Russian Stocks Decline as Inter RAO, LSR Tumble Before MSCI Exit

Russian stocks fell, erasing earlier gains, as state-run power company OAO Inter RAO UES and LSR Group were among the biggest decliners before their exclusion from MSCI Inc.’s Russia index takes effect.

The Micex Index dropped 0.1 percent to 1,502.41 by the close in Moscow, after rising as much as 0.6 percent during the session. Inter RAO sank 4.3 percent to 0.75 kopeks, the lowest since March 2009. LSR tumbled 4.6 percent to 534.30 rubles, the biggest decliner. OAO Gazprom, the nation’s biggest company, lost 1.1 percent to 147.90 rubles.

LSR, Inter RAO and OAO TMK were removed by MSCI in its Russia index rebalancing effective after the close on Nov. 26. Gazprom was cut to hold at VTB Capital today on its valuation, according to an e-mailed note. Crude oil, the nation’s chief export earner, tumbled 1 percent to $93.87 in New York, a second day of declines after Iran and world powers reached an accord on the country’s nuclear program that will ease economic sanctions while keeping a cap on oil sales.

“It could be arbitrageurs locking in gains from shorting the names-ahead of the actual deletion” from MSCI, Luis Saenz, head of equity sales and trading at BCS Financial Group in London, said by e-mail.

LSR’s global depositary receipts jumped 1.3 percent to $3.718 by 3:40 p.m. in London. TMK dropped 1.6 percent to 93.13 rubles in Moscow, while its GDRs were little changed in London. Gazprom’s depositary receipts dropped 1.4 percent to $8.905.

Metals Meeting

Aluminum producer United Co. Rusal jumped 8.1 percent to 99.44 rubles, the most since September 2012, while OAO Magnitogorsk Iron & Steel rose 1.8 percent to 8.098 rubles. OAO Novolipetsk Steel added 2.7 percent to 54.48 rubles.

Prime Minister Dmitry Medvedev met executives of the nation’s largest metal and mining companies today to discuss ways to sustain the industry amid slumping commodity and stock prices. Participants scheduled to attend included OAO Mechel owner Igor Zyuzin, Evraz Plc’s Chairman Alexander Abramov, United Co. Rusal chief Oleg Deripaska, TMK owner Dmitry Pumpyansky and OAO GMK Norilsk Nickel owner Vladimir Potanin, according to the meeting agenda, seen by Bloomberg.

“Metal stocks are rising on optimism the government will help them with their debts,” Vladimir Bragin, head of research at Alfa Capital in Moscow, where he helps manage $2.9 billion, said by phone. “At the same time, if the government starts interfering too much in the sector, that won’t be good for investor sentiment.”

Mechel dropped 3.2 percent to 67 rubles at the close after falling as much as 19 percent. The coking-coal producer said a group of lenders agreed to free the company of covenant tests on a $1 billion loan until the end on 2014. The stock is the second-worst performer on the benchmark gauge this year, with a drop of 67 percent.

The RTS Index retreated 0.8 percent to 1,433.55. Russia’s 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.

Before it's here, it's on the Bloomberg Terminal.