Russia’s RTS Futures Signal Bear Market Set for Further Declines

Russia’s dollar-denominated RTS Index entered a bear market and futures contracts pointed to further declines as prospects for weaker commodity prices sour investor sentiment in the world’s biggest energy exporter.

Futures on the gauge fell 0.5 percent to 128,490 in New York after the RTS tumbled 1.6 percent to 1,301.08 in Moscow, leaving it down 20 percent from a Jan. 28 peak. The gauge extended declines today, losing 0.1 percent by 11:55 a.m.

Russia, which counts on income from oil and gas sales for about half of its budget revenue, is expanding at the weakest pace since a 2009 contraction. China, the world’s second-largest consumer of crude oil, is facing “huge challenges” as it seeks 7 percent annual growth this decade, down from more than 10 percent in the previous 10 years, Premier Li Keqiang said last month.

“The market is pricing in a fairly bleak outlook for energy and materials,” Charles Robertson, the global chief economist at Renaissance Capital in London, said by e-mail yesterday. “Investors have not been keen to buy energy stocks. Also emerging market growth has disappointed, from Brazil to India, and in Russia too.”

The ruble-based Micex Index retreated less than 0.1 percent today and is trading 15 percent below its January high. OAO Gazprom, the natural-gas export monopoly, sank 2.5 percent in New York while OAO Severstal, Russia’s second-largest steelmaker, lost 4.5 percent in London.

Slower Growth

Russia’s economy grew 1.6 percent in the first three months from a year earlier, slowing for a fifth consecutive quarter, according to the statistics office. The federal budget deficit will probably widen next year to more than the previously planned 0.2 percent of gross domestic product on reduced oil and gas revenue and a drop in other earnings, Finance Minister Anton Siluanov said last month.

The Bloomberg Russia-US Equity Index fell 2 percent to 85.43, the lowest level since June 28 last year. The gauge, which has dropped 14 percent so far this year, is poised to decline for a fifth week.

The Market Vectors Russia ETF, the largest exchange-traded fund dedicated to Russian equities, slid 2.4 percent to $25.09, the lowest close in 11 months. The RTS Volatility Index, which measures expected swings in the stock futures, surged 4.2 percent to 29.38 today.

“Emerging markets are not in fashion at the moment and there has been a focus of investors toward countries where there is a positive dynamic going on,” Julian Mayo, the co-chief investment officer at Charlemagne Capital Ltd. in London, said by phone yesterday. “Russia is among the countries that are seen as less shareholder friendly.”

Dividend Push

Government measures, such as a push to increase dividends paid by state companies, and an improved global outlook for the second half, may boost Russian equities later in the year, Mayo said.

“Russia is very much an oversold market, a market that may very much surprise on the upside in the next 12 months,” said Mayo, who helps manage $2.7 billion in emerging-market assets at Charlemagne. “There are some positive things going on in Russia at the moment.”

Authorities are considering an increase in dividend payouts by state-controlled companies to 35 percent of earnings, Siluanov said in May. The federal budget will get 153 billion rubles ($4.9 billion) in extra income in 2013 if all state companies set their dividend payout at 25 percent, adding to this year’s planned budget intake from dividends of 172 billion rubles, the Finance Ministry estimates.

Rusal, Ruble

“Russia will have a better second half, based on a better global economy,” Michael Wang, an emerging-market strategist at Amiya Capital LLP in London, said by e-mail. “The obvious risk is what is going on in China. For the moment Chinese growth looks pretty lackluster and that could cap the upside on commodity prices even if the global economy is recovering.”

Crude for July delivery rose 0.5 percent to $93.74 a barrel on the New York Mercantile Exchange yesterday. Brent for July settlement was little changed at $103.04 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s major export blend, decreased 0.4 percent to $102.41 and is down 7.7 percent this year.

Ruble futures showed the currency gaining 0.7 percent to 31.02 to a dollar in U.S. hours. Russia’s ruble weakened 0.8 percent to 32.1650 per dollar yesterday and decreased 0.8 percent to 36.6423 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness.

United Co. Rusal, the world’s largest aluminum producer, gained 1.2 percent to HK$3.46 in Hong Kong trading as of 9:50 a.m. local time. The shares rose for the first time in four days. The MSCI Asia Pacific Index fell 0.3 percent today.

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