Ruble Declines for Fourth Week, Stocks Squander Gains

The ruble declined for a fourth week, while Russian stocks were little changed as lawmakers signaled they will accept the accession of Crimea to the Russian Federation.

The currency weakened 0.6 percent to 42.6825 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, when the central bank stops its market operation. That represents a 1.5 percent decline for the week and a new record low on a closing basis. The Micex Index pared gains of as much as 1.6 percent and closed 0.1 percent higher at 1,339.36. The gauge registered a 10 percent drop over the past two weeks.

Russian assets have come under pressure since pro-Moscow forces took control of the Crimean peninsula, spurring the worst standoff with the West since the end of the Cold War. Lawmakers in the Federation Council are ready to support Crimea’s move to rejoin Russia, if a decision is approved in a referendum on March 16, RIA reported, citing the speaker of the upper house of Russia’s parliament Valentina Matvienko. Russian markets will be closed on March 10 for a public holiday.

“With memories of last Saturday still fresh, people are closing ruble positions in order to avoid any geopolitical escalation during the weekend,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments, referring to the Russian parliament’s decision on March 2 to authorize possible military action in Ukraine.

Ruble, Bonds

The ruble slid 0.6 percent versus the dollar to 36.3685. Against the euro it also fell 0.6 percent.

“In the near term, the currency will remain vulnerable to headlines surrounding Ukraine, though we believe most if not all sanctions against Russia will be limited in their effectiveness,” Gillian Edgeworth, chief economist for eastern Europe, Middle East and Asia at Unicredit Bank AG, said in an e-mailed note today.

The yield on Russian government bonds due in February 2027 rose 10 basis points to 8.82 percent, five basis points below the level of March 3, which was the highest since June 2012.

“Over a longer time horizon, the case for consistent ruble gains is also weak,” Edgeworth said. “Geopolitical tensions not only increase the risk of further domestic capital outflows on a semi-permanent basis but also the risk of lower rollover ratios on external borrowings.”

Underweight Russia

JPMorgan Chase & Co. analysts recommended investors cut Russian stock holdings, changing their rating to underweight from overweight.

The bank is betting it’s not too late to sell after President Vladimir Putin’s buildup of Russian troops in Ukraine prompted a threat of economic sanctions from the U.S. and precipitated the tumble in the Micex. The central bank’s efforts to stem the ruble’s slide to a record by raising interest rates will weigh on economic growth and the stock market, analysts led by Adrian Mowat said in a note.

OAO Lukoil gained 3.3 percent to 1,957.1 rubles, the highest level this month, after the oil company promised to increase the dividend payout ratio to 30 percent of net income in the medium term at a presentation to investors in London on March 5. The net figure in its turn may get a 20 percent boost from a 10-percent ruble devaluation, Bank of America analysts led by Karen Kostanian said in an e-mailed note.

“Unlike Gazprom, during its investor day a few days back, the company was able to provide conclusive and satisfactory answers to pertinent questions,” the analysts said.

Preferred shares of OAO Sberbank declined 4.2 percent to 68.30 rubles as ordinary shares fell by 0.6 percent to 79.99 per share. The spread between the two types of shares narrowed to the lowest level in almost five years on March 6.

“The prefs are catching up with the commons after outperforming them since the beginning of February,” Olga Naydenova, analyst at BCS Financial Group in Moscow, said in e-mailed comments. “The markets got used to a certain level of the discount, and there has been nothing, justifying a drastic narrowing.”

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