Russia ADRs Drop Sixth Day as Turkey Rift Fuels Recovery Concern

  • Alfa Bank sees `certain' inflation boost, GDP impact unclear
  • Sanctions include travel restrictions, ban on food imports

Russian stocks in New York dropped for a sixth day, the longest losing streak since August, as concern grew that the country’s sanctions against Turkey in retaliation for last week’s downing of a warplane will hinder its economic recovery.

The Bloomberg Russia-US Equity Index declined 0.2 percent to 51.05 in New York. The biggest exchange-traded fund tracking the nation’s equities and the dollar-denominated RTS Index retreated to a two-week low.

The ADR gauge has slumped 2.2 percent, while the dollar-denominated RTS Index dropped 3.3 percent since Turkey, a NATO member, shot down the Su-24 warplane near the border with Syria last week. The move tempered optimism that Russia will align with its former Cold War foes in the fight against Islamic State. Alfa Bank economists said Tuesday that they are “concerned about the consequences Russia itself faces” as a result of travel restrictions, import bans and other sanctions it has imposed on Turkey. Barclays Plc made similar comments this week.

“The geopolitical factor is a part and parcel of the Russian market, and the current situation -- with a decline in the market amid a negative geopolitical background -- isn’t viewed by investors as an entry opportunity,” Ivan Manaenko, head of research at Veles Capital LLC in Moscow, said by phone on Tuesday. “We are seeing a lot of uncertainty, and the market doesn’t like that.”

‘Inflationary Shock’

Russia is imposing measures against Turkey including the suspension of visa-free travel, halting tours to Turkey and a ban on the hiring of Turkish nationals. The list of barred produce from Turkey includes poultry, fruits and vegetables such as tomatoes, onions, cucumbers and tangerines, and salt, according to a statement on the government’s website.

The “potential scope of inflationary shock” of the sanctions is two percentage points, Alfa Bank economists Natalia Orlova and Dmitry Dolgin wrote in an e-mailed research note. They reiterated their forecast that the central bank will have to keep its key rate unchanged this month. While inflation has slowed for two consecutive months to 15.6 percent in October, consumer prices are still increasing near the fastest pace since 2002.

Oil Slump

President Vladimir Putin met with his U.S. counterpart Barack Obama Monday in Paris for the second time in two weeks. Putin told reporters the exchange resulted in “an understanding of where we should move” with regards to a political resolution in Syria and the need for a list of terrorist targets.

“The markets tend to move on news headlines, but if we look at the long-term
picture, the Russian market is linked to the oil price and the global EM trends, and as oil is neither rising nor falling, there is little incentive for any big moves,” Pavel Laberko, who helps manage $150 million in emerging-market assets at Union Bancaire Privee in London, said on Tuesday. “The negative headlines might be a trigger for the market to edge down right now, but these are short-term factors that don’t impact the fundamentals.”

Russia, the world’s largest energy exporter, is beset by a recession after oil prices collapsed and the U.S. and the European Union imposed sanctions linked to the Ukraine conflict. Oil declined 0.4 percent to $44.44 in London on Tuesday, less than half its five-year average price.

The Alfa Bank economists said that the impact of the Turkey sanctions on Russia’s gross domestic product remains “unclear,” while a boost to inflation is “certain.” GDP is forecast to contract 3.8 percent in 2015 and resume expansion in the third quarter of 2016, according to the median estimate of analysts surveyed by Bloomberg.

Moscow-based United Co. Rusal lost 0.7 percent to HK$2.69 at 10:45 a.m. in Hong Kong.

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