Russian Stocks Advance to One-Month High on Ukraine Crisis Bets

Russian stocks rose to the highest in a month on speculation the crisis in Ukraine won’t escalate. The nation’s 10-year bond rose for a third day before the government holds its first debt sale in five weeks tomorrow.

The Micex Index added 0.5 percent to 1,375.73 by the close in Moscow after falling as much as 0.7 percent earlier. Diamond producer OAO Alrosa climbed 5.2 percent. The yield on government debt due August 2023 fell three basis points to 8.84 percent, the lowest since March 7. Russia will offer 20 billion rubles of OFZs at an auction tomorrow, the Finance Ministry said in a website statement today.

President Vladimir Putin told German Chancellor Angela Merkel by phone he’d ordered a partial withdrawal of troops from Ukraine’s eastern border, Merkel’s office said in a statement last night. The North Atlantic Treaty Organization said it will recommit to defending frontline states in eastern Europe that have been unsettled by the seizure of Crimea as the alliance reported no signs of a Russian troop pullback from Ukraine’s borders.

“The market showed significant growth yesterday amid the absence of negative geopolitical news,” Stanislav Kopylov, who helps manage 45 billion rubles ($1.2 billion) at UralSib Asset Management in Moscow, said by phone today. “Today, the optimism continues.”

Secretary General Anders Fogh Rasmussen said allied intelligence hasn’t picked up evidence of Russia scaling back its “massive military buildup” and pledged to shore up the alliance’s eastern defenses.

Fund Flows

Russian markets are returning to levels seen before Putin’s decision to annex Ukraine’s Crimea region. The nation’s assets rose yesterday after Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry met at the weekend to discuss ways to defuse the Ukraine crisis.

Russia-dedicated stock funds received $219 million in inflows in the week ended March 26, according to EPFR Global. That helped trim outflows from stocks and bonds to $4.03 billion over the same period, approaching $6.1 billion pulled in all of 2013, according to data compiled by EPFR Global.

The U.S. and the European Union will hold off applying direct economic sanctions against Russia, according to a Bloomberg survey of 20 economists. Russia’s economy expanded 1.3 percent in 2013, Federal Statistics Service said today in an e-mailed statement, confirming a previous reading of full-year growth.

The ruble weakened less than 0.1 percent to 41.1025 versus the central bank’s target basket of dollars and euros by 6 p.m., trading in the zone where the bank halts interventions aimed at slowing the currency’s retreat. The currency strengthened less than 0.1 percent versus the dollar to 35.0935 by 6 p.m. in Moscow.

“The buying of Russian assets is caused by a relative stabilization of the situation surrounding Ukraine,” Anton Zakharov, a money manager at OAO Promsvyazbank, said by e-mail.

The ruble is down 6.3 percent this year, the worst performance after Argentina’s peso among 24 emerging-market peers monitored by Bloomberg.

‘Significant’ Growth

The U.S. and EU have imposed two rounds of asset freezes and travel bans on Russian and Ukrainian officials and associates of Putin, with the threat of economic sanctions if the confrontation escalates.

“Signs of sharp geopolitical tension disappeared after Lavrov’s meeting with Kerry,” Evgeny Koshelev, an analyst at OAO Rosbank in Moscow, said in an e-mail. “The Finance Ministry is betting that the ruble’s steady rise is boosting demand of non-residents for the sovereign risk.”

The Finance Ministry canceled four auctions in a row before this week.

The dollar-denominated RTS Index rose 0.8 percent to 1,235.74, trimming its 15 percent slump last quarter. Alrosa advanced as VTB Capital said in an e-mailed note today the diamond producer may be added to MSCI Inc.’s Russia Index in May, triggering inflows from investors who track the gauge.

The government’s ruble bonds rose yesterday as they became eligible to join Barclays Plc’s Global Aggregate Index. The inclusion will prompt investors who track bond indexes to buy the notes to meet the new weightings.

The yield on ruble-denominated government debt due February 2027 rose four basis points to 8.93 percent, after recording the biggest drop in two weeks yesterday.

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