Russian Stocks Gain as Putin Orders End to Military Exercises

Russian stocks rose the most since May 2010 as President Vladimir Putin ordered the end to military exercises and signaled he won’t escalate the crisis in Ukraine.

The Micex Index gained 5.3 percent to 1,356.54 at the close of trading in Moscow, snapping five days of declines including yesterday’s 11 percent slump. United Co. Rusal, the world’s biggest aluminum producer, gained 9.7 percent and OAO Magnit, Russia’s largest food retailer, added 11 percent. OAO Gazprom climbed 6.9 percent, the first advance in seven days for the gas export monopoly.

The benchmark equities index plunged the most in more than five years yesterday after Putin asked lawmakers to approve the deployment of troops to Crimea. Soldiers who took part in scheduled military exercises in Western Russia were ordered back to base, Putin said today. He also told reporters near Moscow he’d only send soldiers to Ukraine in an extreme case.

“Today was the first time in a few days that the world has seen a maneuver by the Russian army that can be classified as a sort of ’retreat’,” Simon Quijano-Evans, London-based head of emerging-markets research at Commerzbank AG, said by e-mail. “That alone has caused the calming.”

Lenta Ltd., Russia’s second-biggest hypermarket chain, rose 6 percent after plunging 14 percent in London yesterday. OAO Novatek, Russia’s biggest independent natural-gas producer, advanced 12 percent in London trading.

Russian equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 4.9 times projected 12-month earnings, compared with a multiple of 10.3 for the MSCI Emerging Markets Index.

Liquidity Squeeze

The Russian central bank’s surprise interest-rate increase yesterday is likely to trigger a domestic liquidity squeeze that will negatively affect the country’s “weak economy,” Deutsche Bank AG strategists including Jim Reid in London said in an e-mailed note today. The extent of the impact on Russia of events in Ukraine will depend on whether or not the West imposes economic sanctions, the note said.

There is a “near-term risk of mild recession in Russia, as a result of the security crisis, higher rates and portfolio outflows hitting consumption and investment, although growth may recover later in the year,” Morgan Stanley analysts led by Jacob Nell said in an e-mailed note. “Despite the hit to growth expectations, any reduction in tension would constitute a buying opportunity” for Russian stocks.

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