Russia Stocks Retreat as Crude Oil Falls; TMK Drops on MSCI Bets

Russian stocks declined the most in almost two weeks as crude oil slid and pipemaker OAO TMK fell on concern it will be cut from a gauge tracked by equity investors.

The Micex Index retreated 0.6 percent to 1,505.94 by the close in Moscow, the most since Oct. 23. Markets were closed yesterday for holidays. TMK lost 4.3 percent to 89.01 rubles, the most on the index. Preferred shares of oil producer OAO Bashneft fell 2.2 percent to 1,255 rubles.

TMK, the world’s biggest pipemaker by output, may be removed from MSCI Inc.’s Russia Index, VTB Capital said Oct. 31. MSCI announces the index rebalancing results on Nov. 7. Crude oil in New York fell 0.8 percent to $93.89. Russia receives about half its budget revenue from natural gas and oil. The Micex has climbed 2.1 percent this year and trades 17 percent higher than this year’s low in June.

“TMK’s possible exclusion from MSCI Russia is a negative factor for the shares,” Oleg Popov, who manages $1 billion of securities for Allianz Investments, said by phone in Moscow. “The market has been trading at high levels, now investors are reaping profits.”

Preferred shares of oil producer OAO Surgutneftegas jumped 1.9 percent to 24.20 rubles, the most since Oct. 18. Surgut said nine-month profit surged 72 percent to 204.8 billion rubles ($6.3 billion) compared with the same period a year earlier, according to Russian accounting standards. The ruble’s 6.2 percent slide versus the dollar this year led to an “earnings boost,” he said. “The company is very dependent on the ruble’s movements.”

Cash Pile

Most of the $30 billion of cash held by Surgutneftegas is in dollars, meaning a depreciation in the ruble leads to exchange gains, higher net income and increased dividends, paid as a proportion of profit. Ordinary shares rose 0.4 percent. Surgut tumbled 1.5 percent to $8.865 in London.

“Surgut’s results are a positive surprise, especially for preferred shareholders who now may expect a higher dividend, which we estimate may exceed 2 rubles,” Alexei Kokin, an analyst at UralSib Capital in Moscow, said by phone.

OAO Rostelecom’s preferred shares rose 2.3 percent to 76.92 rubles after the Vedomosti newspaper reported the fixed-line operator may make a new buyout offer to minorities. The buyout price will be similar to this year’s offer, Vedomosti reported, citing a person close to the board of directors. Rostelecom spokesman Andrey Polyakov declined to comment on the report by phone.

OAO Mechel, Russia’s biggest coking-coal producer, increased 1.4 percent to 104.40 rubles. OAO Gazprom, Russia’s biggest company and natural gas export monopoly, declined 1.1 percent to 148.95 rubles, the lowest since Oct. 7. BCS Financial Group reiterated its hold recommendation for the stock today, citing concern capital expenditures will rise. The shares retreated 1.7 percent to $9.105 by 3:18 p.m. in London.

The RTS Index slid 1 percent to 1,460.23. The dollar-denominated gauge has fallen 1.3 percent since Oct. 10 when it entered a bull market after climbing 20 percent from this year’s low.

Russian equities have the cheapest valuations among 21 emerging economies monitored by Bloomberg, with shares on the Micex trading at 4.3 times projected 12-month earnings, compared with a multiple of 10.6 for the MSCI Emerging Markets Index. Ten-day price swings on the Micex rose to 9.559 from 9.242 on Nov. 1.

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