Russian Stocks Jump Most in World as ECB Drives Risk Appetite

Russian stocks rallied the most in the world and the ruble strengthened as the European Central Bank’s plan to expand stimulus emboldened investors to take on more risk.

The dollar-based RTS Index rose 4.5 percent, while the Micex Index extended the world’s biggest gain this year. Investors who avoided Russian assets in 2014 because of the ruble’s slide are returning as oil shows signs of stabilizing near $50 a barrel and price swings in the ruble subside. The currency climbed the most since Jan. 8 and bonds rose, sending yields to a five-week low.

The ECB’s plan to boost stimulus to 60 billion euros ($69 billion) a month is leading to a hunt for bigger returns, raising the appeal of Russia, where corporate earnings as a proportion of stock prices are about 40 percent more than emerging markets as a whole. Investors are demanding higher returns for taking on the risk that the world’s largest energy exporter will lose its investment-grade credit rating amid an oil-price slump and sanctions over the Ukraine conflict.

“ECB’s actions increase appetite for risky assets and creates an additional incentive for buying Russian equities,” Oleg Popov, a money manager at Allianz Investments in Moscow, said by phone. “There’s a sense that the ruble has stabilized for the time being and it’s safe to buy local shares.”

The Micex trades at an earnings yield of 11.3 percent, compared with 8 percent for the MSCI Emerging Markets Index. Three-month implied volatility for the ruble, options used to project future fluctuations in the exchange rate, fell to the lowest level in more than a month today.

‘Main Beneficiary’

Along with Russia, stock indexes in Hungary and Poland climbed at least 1.4 percent after Mario Draghi led the European Central Bank into a new era with an historic pledge to buy government bonds as part of program worth about 1.1 trillion euros.

Russia’s currency strengthened 1.3 percent to 64.5125 per dollar by 7:56 p.m. in Moscow, leading gains in emerging markets and trimming its decline in January to 5.9 percent. The yield on five-year government bonds decreased 24 basis points to 14.92 percent.

“Russia may be, counter-intuitively, the main beneficiary of credible quantitative easing,” David Hauner, the head of cross-asset strategy at Bank of America Corp., said in a note to clients before the decision was announced.

Downside Risks

Not everyone is optimistic about Russian shares. Kapital Asset Management LLC this year sold off the Russian equity holdings it accumulated in 2014 and isn’t buying, according to Vadim Bit-Avragim, a money manager at the Moscow-based company.

Standard & Poor’s is reviewing Russia’s credit rating, saying last month there was at least a 50 percent chance the sovereign will be cut to junk this month. Bloodshed has worsened in eastern Ukraine, where the U.S. and European Union argue Russia has been arming and aiding rebels.

While the Micex is off to the strongest start for a year since 2000, the RTS Index gained 3.3 percent in the period.

“The market has yet to price in Russia’s cut to junk by S&P, so I don’t exclude that we might see the next wave of correction before the end of the month,” Bit-Avragim said.

Cheapest Multiple

The Micex trades at the cheapest multiple in emerging markets, reflecting investor concerns over an economic slowdown as analysts project gross domestic product will shrink 3.2 percent this year. Oil, which along with natural gas accounts for about 50 percent of Russia’s budget revenue, slumped almost 60 percent from its June peak. Brent crude climbed as much as 2.9 percent today, before trading 1.4 percent lower.

More than half of the Micex’s 50 members trade above their 50-day moving average, according to data compiled by Bloomberg. OAO Lukoil and OAO Gazprom led gains in the Micex today, climbing 2.5 percent and 1.8 percent, respectively.

“The fact that yesterday and today are full of optimism is entirely due to oil which has stopped falling for now,” Vladimir Vedeneev, the chief investment officer at Raiffeisen Capital in Moscow, said by e-mail. “Brokers are saying that there’s a rush among buyers.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE