Russia’s Micex Enters Bear Market as ADR Volumes Surge

The Micex Index entered a bear market while trading volume on the Market Vectors Russia exchange-traded fund jumped as Western nations pressed Russia against moving to annex Ukraine’s Crimea.

The Micex index fell 0.9 percent to 1,237.43 in Moscow yesterday, 21 percent below its January 2013 high, for a 7.6 percent weekly slide, the largest since May 2012. The Market Vectors, the biggest U.S. ETF that holds Russian shares, tumbled 5.5 percent on the week amid volumes three times the 90-day average. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. sank 5 percent to a 2010 low, with trading volumes twice the average over the past 12 months.

The U.S. and the European Union are threatening sanctions against Russia if it doesn’t back down from annexing Crimea. President Vladimir Putin “is not prepared to make any decision regarding Ukraine until after the referendum on Sunday” on joining Russia, U.S. Secretary of State John Kerry told a news conference after meeting Russian Foreign Minister Sergei Lavrov.

“Investors are scared of potential sanctions that may follow the Sunday vote,” Dmitry Mikhailov, who helps oversee about $3 billion as a money manager at Alfa Capital Partners Ltd. in Moscow, said by phone today. “People are selling Russian shares as a preventative measure in case sanctions are imposed.”

Power utility OAO Inter RAO UES tumbled 21 percent on the week to 0.68 kopeks, while OAO Mechel, the nation’s biggest coking coal producer, slumped 12 percent to 37.10 rubles.

Cheapest Valuations

Analysts on average expect the Russian central bank to keep its main lending rates unchanged after a surprise hike on March 3. The ruble weakened 0.1 percent to 43.0394 against Bank Rossii’s target basket of dollars and euros.

Russian equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 4.3 times projected 12-month earnings, compared with a multiple of 10 for the MSCI Emerging Markets Index.

The ruble was little changed against the dollar to 36.5970 and fell 0.4 percent against the euro to 50.9525. The local currency has slumped 10.3 percent against the dollar this year, the worst-performer after Argentina’s peso among 24 emerging-market currencies tracked by Bloomberg.

Bank Rossii, which unexpectedly raised its benchmark interest rate by 150 basis points on March 3 to 7 percent, is shifting the ruble corridor by 5 kopeks after spending $1.5 billion. The corridor must have already been shifted once today, Dmitry Dorofeev, a money manager at BCS Financial Group in Moscow, said by phone.

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