Russian stocks fell to an 11-week low and the ruble slid the most among emerging-market currencies amid the threat of new sanctions from Europe. OAO Rosneft shares and bonds tumbled after a European court ruled Russia must compensate former owners of Yukos Oil Co.
The Micex Index lost 1.9 percent to 1,361.94 by the close in Moscow, the lowest since May 6 and bringing the decline since this year’s high on June 24 to more than 10 percent, the threshold for a correction . The ruble weakened 1.2 percent to 35.5355 per dollar by 6 p.m. Rosneft sank 1.2 percent to an almost six-week low and the yield on its 2022 Eurobond climbed to the highest since April.
Satellite photos the U.S. says prove Russia fired shells into Ukraine are fueling bets tougher sanctions will be applied, according to Nicholas Spiro, managing director of Spiro Sovereign strategy in London. Former majority owners of Yukos announced a $50 billion award against Russia for the confiscation of what was once the nation’s largest oil company.
“It’s another fly in the ointment,” Yuri Selyandin, a money manager who helps oversee about $2 billion at GHP Group in Moscow, said by phone. “The ruling increases the risks associated with Russia.”
Rosneft became the nation’s largest oil producer by acquiring most of Yukos’s assets at a series of forced auctions. The company doesn’t see any basis for claims against it in the ruling, it said in a website statement.
Sentiment toward Russian assets has soured since the July 17 downing of the Malaysian Airlines jet by a missile the U.S. says was probably supplied by the Russian military.
OAO Sberbank and VTB Group, Russia’s biggest lenders, dropped 3.1 percent and 1.2 percent, respectively. The yield on Sberbank’s October 2022 dollar bonds surged 78 basis points to 7.3 percent, the highest since April.
European Union sanctions “are still the biggest threat for the market,” Slava Smolyaninov, an equity strategist at UralSib Capital in Moscow, said in e-mailed comments. Any measures against state banks “will definitely increase the cost of capital.”
Lenders’ earnings will be hurt as the economy slows, according to a note today from BCS Financial Group analysts, who cut their recommendation for VTB to sell. The central bank’s surprise interest-rate increase at the end of last week could harm the country’s economy more than sanctions, UralSib analysts wrote in a note today.
The International Monetary Fund said July 24 Russia’s gross domestic product will expand 0.2 percent this year, less than half the government’s forecast of 0.5 percent growth. GDP rose 1.3 percent in 2013.
EU diplomats are due to meet tomorrow to agree curbs on Russian state banks’ access to capital markets, exports of defense and “dual-use” goods and limits on equipment sales for deep-sea drilling, shale-oil production and Arctic energy exploration.
OAO Gazprom, the nation’s natural gas export monopoly, sank 2.3 percent. The yield on the government’s ruble-denominated notes due February 2027 bonds rose nine basis points to 9.33 percent, extending last week’s climb of 20 basis points. Ukraine’s dollar bonds due 2023 fell, driving the yield to the highest since July 17.
“The rate increase has stripped government bonds of their last appeal,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments.
OAO Bashneft slumped 7.6 percent, while its preferred shares fell 8.6 percent. AFK Sistema said last week its Sistema-Invest unit has received a notice from the registrar about restrictions on transactions in its Bashneft shares.
The Micex trades at 4.9 times estimated earnings, making it the cheapest measure among 21 emerging markets tracked by Bloomberg. That compares with a multiple of 5.3 at the end of February, before Russia’s incursion in Crimea. The dollar-denominated RTS Index retreated 3 percent to 1,208.83.
“The Russian market and the ruble remain very sensitive to the newsflow on sanctions,” Miklashevsky said. “The EU’s promise to introduce its severest sanctions ever erases temptations to start buying Russian assets even at current low levels.”
The 14-day relative strength index for the Micex fell to 28.4 today, below the level of 30 which to some analysts signals the gauge is oversold.