Magnit Drops to One-Year Low as Russia Increases RateHalia Pavliva and Ksenia Galouchko
OAO Magnit, Russia’s largest retailer, dropped to the lowest price in 12 months as a surprise increase in interest-rates stoked concern that consumer spending will suffer.
Higher lending costs are hitting consumers just as Russia is struggling to contain the economic and political fallout from its push into neighboring Ukraine. Policy makers unexpectedly raised Russia’s one-week auction rate to 7.5 percent from 7 percent today while Standard & Poor’s cut the nation’s credit rating to one level above junk, saying further downgrades are possible if economic growth deteriorates and wider sanctions are imposed.
Magnit’s global depositary receipts fell 3.8 percent to $45.50 in London for a weekly decline of 13 percent, its biggest since 2011. X5 Retail Group NV, Russia’s second-largest retailer, lost 2 percent today. The Bloomberg Russia-US Equity Index decreased 3.4 percent to 77.11 at 1:11 p.m. in New York.
“Money is getting more expensive and that is going to have an impact on all the sectors, including retail,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc., said in a phone interview from Moscow. “Retail sales will continue to slow down and the sector overall looks very weak because of declining disposable incomes and a slowdown in consumer lending.”
Magnit was the best performer on Moscow’s Micex last year, rallying 91 percent. It was followed by OAO Aeroflot, the nation’s biggest airline, with an 87 percent advance. OAO M.Video had jumped 24 percent last year. Dixy Group climbed 1.7 percent last year, while X5 Retail Group fell 6.1 percent.
Higher costs on lending will curb retailers’ expansion plans and curtail economic output, said HSBC’s Morozov. Real disposable incomes slid 6.8 percent in March from a year earlier, while economic growth may grind to a halt in 2014, Russia’s government said this month.
“The retail sector has been an engine of the Russian economic growth and a slowdown in the sector means slower economic growth overall,” he said.
S&P reduced Russia’s rating to BBB- from BBB while saying more downgrades are possible if the economy deteriorates and the U.S. and Europe expand sanctions.