Russian ADRs Post Weekly Decline as Tension Mounts With Turkey

  • Rebound ends as Putin prepares sanctions for warplane downing
  • Price swings in RTS Index at widest levels since July

Russian stocks in New York toppled from a four-month high as mounting tension with Turkey quashed speculation there will be an easing of sanctions that have pushed its economy into a recession.

The Bloomberg Russia-US Equity Index slumped 2.4 percent in the five days through Friday as companies from Gazprom PJSC to Sberbank PJSC tumbled. The dollar-denominated RTS Index slid 3.6 percent as price volatility jumped to the highest level since July. The ruble weakened 2.5 percent against the dollar.

Turkey’s downing of a Russian warplane halted a rebound driven by expectations of a rapprochement with former Cold War adversaries. The world’s largest energy exporter’s economy has fallen into its first recession since 2009 as oil sells for less than half its five-year average price and sanctions linked to the Ukraine conflict restrict companies’ access to capital markets.

“The geopolitical uncertainty is rising again, and with the uncertainty, the market’s volatility is rising as well,” Oleg Popov, a money manager at the Moscow-based April Capital, said by phone last week. “It’s not surprising that investors want to hold aloof. There is no optimism in the market right now.”

Historical 90-day volatility in the RTS Index rose to 34 percent, the sixth-widest price swings in the world, data compiled by Bloomberg show. While Brent crude, the oil grade traders use to price Russia’s main export blend rose less than 0.5 percent to $44.86 a barrel last week, it’s still down 34 percent from this year’s high of $67.77 in May.

A wave of terrorist attacks from the slaughter of at least 130 people in Paris to an armed assault on a hotel in Mali has galvanized international efforts to combat Islamic State and seek an end to the Syrian conflict. While Russia began economic retaliation against Turkey in response to the shooting down of a fighter jet near the Syrian border on Tuesday, it ruled out military action.

Russian Prime Minister Dmitry Medvedev said Thursday that the government has two days to develop economic measures to respond to Turkey’s action and the response may affect flights, trade and investment, while bilateral projects may be frozen or canceled.

French President Francois Hollande flew to Moscow to meet counterpart Vladimir Putin. In return he got a tentative nod to agree to coordinate strikes in Syria, though key differences over the country’s future remain.

The Bloomberg Russia-US Equity Index slid to 51.36 last week, the lowest level since Nov. 17. The Market Vectors Russia ETF, the biggest exchange-traded fund tracking the nation’s equities, retreated 4.7 percent to $16.74. State-controlled natural gas producer Gazprom plunged 7.1 percent to $4.19 in New York, while Sberbank, the nation’s largest lender, retreated 4.9 percent to $6.75. Futures contracts on the RTS Index expiring in December slipped 0.4 percent to 84,990 in U.S. hours.

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