Russian ADRs Slide as Crude Retreat Weighs on Investor Sentiment

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Russian stocks trading in New York fell as oil, which together with natural gas accounts for about half of the nation’s budget revenue, declined from a five-month high.

The Bloomberg Russia-US Equity Index decreased 0.9 percent to 63.92 as Brent crude, which traders use to price Russia’s main export blend, fell from the highest level since December. Oil producer OAO Surgutneftegas slid 2.4 percent to $7.24, the lowest in a week. TV broadcaster CTC Media Inc. slumped 2.9 percent to $3.38. Yandex NV, Russia’s largest search engine, lost 2.3 percent to $19.15.

“Oil has risen too much and too fast,” Alexander Sidorov, an analyst at OAO AK BARS Bank in Moscow, said. The weakness in oil “weighs on investor sentiment. A stronger ruble is not helping exporters in general and oil producers in particular,” he said.

Brent has averaged $57.30 a barrel this year, compared with $107.95 in the same period a year ago, data compiled by Bloomberg show. It has risen 14 percent in 2015, helping drive a 21 percent rebound in the ruble after the currency plunged 46 percent last year. A stronger ruble cuts exporters’ revenue and increases local production costs.

Inflation Slows

Russian assets, backed by gains in crude, have rallied with the ruble amid signs the worst of the economic crisis touched off by sanctions linked to Ukraine and last year’s plunge in oil has passed. Annual inflation last month slowed for the first time since July.

“Stronger oil prices led to a stronger ruble, lower interest rates, better economic prospects, and therefore a much stronger equity market,” Rudolph-Riad Younes, co-founder and portfolio manager at R Squared Capital Management LP in New York, said by e-mail from Istanbul on Thursday. “Short term the market sentiment will continue to be linked to oil and Ukraine.”

The Market Vectors Russia ETF, the largest U.S. exchange-traded fund tracking the nation’s stocks, increased 0.7 percent to $20.09. Investors withdrew $6.2 million from the fund on May 6, the first outflow since March 16, according to data compiled by Bloomberg show. The RTS Volatility Index, which measures expected swings in Russian stocks, rose 2.4 percent to 34. Futures on the RTS Index expiring in June declined 0.6 percent to 105,000 in U.S. hours.

Brent for June settlement fell $2.23, or 3.3 percent, to $65.54 a barrel on the London-based ICE Futures Europe exchange on Thursday. It closed on Wednesday at $67.77, the highest level since Dec. 5, and traded at $65.65 at 10:33 a.m. Hong Kong time.

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