Russian Stocks Drop as JPMorgan Cuts on Gazprom, Putin Policies

Russian stocks retreated, erasing earlier gains, as OAO Gazprom slid after JPMorgan Chase & Co. cited the natural gas export monopoly’s dividend plans in a report downgrading the country’s equities.

The Micex Index sank as much as 1 percent and closed down 0.1 percent at 1,336.84 in Moscow, extending last week’s 3.4 percent drop. Gazprom fell for a sixth day, retreating 0.5 percent to 119.55 rubles as it had its longest losing streak in more than two months. Russian equities have the cheapest valuations on an estimated profit basis among 21 emerging markets tracked by Bloomberg.

Russia was cut to underweight from neutral at JPMorgan, which said Gazprom’s proposed dividend cut, falling oil prices and “policy stasis” in President Vladimir Putin’s government overshadow low valuations. State-run Gazprom, Russia’s largest company by market value, proposed this month reducing its annual dividend by about 33 percent.

“Fund manager sentiment towards Russia remains very brittle,” Julian Rimmer, a trader of Russian shares at CF Global Trading in London, said by e-mail.

The Micex Index climbed as much as 1.2 percent earlier, advancing with European stocks after Group of 20 nations offered no opposition to Japan’s policy stimulus, spurring optimism that the measures will help boost a global recovery. Brent crude added 0.2 percent to $99.82 a barrel in London. Oil and gas contribute about 50 percent of Russia’s state budget revenue.

Investor Questions

“Investors point to low valuations on Russian stocks as a bull case, but they cannot really answer our questions about what improvements they have seen recently in the policy environment or the expectations of future improvements,” Adrian Mowat, JPMorgan’s chief Asia and emerging-market strategist, wrote in a report dated April 20.

The S&P GSCI Spot Index of commodities fell 0.1 percent to 606.87. The dollar-denominated RTS Index lost 0.6 percent to 1,329.14.

The Micex trades at 5 times estimated earnings and has lost 9.4 percent this year, compared with 10.6 times for the MSCI Emerging Markets Index, which has slid 4.3 percent in the period.

The Russian Depositary Index dropped 0.9 percent to 1,531.91. The RTS Volatility Index, which measures expected swings in stock futures, rose 4.8 percent to 24.47 today. The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, declined 1 percent to 25.52, while the Bloomberg Russia-US Equity Index declined 0.5 percent to 89.29.

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