Russian ADRs Pare Fifth Weekly Decline on Ukraine OutlookHalia Pavliva
Russian equities rebounded in New York, trimming a fifth weekly decline, as President Vladimir Putin’s government said it sought to de-escalate the conflict in Ukraine that pushed valuations to a three-month low.
The Bloomberg Russia-US Equity Index rose 2.1 percent to 82.51 on Aug. 8. The measure fell 1.1 percent for the week, posting the worst streak of losses since January. The Market Vectors Russia ETF gained 2.5 percent to $23.79, paring its five-day loss to 1.2 percent. Traders pulled $98 million from the largest U.S. exchange-traded fund tracking the nation’s shares in the past month, data compiled by Bloomberg show.
Stocks rose on Aug. 8 for the first time in four days as the head of the Security Council said in comments to the state news wire RIA Novosti that Russia is seeking to mediate between Kiev and insurgents in Ukraine. Stocks fell earlier in the week as Putin retaliated against countries that have imposed economic sanctions tied to the conflict by barring imports of foods ranging from Norwegian salmon to California-grown pistachios.
“If there is in fact de-escalation of the Ukraine crisis, investors can make very good money by jumping in now, while valuations are so low,” Liza Ermolenko, a London-based emerging-market economist at Capital Economics, said by phone on Aug. 8. “However, if one focuses on a mixture of signals out of Russia for the past two weeks, everything points toward escalation of the crisis. It looks like the worst is yet to come.”
The Bloomberg index of the most-active Russian shares in New York traded at 5.5 times projected 12-month earnings on Aug. 7, the lowest level since May 6.
OAO Mechel, Russia’s biggest supplier of coking coal used in steel-making, was the best performer on Aug. 8, rising 4.1 percent to $1.78. The gain reduced the weekly decline to 4.8 percent. Mechel shares sank after the company, which is seeking to avert bankruptcy amid a plunge in coal prices, on Aug. 6 reported a decline in first-half sales and Chairman Igor Zyuzin rejected bank offers to trade company debt for his shares, according to an Aug. 7 report by Vedomosti newspaper.
Futures on the dollar-denominated RTS index expiring next month increased 1.6 percent to 118,590 in U.S. hours. The RTS Volatility Index, which measures expected swings in index futures, fell 4.3 percent to 34.01. United Co. Rusal, a Moscow-based aluminum producer, rose 2.5 percent to HK$4.05 in Hong Kong trading as of 10:12 a.m. local time.
OAO Sberbank rose 3.9 percent to $7.97, reducing its weekly drop to 2.7 percent. OAO VTB Bank fell 1.5 percent to $2.06 in London, extending its five-day loss to 7.3 percent. MSCI Inc., after the close of trading in New York, said it kept the companies in its Russia gauge after the U.S. and European Union imposed sanctions blocking the purchase of new bonds or stocks issued by the lenders. The restrictions “are not perceived as an immediate concern,” the index company said in a statement.
Putin last week retaliated against measures intended to hurt Russia’s economy by barring imports of food products ranging from Norwegian salmon to California-grown pistachios. The move came after the U.S. and western European nations stepped up sanctions linked to the Ukraine conflict, targeting the banking and energy industries with financing restrictions and export bans.
“People are scared,” Oleg Popov, a money manager who helps oversee $1 billion at Allianz Investments, the asset management arm of Europe’s biggest insurer, said by phone from Moscow. “The degree of uncertainty is so very high that it’s hard to describe, and yet there is a talk of further sanctions, which, if approved, would make things even worse.”
Investors pulled out of Russian assets as fighting continued in eastern Ukraine last week with NATO warning that Russian troops may cross the border under the “pretext” of a humanitarian mission. Separatists and Ukrainian troops were fighting in the city of Donetsk on Aug. 8.
“If Russia intervenes, whether its troops are marked as so-called ‘peace keepers’ or like a regular army, there is going to be a serious decline in the markets,” Slava Breusov, an analyst at Alliance Bernstein LP in New York, said by phone on Aug. 8.