Russian Stocks Drop After Rally Sends Valuations to 6-Month High

Russian stocks declined the most in three weeks, paring their weekly gain, amid concern the highest Micex Index valuations in six months aren’t justified.

The Micex slid 0.7 percent to 1,476.73 by the close in Moscow, the most since Aug. 27 and trimming its advance this week to 2.5 percent. The 1.5 percent rally yesterday sent the index to 4.3 times 12-month estimated earnings, the most since March 15, after the U.S. Federal Reserve unexpectedly decided against reducing monetary stimulus. OAO Severstal, a Russian steelmaker, declined 1.7 percent to 299.80 rubles.

This week’s advance in the Micex sent the 14-day relative strength index to 71.98 yesterday, above the level of 70 that suggests to some analysts that a security has been overbought and is poised for a decline. The gauge’s RSI closed at 67.16 today. Crude oil, Russia’s main export earner, retreated for a second day in New York as the threat of energy supply disruption from military strikes against Syria receded.

“The Russian market gained a lot yesterday,” Andrey Vashevnik, chief investment officer for Russian markets at R&B Russia Investment Fund Ltd, said by phone. “There are concerns in the market that perhaps the U.S. economic recovery isn’t as strong as we had thought.”

The world’s biggest economy needs to show more evidence economic progress will be sustained before the Fed can pare its $85 billion in monthly purchases of Treasury and mortgage debt, the central bank said Sept. 18. Crude slipped 1 percent to $105.36 in New York.

Bourse Buyback

Polymetal International Plc, a Russian gold and silver miner, lost 5.7 percent to 348.16 rubles after surging 7.3 percent yesterday. OAO Moscow Exchange fell 3.1 percent, the most since Aug. 6, to 63.05 rubles. Shareholders will vote at a Nov. 14 extraordinary meeting in Moscow on whether to approve the buyback of a 4.2 percent stake, the exchange said in a statement yesterday after the market close.

The bourse plans to buy the stake at 55 rubles apiece, allowing stockowners as of Sept. 25 to participate in the plan, it said. The company will buy the stock from its unit, OOO Micex Finance, after which it will cancel them, it said.

The buyback cancels quasi-treasury shares held by Micex Finance that were not sold to the market during the February IPO, Sberbank CIB analysts said in an e-mailed note today. While any shareholder can tender shares, it’s unlikely to happen given the buyback price, they said.

Average Volume

Average trading volume on the Micex was about 27 percent above the 30-day average today, data compiled by Bloomberg show. Ten-day price swings subsided to 15.581. The dollar-denominated RTS Index dropped 1.1 percent to 1,462.92 after yesterday closing 19.9 percent above this year’s low on June 24, 0.9 point short of a bull market.

Most metals dropped in London today, including nickel and tin. OAO Mechel, Russia’s biggest coking-coal producer, fell 1.7 percent to 111.30 rubles after rising 2.1 percent yesterday. Severstal lost 0.8 percent to $9.49 in London.

Even after this week’s rally, Russian equities have the cheapest valuations among 21 emerging economies tracked by Bloomberg. The Micex Index’s 12-month estimated price-to-earnings ratio was at 4.27 today, compared with a multiple of 10.7 for the MSCI Emerging Markets Index.

The Micex sank 0.7 percent on Sept. 13 as Russia’s central bank kept the refinancing rate unchanged at 8.25 percent, matching the forecast of 14 out of 22 economists in a Bloomberg survey. The nation’s economy expanded 1.2 percent in the second quarter, the Federal Statistics Service reported on Aug. 9, missing the median estimate for 2 percent growth.

The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in New York tumbled 0.9 percent today, while the Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, dropped 1 percent. The ruble weakened 0.6 percent to 31.8275 against the dollar, snapping ten days of gains.

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