PineBridge Says Russian Bear-Market Rebound Will FadeHalia Pavliva
The rebound in Russian stocks will prove short-lived as President Vladimir Putin faces stiffer sanctions as he moves toward annexing Crimea, according to PineBridge Investments LLC and Firebird Management LLC.
The European Union and the U.S. announced sanctions targeting Russian officials, and President Barack Obama warned the nation will face more penalties if it doesn’t pull back from Crimea. Putin is scheduled to address lawmakers today after more than 96 percent of voters in Crimea backed joining Russia in a referendum on March 16.
The Bloomberg Russia-US Equity Index climbed the most in two weeks yesterday and the Micex Index jumped from the lowest level since 2010 as the violence that some investors worried would break out during the referendum didn’t materialize. The Micex fell into a bear market last week, having plunged 15 percent this year, amid concern that Putin’s military incursion into Ukraine would deepen Russia’s economic slowdown. The Micex Index rose 0.3 percent as of 11:03 a.m. in Moscow today.
“There are clear indications that Putin is going to approve the annexation of Crimea and, as soon as he does that, the market will decline,” Ian Hague, founding partner of New York-based Firebird, which manages $1.3 billion of assets including Russian stocks, said by phone from Geneva yesterday. “The annexation will lead to much more damaging sanctions by the U.S. and EU. Russia is not getting away with it.”
The Bloomberg Russia-US gauge extended a two-day rally to 4.1 percent. OAO Sberbank, the nation’s biggest lender, jumped 5.7 percent to $8.83. Phone company Rostelecom surged 8.9 percent to $14.22 in New York, the most since August 2011.
The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, gained 3 percent to $22.46. Wagers that the ETF will decline in New York trading rose to a 22-month high last week.
EU foreign ministers agreed to freeze assets and impose visa travel bans on 21 Russians and Crimeans, while the Obama administration put similar sanctions on seven Russian government officials, including a deputy prime minister, and four Ukrainians including ousted President Viktor Yanukovych. Putin responded by recognizing Crimea as a sovereign state.
Obama said Russia must pull its forces back to their bases in Crimea, accept international monitors and open discussions with the government in Kiev. EU leaders will meet on March 20-21 to consider “additional and far-reaching consequences,” the foreign ministers said in a statement in Brussels yesterday.
Russia’s parliament approved the use of its military in Ukraine earlier this month after Russian troops seized facilities in that country’s Crimea region, prompting the government in Kiev to say it was being invaded. The standoff over Crimea has opened a rift between Russia and the West more than two decades after the fall of the Iron Curtain in what U.K. Foreign Secretary William Hague has called the “biggest crisis in Europe” this century.
While the U.S. and EU rejected Crimea’s referendum as “illegal,” the magnitude of sanctions failed to meet investors’ dire predictions of more turmoil and lifted markets. Russia’s Micex gauge jumped 3.7 percent yesterday. The ruble rebounded from a record low and the dollar-denominated RTS Index led gains among the 94 world equity gauges tracked by Bloomberg.
“The market is demonstrating some relief,” Robin Thorn, who helps oversee $19 billion as global head of equities at PineBridge in New York, wrote in an e-mail yesterday. “For it to be sustainable, we need more clarity and that will take time for us to get. This is far from over.”
The ruble has slumped 10 percent against the dollar this year, the worst performer after Argentina’s peso among 24 emerging-market currencies. The Micex is the cheapest among 21 developing countries monitored by Bloomberg, trading at 4.6 times estimated earnings. That compares with a valuation of 14 for India’s S&P BSE Sensex Index and of 8.9 for Brazil’s Ibovespa.
“In the short term, we expect some volatility as the market reacts to news on a day-by-day basis, either positively or negatively,” Julie Dickson, a London-based product manager for equities at Ashmore Investment Management Ltd., which had $75 billion of assets at the end of 2013, wrote in an e-mail. “We have a modest overweight to this market, but remain very selective in our individual holdings there.”
Ashmore favors financial and technology shares and companies that rely on consumer-discretionary spending, Dickson said.
The RTS Volatility Index, which measures expected swings in the stock-index futures, decreased 5.9 percent to 54.10 in U.S. hours. RTS index futures added 0.6 percent to 108,800.
United Co. Rusal, a Moscow-based aluminum producer, rose 0.8 percent to HK$2.48 in Hong Kong trading. The MSCI Asia Pacific Index gained 0.5 percent.