary may attract $5 billion from Chinese banks for its projects, Interfax reported, citing an unidentified person familiar with the talks. MRSK Siberia stock jumped as much as 42 percent and closed up 34 percent.

Polymetal International Plc tumbled 8.2 percent to 302.82 rubles, the lowest since Jan. 17. The company agreed to buy the Kyzyl gold project in Kazakhstan by paying $318.5 million in cash and issuing $300 million in new shares for the project.

Russia’s benchmark index trades at 5.2 times estimated 12-month earnings, the cheapest valuation among 21 emerging markets tracked by Bloomberg. Gazprom is trading at three times estimated earnings.

While Russian stocks deserve a “steep valuation discount” due to geopolitical risks, Franklin Templeton remains interested in “select” Russian and Ukrainian companies in the long-term, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said in a blog post.

“Russian equities have often presented themselves as potential bargains during various stressful points in time,” he said. “In our view, this is true even more so today.”

To contact the reporters on this story: Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Alex Nicholson, Chris Kirkham

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