Russia Stocks Retreat as Energy to Bank Shares Drop on Ukraine

The Micex Index fell as Ukraine said Russia continues to supply arms to rebels in the east of the country, rekindling tension between the two nations.

The equity gauge retreated 0.7 percent to 1,374.19 by the close in Moscow. VTB Group, the nation’s second-biggest bank, dropped 1.9 percent and OAO Sberbank, the largest, lost 0.9 percent. Oil producer OAO Rosneft declined 1.2 percent. OAO Gazprom slid 0.4 percent as Russian Energy Minister Alexander Novak said financial resources for Ukraine’s advance payments for future deliveries still need to be discussed.

A column of military equipment and personnel entered the rebel-held area of Ukraine from Russia yesterday, a Ukrainian military spokesman said in Kiev today. The U.S. and European Union imposed restrictions on Russian officials and companies after the March annexation of Crimea and as punishment for Russia’s alleged role in fomenting the uprising. Russia denies involvement in the conflict.

“Everyone got concerned by Ukraine’s statements that Russia is supporting rebels with arms,” Vladimir Vedeneev, the chief investment officer at Raiffeisen Capital in Moscow, said by e-mail. “While some investors still hope for an early lifting of sanctions, such statements make this option almost unrealistic.”

Oil and banking stocks are most sensitive as these sectors suffer most from the sanctions, he said.

Norilsk, MMK

OAO GMK Norilsk Nickel gained 1.7 percent. Norilsk management plans to propose interim dividends to the board as soon as Oct. 31 that may include a special payout from the sale of assets, Chief Executive Officer Vladimir Potanin said in an interview published yesterday. United Co. Rusal, which owns 28 percent of Norilsk, added 2.6 percent.

“When a company like Norilsk starts spreading its cash among shareholders, this is very positive news,” Vladimir Bragin, the head of research at Alfa Capital in Moscow, said by phone.

OAO Magnitogorsk Iron & Steel dropped 3.2 percent. The U.S. Department of Commerce said it will terminate a pact that suspends anti-dumping duties on some Russian steel products.

“The U.S.’s decision to impose anti-dumping duties on steelmakers is a concern because this signals another round of sanctions and trade wars and possibly a similar measure from the EU, which would be far more serious,” Bragin said.

The Micex, which has retreated 2.6 percent this month, traded at 4.6 times projected 12-month earnings, within 0.1 of the cheapest multiple since March.

Brent crude climbed 0.7 percent to $86.79 a barrel after reaching the lowest level in almost four years on Oct. 16. About half Russia’s budget revenue comes from oil and natural gas.

The dollar-denominated RTS Index slid 1.5 percent to 1,047.47 after dropping last week to the lowest level since August 2009. U.S.-based exchange-traded funds that invest in Russian stocks had $17.9 million inflows yesterday, according to data compiled by Bloomberg.

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