Russian Stocks Post Best Quarter in Three Years on Oil, Ukraine
Russian equities are on the rebound three months after they plunged in the worst sell-off among the world’s biggest equity markets.
A Bloomberg gauge of U.S.-traded Russian stocks advanced 17 percent in the first quarter, the most since the three months ended in March 2012, following the biggest drop in six years. Government bonds also rebounded and the ruble rallied the most among 31 major global currencies.
The turnaround came as oil prices rose from the lowest levels since 2009 and the crisis in eastern Ukraine eased. Brent crude stabilizing at around $55 per barrel and a cease-fire in the year-long conflict in the former Soviet republic may support a further rebound, according to Rye, Man & Gor and Otkritie Capital Ltd.
«Though a lot of investors are still pricing in the worst scenarios for the ruble and stocks, I have a feeling that the worst has passed and things will become better,» Anvar Gilyazitdinov, who manages $10 million at Rye, Man & Gor in Moscow, said by phone on March 31. «There will be headwinds ahead and some industries are in better shape than others, but we are at least moving in the right direction.»
While international sanctions including financing restrictions and export bans imposed last summer had already been squeezing Russia’s $2 trillion economy, oil’s plunge into a bear market in November triggered a currency rout. The decline in crude, the country’s biggest export, and weakening currency pushed the dollar-denominated RTS Index down 45 percent last year, the most among 93 primary equity gauges tracked by Bloomberg.
Equities are rebounding as oil prices stabilize and a cease-fire agreement signed on Feb. 12 in Minsk, Belarus, holds, easing concern that the U.S. and its allies will impose further sanctions on Russia, which they claim is supporting a rebellion in Ukraine.
OAO Mechel, the mining company seeking to avert bankruptcy, was the best performer in the Bloomberg Russia-US Equity Index, rallying 81 percent, the best quarterly advance since 2009. Wireless carrier OAO Mobile TeleSystems and oil producer OAO Surgutneftegas gained at least 40 percent. The RTS Index gained 11 percent as the ruble appreciated 4.4 percent to 58.2050 per dollar in the steepest gain among emerging-market currencies.
United Co. Rusal, the world’s biggest aluminum producer, gained 0.4 percent to HK$4.85 at 10:32 a.m. in Hong Kong. The stock dropped 7.5 percent in the first three months of this year, the first loss in five quarters.
The RTS Index will probably continue to advance in the second quarter, and Brent could slowly climb above $55 per barrel as fighting in the Arabian peninsula may create supply disruptions, Gilyazitdinov said. Under a worst-case scenario, the ruble may weaken to a little over $60 per dollar. Brent won’t likely fall below $50 per dollar, he said.
Russian dollar bonds have returned 9.95 percent this year, compared with a 1.9 percent average gain in emerging markets. Bonds climbed as the nation’s central bank cut benchmark interest rates by 300 basis points to 14 percent in two moves, partly unwinding 11.5 percentage points of increases in 2014 to stem the ruble’s rout.
The higher borrowing costs have exacerbated the country’s economic slump. Analysts surveyed by Bloomberg forecast that gross domestic product will shrink 4 percent this year. Inflation at 16.7 percent in February was the fastest since 2002.
The rebound in Russian assets may be slow and painful, according to Andrey Shenk, an analyst at Alfa Capital.
«Now that the nervousness in the market is gone, there are no flashy headlines that moved the market down, we are stuck with more long-term, serious and fundamental questions of reviving the economy,» Shenk said by phone on Tuesday. «Structurally these problems would be very difficult to resolve fast.»
Clashes in Ukraine’s easternmost regions abated further as the government saw fewer rebel attacks, National Security Council spokesman Andriy Lysenko said Tuesday. An envoy group made up of former Ukrainian President Leonid Kuchma, Russian Ambassador to Ukraine Mikhail Zurabov and Heidi Tagliavini of the Organization for Security and Cooperation in Europe plans to speak with separatists on de-escalating the conflict.
«I look at the third quarter with optimism,» Kirill Yankovskiy, the director of equity sales at Otkritie Capital Ltd. in London, said by phone on Tuesday. «Geopolitical risks have been pushed to the background, and if we see a stabilization of oil prices, which I believe will happen, Russian stocks will continue to advance.»