BofA Sees Russia Stock Rout Deepening on Ukraine CrisisHalia Pavliva and Nikolaj Gammeltoft
Russian equities will extend their biggest decline in two weeks on concern the U.S. and Europe will impose more sanctions amid escalating tensions in Ukraine, Bank of America Corp. and OAO Sberbank said.
The Bloomberg index of the biggest Russian stocks traded in New York fell 3 percent yesterday, the most since March 20, the day U.S. President Barack Obama imposed financial sanctions on Russian officials, including billionaires close to President Vladimir Putin. The measure’s slide halted three straight weeks of gains amid speculation Russia won’t seek further territory after annexing Crimea from Ukraine.
The White House said Russia instigated the storming of government offices in eastern Ukraine and warned that any move by Putin’s forces into the area would be a “serious escalation” of the crisis. The move to annex the Black Sea peninsula in March prompted U.S. and European sanctions and sent the benchmark Micex Index into a bear market last month.
“The escalation of the crisis is clearly negative for Russian equities,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America in Moscow, said by phone yesterday. “The sentiment is negative as talk of further sanctions against Russia has resumed.”
Pro-Russian separatists seized administration buildings in Ukraine’s east over the weekend as the government in Kiev accused Putin of stoking unrest. Protesters with Russian flags stormed offices in the cities of Luhansk and Donetsk, where demonstrators called for a referendum to join Russia and for the boycott of Ukraine’s May 25 presidential elections.
Ukrainian Prime Minister Arseniy Yatsenyuk said yesterday that Russia was trying to split his nation. The U.S. is accusing Russia of instigating the protests in eastern Ukraine and warned that any move into the area would be a “serious escalation” of the crisis.
Russia is “closely watching” events in eastern Ukraine, the Foreign Ministry said yesterday in a statement, reiterating its view that Ukraine must overhaul its constitution, give regions more autonomy, recognize Russian as an official language and remain politically neutral. Ukraine should stop blaming Russia for its struggles, the ministry said.
The U.S. and the European Union have slapped sanctions on members of Putin’s inner circle and urged his government to pull back its troops from Ukraine’s eastern border in the worst standoff since the Cold War. They have said sanctions may intensify if Russia tries to destabilize Ukraine by using trade and other measures.
“Both uncertainty and risk have now increased,” Anton Rakhmanov, who manages $5 billion in assets as the head of Sberbank Asset Management in Moscow, said in a phone interview yesterday. “The market doesn’t welcome that. The decline will continue until there is some sort of certainty.”
Bank of America, which had raised Russia’s foreign debt to overweight on March 24, cut its recommendation to marketweight yesterday. The yield on the country’s 2030 dollar bond rose 20 basis points, or 0.2 percentage point, to 4.69 percent yesterday.
The ruble extended this year’s slide to 7.8 percent, the second-worst performer among major currencies. The Micex Index sank 2.4 percent to 1,349.79, while the dollar-denominated RTS Index led losses among 94 world equity gauges.
The Micex is the cheapest among 21 developing countries monitored by Bloomberg, trading at 5 times estimated earnings, compared with 10.4 for the MSCI Emerging Markets Index.
“Russia is off the investment map,” Ruchir Sharma, who is the author of “Breakout Nations” and helps manage $25 billion as the head of emerging markets equity and global macro at Morgan Stanley Investment Management, said in an interview yesterday in New York. “The market looks cheap, but things are cheap for a reason. We’re underweight Russia and we will remain on the sidelines until the political situation is sorted out.”
The Bloomberg Russia-US Equity index dropped to 82.41. The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, slid 2.2 percent to $23.21. RTS stock-index futures advanced 0.1 percent to 115,970 in U.S. hours yesterday and the RTS Volatility Index, which measures expected swings in futures, added 0.8 percent to 39.49.
Yandex NV, Russia’s biggest Internet company, sank 4.9 percent to $28.50, the lowest level since July. Alexander Shulgin, the company’s chief financial officer, sold $5.3 million of shares on April 1, according to a regulatory filing. Yandex tumbled 30 percent in the first quarter.