Gazprom Rally Ending to BCS on Spending: Russia Overnight

OAO Gazprom’s 40 percent rally from a four-year low is poised to falter, BCS Financial Group said.

The world’s largest natural gas company has failed to sustain previous rallies of 20 percent over the past three years, and the stock is down 20 percent during that period, according to data compiled by Bloomberg and BCS. The firm reiterated a hold recommendation on the stock yesterday, citing concern spending will rise as a deal to supply Chinese consumers by pipeline looms.

Global depositary receipts of Russia’s biggest company dropped 1.7 percent to $9.11 in London yesterday, after climbing to a nine-month high Oct. 18. Gazprom fell to the lowest in a month in New York. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. slipped 1.1 percent, led by OAO Sberbank. RTS index futures expiring in December declined 0.3 percent to 145,380 in U.S. hours.

“Every time Gazprom rallies, it’s pulled back more than it gained,” Luis Saenz, head of equity sales and trading at BCS in London, said in an interview by phone yesterday. “This is no different this time.”

American depositary receipts of Gazprom fell 1.7 percent to $9.09 yesterday, declining for the fourth time in five days. BCS Financial Group increased its share-price estimate on the company’s London-listed depositary receipts by 11 percent to $10 in a report yesterday.

“The rally is not sustainable, there are no triggers to fuel further gains,” Andrey Polischuk, an analyst at ZAO Raiffeisenbank in Moscow, said by phone yesterday. “Concerns are rising as there is no clarity on what kind of price Gazprom will agree on to begin supplies to China. It’s clear that a contract with China would mean more spending short-term.”

China Contract

Gazprom aims to sign a contract with China by year’s end, Chief Executive Officer Alexey Miller said in Komsomolsk-na-Amure Oct. 24. Gazprom is concluding talks that have been under way since at least 2002.

China’s appetite for gas will double by 2018 as Asia’s biggest economy seeks to replace dirty coal-burning power plants, International Energy Agency forecasts show. Gazprom, which supplies Europe with 25 percent of its gas, is looking for new markets as westward exports stagnate.

While a gas deal would be a “major breakthrough” for Russia and could make China its largest trading partner, the economics of the pipeline proposal may still scuttle it, according to Fyodor Lukyanov, the head of the Moscow-based Council on Foreign and Defense Policy.

The stock fell 1.1 percent to 148.95 rubles, or the equivalent of $4.58, in Moscow yesterday.

The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, dropped 1.7 percent to $29.03 yesterday. The RTS Volatility Index, which measures expected swings in the index futures, fell 1.9 percent to 22.16.

OAO Sberbank slid 2.7 percent to $12.53 in New York yesterday, the lowest level since Oct. 8, settling at a 0.5 percent discount to the company’s Moscow-listed shares.

United Co. Rusal, a Moscow-based aluminum producer, declined 1.3 percent to HK$2.36 in Hong Kong trading as of 10:33 a.m. local time, heading for the lowest close since Oct. 18. The MSCI Asia Pacific Index lost less than 0.1 percent.

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