Russian Stocks Fall as Ruble Tracks Oil Lower on U.S. Stockpiles

  • Citigroup favors buying Gazprom, selling other Russia shares
  • Micex Index drop after touching intraday record high

Russian stocks failed to hold an all-time high and the ruble posted the worst performance among major currencies as rising U.S. crude stockpiles toppled a recovery in oil prices and Citigroup Inc. recommended cutting exposure to the country’s shares.

The ruble fell 1.2 percent against the dollar to the weakest among 31 major currencies tracked by Bloomberg, taking some of the shine off a 25 percent rally that made it the world’s strongest gainer over the past three months. The Micex Index, which had advanced as much as 0.8 percent in early trading to eclipse its previous intraday record reached on Dec. 12, 2007, retreated to a 0.5 percent decline and closed at 1,950.08.

"A sharp fall in oil from overbought levels is weighing on the ruble,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London.

Russian assets are highly sensitive to moves in energy markets as oil and natural gas account for about a third of Russia’s budget revenue and almost 60 percent of its exports. Oil retreated from an almost five-months high with Brent crude dropping 1 percent amid oversupply concerns, while sentiment also soured after a research note from Citigroup that cautioned investors about a seasonal pattern of weak equity returns typically between May and July.

“With the near-term outlook mixed, we suggest lightening exposure to Russian equities in general and switching into Gazprom,” Citigroup analysts, including Barry Ehrlich, said in an e-mailed note. The country’s stocks, currently the cheapest in emerging markets, have gained 21 percent from a low reached on Jan. 15, buoyed by a recovery in energy prices.

Adding Gazprom

While Citigroup recommended lightening equity exposure to Russia in general, the New York-based bank made an exception for Gazprom PJSC, adding the stock to its focus list after the government instructed state-controlled companies to pay out at least 50 percent of their income in dividends. Gazprom had advanced 8.5 percent over the previous two days and was little changed Thursday.

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