Micex Retreats on Sanctions Risks as Central Bank Raises Rates

The Micex Index fell for the first time in four days as OAO Sberbank dropped and investors weighed the risk to economic growth of new European Union sanctions. The central bank raised interest rates for a third time this year.

The gauge lost 1.5 percent to 1,388.41 by the close in Moscow, giving a 2.4 percent drop this week. Sberbank, Russia’s biggest lender, declined 2.2 percent to the lowest level since May 6, and OAO Magnit, the largest food retailer, slid 3.5 percent after a three-day gain. OAO Sollers, Ford Motor Co.’s Russian partner, fell 6.8 percent after Ford said it wrote down its $329 million investment in a joint venture with the company.

A ban on European purchases of bonds or shares sold by Russian state-owned banks is among options being weighed by the EU over Russia’s actions in Ukraine, according to a proposal presented to member states. The International Monetary Fund yesterday lowered its forecast for Russian economic growth this year to 0.2 percent from 1.3 percent, citing capital flight triggered by the country’s involvement in the Ukraine conflict.

“The market is nervous,” Andrey Vashevnik, who manages $25 million as chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. “Sanctions against Russian lenders would be a major blow to the economy. Magnit and other retailers are particularly sensitive to the economic slowdown.”

Since the July 17 downing of the Malaysian Airlines jet by a missile the U.S. says was probably supplied by the Russian military, sentiment toward Russian assets has soured.

Fund Flows

Russia-dedicated stock funds lost $172 million in outflows in the five trading days through July 23, UralSib Capital said in an e-mailed note, citing EPFR Global data. The Market Vectors Russia ETF, the largest U.S. dedicated exchange-traded fund tracking the nation’s companies, has recorded outflows of $12.3 million this week, adding to redemptions of $90.8 million in July, according to data compiled by Bloomberg. This month is set to become the worst since February, measured by the amount of outflows.

Predictions the EU will impose measures targeting Russian industries has increased, with 48 percent of 29 economists in a Bloomberg survey expecting the move, compared with 4 percent in June. The survey was conducted July 18-23.

The central bank raised its one-week auction rate to 8 percent from 7.5 percent. None of the economists surveyed by Bloomberg predicted an increase, with 22 of 23 forecasting no change and one projecting a quarter-point cut.

“The rate hike will reflect negatively on banks as it’ll decrease their margins,” Vadim Bit-Avragim, who helps oversee about $4.1 billion at Kapital Asset Management LLC in Moscow, said by e-mail.

The Micex trades at 5 times estimated earnings, making it the cheapest measure among 21 emerging markets tracked by Bloomberg. That compares with a multiple of 5.3 at the end of February, before Russia’s incursion in Crimea. The dollar-denominated RTS Index retreated 1.6 percent to 1,246.25.

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