Mechel Leads Decline on Crimea Concern: Russia OvernightHalia Pavliva
Russian equities traded in New York dropped to a one-week low, led by OAO Mechel, as President Vladimir Putin’s forces tightened their hold on the Crimean peninsula while Ukraine began military drills.
The Bloomberg Russia-US Equity Index of the most-traded Russian equities in the U.S. fell 0.3 percent to 82.39 yesterday. The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, declined for a fourth day. Mechel, the nation’s biggest producer of coking coal, dropped 3.2 percent, narrowing its premium to the Moscow shares. Markets in Russia were closed yesterday for a holiday.
Ukraine, which started testing the combat-readiness of its armed troops, said its neighbor has almost 19,000 soldiers in Crimea, which will vote on joining Russia on March 16. The RTS index has sunk 8.6 percent since Russian troops entered the peninsula, and is down 20 percent this year, the worst performance among 94 equity indexes tracked by Bloomberg.
“The military face-off there is causing capital to come out of Russia,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “It’s driven exclusively by concern of a shooting war in Crimea. As Ukraine begins military exercises and Russia solidifies control over Crimea, investors vote with their shoes and sell shares.”
Ruble futures expiring this month showed the currency little changed against the dollar. The ruble has plunged 9.6 percent this year, the worst-performing emerging-market currency after the Argentinian peso.
U.K. Foreign Secretary William Hague said on March 9 that the conflict in Ukraine would worsen were Russia to invade the mainland following its occupation of the Crimean peninsula after the ouster of Moscow-backed leader Viktor Yanukovych last month. The crisis is the worst between Russia and the West since the Cold War, with the European Union and the U.S. imposing sanctions.
“What drives the Russian market lower is all the uncertainty in Ukraine and Crimea,” Frank Braddock, who helps manage $3.5 billion as a senior portfolio manager at JHS Capital Advisors, said by phone from Columbia, South Carolina. “People don’t know what to expect.”
Former Yukos Oil Co. owner Mikhail Khodorkovsky, who spent 10 years in jail in Russia for tax evasion and fraud before being pardoned by Putin in December, called on the West yesterday to provide financial aid to Ukraine as security against Russia.
The Market Vectors ETF slumped 1 percent to $22.86. Mechel dropped to $1.81, retreating the most in a week and trading at a 57 percent premium to the Moscow-listed shares, the narrowest gap since Feb. 27.
OAO Magnit, the nation’s largest food retailer, fell 3 percent to $48.97 in London, trading at a 12 percent premium to the Moscow-listed shares, the smallest gap since Feb. 21.
West Texas Intermediate crude for April delivery declined 1.4 percent to $101.12 on the New York Mercantile Exchange yesterday, the lowest close since Feb. 14. Futures traded at $101.15 at 10:42 a.m. Hong Kong time. Oil, together with natural gas, accounts for about half of Russia’s budget revenue.
United Co. Rusal, a Moscow-based aluminum producer, dropped 2 percent to HK$2.46 in Hong Kong trading, heading for the lowest close since Jan. 14. The MSCI Asia Pacific Index gained 0.4 percent.