Russia Stocks to Bonds Track Oil in Best Weekly Gains Since 2009

Russian stocks and bonds had their strongest weekly gains since 2009 as oil rebounded and investors wagered talks in Moscow will help defuse the Ukraine crisis.

Appetite for assets in the world’s biggest energy exporter is increasing after oil jumped 24 percent from a Jan. 13 low. The slump in crude prices and sanctions over Ukraine have dragged Russia toward its first economic contraction since 2009. While talks between President Vladimir Putin and his German and French counterparts emboldened investors, the ruble and bonds trimmed gains after a person familiar with the matter said German Chancellor Angela Merkel is pessimistic over Putin’s willingness to ease tension.

“Oil is surging, it’s a wow-type of rebound which encourages investors to buy Russian assets and exporters’ stocks,” Oleg Popov, a money manager at April Capital Asset Management, said by phone from Moscow. “If politicians come to an agreement on Ukraine, that’ll be great. If the conflict is resolved and Russia’s relationship with the West improves, foreigners will return.”

The dollar-denominated RTS Index of equities rose 2.7 percent, bringing its five-day rally to 12 percent, the most for a week since September 2009. Oil producer OAO Tatneft jumped 5.1 percent to cap a 24 percent advance for the week that was the biggest in six years. The bond rally, which was also driven by a surprise interest-rate cut a week ago, sent the five-year yield declining 105 basis points in the five days, the most since October 2010.

German Chancellor Angela Merkel will tell Putin that Russia faces tougher actions from Europe unless he agrees to help end the escalating violence that’s put the Ukrainian army and economy on its knees, the person said, who asked not to be identified discussing government strategy. Merkel and French President Francois Hollande will press Putin to implement the Minsk cease-fire agreement from last September, two people said.

Shorts Closed

The ruble, which was trading 0.6 percent lower at 67 per dollar by 6:58 p.m. in Moscow, is on course for a 2.9 percent strengthening for the week, the biggest among 174 global currencies tracked by Bloomberg.

“There were lots of short positions before the meeting” against the dollar, Andrey Mishko, a foreign-exchange trader at Nota-Bank in Moscow, said in e-mailed comments. “Once people realized there’ll be no decision today, they started taking profits.”

The ruble has suffered the largest losses in emerging markets in the past 12 months, slumping 48 percent versus the greenback, as western penalties choked access of Russian companies to global debt markets.

‘Bullish Signal’

The central bank lowered its benchmark interest rate to 15 percent from 17 percent on Jan. 30 to alleviate pressure on the economy even as data this week showed inflation accelerated to a seven-year high of 15 percent last month.

The unexpected decision to lower borrowing costs “was a mistake,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America Corp. in Moscow, said in an e-mail. Policy makers are “comfortable with the situation as long as medium-term inflation risks are biased to the downside,” he said.

Russian equity funds posted inflows of $3.3 million in the five trading days through Feb. 4, Sberbank CIB said in an e-mailed note, citing data from EPFR Global. Friday’s advance in the RTS pushed the gauge above its 50-day moving average for the first time since November.

United Co. Rusal, OAO MegaFon and OAO Magnit jumped at least 8.2 percent in Moscow.

“Closing above the 50-day mark usually is a bullish signal,” Kirill Yankovskiy, director of equity sales at Otkritie Capital Ltd. in London, said by e-mail. “The market is continuing to price in the improvement or de-escalation probability in the Russia-EU relationship and obviously oil is helping.”

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