Russian Stocks See Day’s Gains Wiped Out by Weakening Oil Market

  • JPMorgan says market under-owned, offers best dividend yields
  • Magnit leads gains as second-quarter profit beats estimates

Russian stocks fell as a downward lurch in oil prices obliterated the boost from rising profit at the nation’s largest retailer and a JPMorgan Chase & Co. recommendation for bullish positions in anticipation Russia will return to economic growth next year.

The Micex Index was 0.1 percent lower by 6:20 p.m. in Moscow after crude oil fell 2 percent to $44.77 in London. Earlier, shares had gained as much as 0.8 percent with Magnit PJSC leading the advance after the retailer reported net income that was almost a third higher than estimates. The ruble also fell.

While Russian stocks are a "relative safe haven" among peers in central, eastern Europe, Middle East and Africa, according to JPMorgan, the country’s assets remain vulnerable to moves in the energy market as oil and gas account for the bulk of export revenues. The Micex has climbed 24 percent this year in U.S. dollar terms, the world’s fifth-best performance as oil stabilized.

"If you believe in oil at $60 per barrel in a year, you should buy Russia," Vladimir Vedeneev, chief investment officer at Raiffeisen Capital in Moscow, said by e-mail. "If you think it will be trading in the $45 to $55 per barrel range, the market doesn’t have that much of an upside, in my view."

Crude will rise to $55 per barrel by the end of the year, spurring a return to growth in 2017 after the the nation spent two years mired in a recession caused by the collapse of the price of oil, it’s biggest export, JPMorgan said in a note on Monday. Economists surveyed by Bloomberg forecast the economy will expand 1.3 percent next year.

Stock Recommendations

JPMorgan is recommending investors take an overweight position in Russian stocks relative to their benchmarks, putting ‘buys’ on Magnit, Sberbank PJSC, Lukoil PJSC and Yandex NV, stocks which will benefit from the recovery as well as looser monetary policy.

Magnit jumped 7.8 percent after the retailer reported net income of 17.9 billion rubles ($276 million) in the second quarter, beating analysts’ estimates of 13.8 billion rubles.

The currency traded 0.8 percent lower at 65.39 per dollar while bonds also reversed earlier gains, with the yield on 10-year benchmark notes rising one basis point to 8.66 percent.

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