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Bloomberg 11.04.2014 Yuri Selyandin's commentary "Micex to Ruble Cap Weekly Drop as Sanctions Threat Thwarts Rally"
Russian stocks, bonds and the ruble capped weekly declines as the threat of tougher U.S. sanctions over Ukraine ended a three-week rally in the nation’s assets.
The Micex Index (INDEXCF) lost 0.4 percent at the close in Moscow, taking its retreat in the past five days to 1.5 percent. The currency fell 0.4 percent to 41.9582 against the central bank’s target basket of dollars and euros at 6 p.m. in Moscow, when the regulator ends market operations. Yields on Russia’s ruble-denominated bonds maturing in February 2027 climbed eight basis points, taking the weekly increase to 14 basis points.
U.S. Treasury Secretary Jacob J. Lew delivered a warning yesterday of more sanctions in talks with his Russian counterpart, Anton Siluanov. The U.S. and its European allies leveled some sanctions on individuals following President Vladimir Putin’s annexation of Ukraine’s Crimea peninsula last month. Tension has escalated in the past week as Russian speakers in the nation’s east demand greater autonomy.
“The question of sanctions is still the topic of the day for the Russian market,” Yuri Selyandin, a fund manager who helps oversee about $2 billion at GHP Group in Moscow, said by phone. “The external situation is triggering profit-taking among speculators. There are hardly any long-term investors who entered the market over the past weeks.”
The ruble lost 1.2 percent versus the dollar this week and weakened 2.5 percent against the euro, the most among 14 peers in developing Europe.
Sberbank, Rusal
OAO Sberbank fell 0.2 percent to 79.75 rubles, taking the weekly decrease to 3.9 percent, the most since March 16. Goldman Sachs Group Inc. cut its price estimate for the nation’s biggest lender to 142 rubles a share, while confirming its buy recommendation. Equities on the Micex trade at the cheapest valuations among 21 emerging markets monitored by Bloomberg.
The gauge trimmed a decline of as much as 1.6 percent as United Co. Rusal, the biggest aluminum producer, jumped 4.9 percent after VTB Capital raised its price estimate for the stock. VTB increased its 2014 forecast the metal’s realized price by 5.4 percent to $2,150 per tonne, according to a research note today. The shares gained 15 percent this week after the company won a waiver from its lenders on a $4.75 billion loan.
Russia’s 2027 bond yield has fallen 71 basis points since reaching a record 9.71 percent on March 14. The rate jumped after the central bank raised its key interest rate by 1.5 percentage points to 7 percent on March 3 to stem a selloff in the nation’s assets.
Bond Flows
Russia-focused bond funds posted net inflows of $93 million in the week ended April 9, compared with $134 million the previous week, OAO Gazprombank said in research note, citing data of EPFR Global. Funds dedicated to the country have posted $1 billion of outflows this year.
Government bonds, known as OFZs, became eligible to join Barclays Plc’s Global Aggregate Index from March 31, the bank said in November. Foreign investors were rebalancing their portfolios to account for the inclusion, Roman Dzugaev, a trader at BFA Bank in St. Petersburg, said in e-mailed comments. “The return of Ukraine worries this week showed that all that growth was to a large extent of a technical nature.”
Having annexed Crimea and deployed thousands of troops along the border, Putin has been ratcheting up pressure on Ukraine, threatening yesterday to halt gas shipments. Ukraine is dominating discussions at the spring meetings of the International Monetary Fund and World Bank, which start today.
Buying Currency
After talks with Siluanov, Lew “emphasized that Russia’s ongoing occupation and purported annexation of Crimea is illegal and illegitimate,” the Treasury said in a statement. “The United States is prepared to impose additional significant sanctions on Russia if it continues to escalate the situation in Ukraine.”
Russia’s Finance Ministry will resume purchases of foreign currency on April 14, buying an equivalent of 3.5 billion rubles ($98 million) a day until it reaches 174 billion rubles for its sovereign-wealth fund, it said yesterday. That compares with daily trade of $30 billion on the Moscow Exchange in February.
“The amount is not big, but many market participants will view these levels in a somewhat different light,” Anton Nikitin, an analyst at ZAO VTB Capital in Moscow, said in e-mailed comments.
