Micex Jumps With Bonds as Ukraine De-Escalation Bets Grow

The Micex Index rallied the most in six weeks and government bonds climbed on speculation that Russia is de-escalating tension in Ukraine. OAO Sberbank jumped after MSCI Inc. retained the shares in its Russia gauge.

The equities index rose 1.8 percent, the biggest increase since July 2, to 1,372.45 at the close in Moscow. Sberbank, Russia’s biggest lender, gained 5 percent, reversing this month’s losses. VTB Group jumped 3.9 percent. Government bonds due February 2027 advanced for the first time in eight days, pushing the yield down 26 basis points to 9.56 percent. The ruble added 0.4 percent to 35.97 per dollar at 6 p.m. in Moscow.

Assets in developing nations rose today after Russia’s Defense Ministry said Aug. 8 it was ending military drills in the southern Astrakhan region, and as President Vladimir Putin urged Ukraine to halt fighting in the nation’s east. MSCI’s decision to keep tracking Sberbank and VTB also allayed concern that the lenders, which came under European Union sanctions this month, would suffer from an exodus of foreign investment.

“More people are betting on de-escalation rather than retaliation” in case of the conflict between Russia and Ukraine, Neil Shearing, the chief emerging-market economist at Capital Economics, said by phone today. “In pragmatic economic terms, de-escalation makes sense, because neither the West nor Russia would benefit from economic sanctions. Russia, in particular, stands to lose more.”

The currency appreciated 0.6 percent against the euro to 48.1570 euros at 6 p.m. in Moscow, and gained 0.5 percent against the central bank’s target basket of dollars and euros at 41.4528. The dollar-denominated RTS Index surged 2.8 percent, the most since June 24.

Relief Rally

Ukrainian bonds due in July 2017 ended a six-day rout as the yield on the notes fell 53 basis points to 10.67 percent. Stock indexes from Poland to South Africa rose 1.7 percent.

Putin is offering assistance to tackle what he describes as a worsening humanitarian disaster, as Kiev threatened Russia with sanctions that may curb energy transit to Europe. Ukraine is trying to dislodge thousands of separatists from two regions that border Russia, which denies accusations by the U.S and Europe that it’s stoking the deadly unrest.

“The market is trying to play on the upside due to lack of further deterioration of the situation,” Dmitry Polevoy, the chief economist for Russia at ING Groep NV in Moscow, said by phone today.

The Micex Index, in which three out of every four shares is trading below its 50-day moving average, has lost 7 percent this quarter.

Slower Growth

Russia’s economic growth slumped to 0.8 percent in the three months to March 31, the weakest in five quarters, data showed today. The country “managed to escape a technical recession, but the beat is not big enough to move the needle and make the people change their outlook on the prospects of the Russian economy,” Vladimir Kolychev, chief economist for Russia at VTB Capital in Moscow, said by phone.

Sberbank climbed the most since May 7 and VTB Group, Russia’s second-biggest lender, posted its biggest advance in more than a month. Shares of the two banks retreated this month after MSCI said it was reviewing their inclusion in the measure following a deepening of U.S. and EU sanctions.

The decision means that “there will be no automatic selling of Russian stocks by index funds for the time being,” Slava Smolyaninov, a strategist at UralSib Financial Corp., said by e-mail.

Today’s gain trimmed the ruble’s losses in the past month to 4.9 percent against the dollar, the worst performance among 24 developing nations monitored by Bloomberg.

The currency is too weak based on fundamental factors and it may “continue on a stronger footing this week, unless there is yet another spike in political tensions,” VTB Capital analysts Maxim Korovin and Anton Nikitin said by e-mail.

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