Russia RTS Gauge Drops 20% From Year High, Set for Bear Market
The RTS Index fell as much as 2.1 percent before trading down 1.8 percent to 1,307.12 by 10:50 a.m. in Moscow, a 20 percent drop from this year’s high reached on Jan. 28. The Micex Index (INDEXCF) slipped 1.5 percent to 1,330.65 in Moscow, the lowest intraday level since April 23. Mechel, Russia’s steelmaker and coking coal producer, lost as much as 8 percent, trading down 4.4 percent at 104.40 rubles, the biggest decliner.
Crude, Russia’s main export earner, declined 0.4 percent to $91.59 a barrel in New York, as signs of a slowing Chinese economy and OPEC’s decision to maintain production boosted speculation supply will outstrip demand. Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy of the world’s second-biggest oil user. Russia’s manufacturing gauge dropped to 50.4 in May, retreating for the third straight month, showing “loss of growth momentum in the Russian manufacturing sector,” HSBC Holdings Plc said in a statement today.
“Russia is falling on concerns of lower commodity demand from China, since it’s a key energy user,” Oleg Popov, who manages $1 billion in assets for Allianz Investments, the asset-management arm of Europe’s biggest insurer, said by phone from Moscow. “Energy companies have a major weighting in the RTS Index (RTSI$) and since Russia has such a high dependency on commodities, it’s taking a tumble today.”
HSBC and Markit Economics said their Chinese manufacturing index, released today, fell to 49.2 in May from 50.4 in April. A reading below 50 signals contraction. MSCI Inc. cut Mechel’s American depositary receipts and OAO Novolipetsk Steel (NLMK)’s global depositary receipts and OAO Russian Grids from its Russia Index, effective today. NLMK retreated 2.4 percent to 43.70 rubles. The Micex dropped 2.6 percent last month, a fourth monthly retreat.
Russia’s economy will probably expand 2.3 percent in the second quarter, according to the median estimate of 9 economists in a Bloomberg survey. That’s less than the 2.5 percent forecast a month earlier.
Total fund outflows from Russia in the week ending May 29 reached $267 million, compared with $652 million from Brazil, Sberbank CIB said in an e-mailed note on May 31.
Russia’s economy grew at the weakest pace since 2009 in the first quarter as the euro area’s longest recession hurt demand for commodity exports, federal data showed on May 17. Russia’s central bank kept its main interest rates on hold for an eighth month in May.
The Micex tumbled the most in a year on May 23, the day after U.S. Federal Reserve Chairman Ben S. Bernanke said the central bank could reduce the pace of its asset purchases if officials see signs of sustained improvement in growth. The Fed buys $85 billion of debt a month to support the economy by putting downward pressure on interest rates.
The Bloomberg Russia-US Equity Index slumped 7 percent in May, capping a fourth monthly decline and extending this year’s drop to 11 percent. OAO Lukoil, which has the second-biggest weighting on the measure after OAO Mobile TeleSystems (MBT), capped the longest stretch of monthly losses since 2011. OAO GMK Norilsk Nickel, the world’s biggest producer of the nickel, slumped to the lowest price since May 16.
OAO Magnit, Russia’s biggest food retailer and the best performer on the Micex this year, dropped 3.1 percent to 6,924.10 rubles. MSCI lifted Magnit’s global depositary receipts to 9 percent from 4.7 percent in its Russia 10/40 Index last week. Magnit is up 43 percent in Moscow this year and 37 percent in London.
“Even strong stocks, like Magnit, can’t hold up to today’s retreat,” Aleksei Belkin, who helps manage about $6.8 billion in assets as chief investment officer at Kapital Asset Management LLC in Moscow, said by phone.
The volume of shares traded on the Micex was 19 percent below the gauge’s 30-day average, while 10-day price swings subsided to 28.257. The Micex’s Relative Strength Index was at 35.5, with the value below 30 signaling a measure has been oversold.
Russian equities have the cheapest valuations among 21 emerging markets tracked by Bloomberg. The Micex trades at 4.9 times its 12-month estimated earnings and has dropped 9.9 percent this year, compared with a 10.2 multiple for the MSCI Emerging Markets Index, which has retreated 5.1 percent.
The Russian Volatility Index surged 11 percent to 28.07. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. lost 2.5 percent to 87.61 on May 31.
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