No major equity market in the world rallied more than Russia’s yesterday, underscoring how the latest round of international sanctions against the country proved weaker than many investors anticipated.
The RTS Index advanced as much as 2.1 percent yesterday, its first gain in six sessions, as the limited scope of the measures added to speculation that the U.S. and European Union are hesitant to deepen the standoff with President Vladimir Putin after his military incursion into neighboring Ukraine last month. That reluctance is a signal to buy the cheapest shares in the stock market in the developing world, according to Sberbank Asset Management and Prosperity Capital.
“The market had priced in the worst sanctions possible and those fears failed to materialize,” Anton Rakhmanov, who manages $5 billion in assets as the head of Sberbank Asset Management in Moscow, said in a telephone interview yesterday. “It’s a good time to buy. If the Ukraine crisis doesn’t escalate, then the Russian market has made it through the bottom.”
The RTS, a dollar-denominated gauge of Russian stocks, ended yesterday 1.8 percent higher and gained 1.8 percent to 1,159.56 by 11:37 a.m. in Moscow. The RTS Volatility Index, which measures expected swings in futures, sank 6.3 percent to 38.37 today.
A Bloomberg index of the most-traded Russian companies in the U.S. climbed 1.9 percent yesterday, led by OAO Sberbank, and the ruble added 0.6 percent versus the dollar.
Assets Dumped
The Bloomberg Russia-U.S. index trades at 5.5 times estimated earnings, near the cheapest multiple on record. The ratio for the Micex Index in Moscow is 4.7, compared with a valuation of 14 for India’s S&P BSE Sensex Index and of 10 for Brazil’s Ibovespa.
Investors had dumped Russian assets last week, pushing the Bloomberg index down 7.9 percent, in anticipation of deeper sanctions and as the central bank unexpectedly lifted interest rates while Standard & Poor’s cut the country’s rating.
The U.S. announced sanctions on seven Russian officials and 17 companies linked to Putin’s inner circle, including Igor Sechin, Chief Executive Officer of OAO Rosneft, the world’s largest publicly traded oil producer. The list didn’t include OAO Gazprombank or state-development bank Vnesheconombank as some investors speculated. The EU added 15 names to its list of previously sanctioned individuals. Global depositary receipts of Rosneft in London slumped to the lowest since September 2012 yesterday.
‘Paper Sanctions’
Rakhmanov is forecasting a gain of as much as 25 percent in the Micex Index this year if there is no further escalation in Ukraine. The gauge rose 2 percent in 2013.
The U.S. and E.U. say Russia hasn’t lived up to an accord signed April 17 in Geneva intended to defuse the crisis in Ukraine. The U.S. warned it’s prepared to levy additional penalties to hit the broader Russian economy if Putin escalates by sending troops into Ukraine.
“The sanctions are a classic example of ‘paper sanctions’ and are missing both teeth and wide support,” Neil Azous, founder of Stamford, Connecticut-based research firm Rareview Macro LLC, said in an e-mail yesterday.
Aside from Sechin, the list also names Sergei Chemezov, director of State Corporation for Promoting Development, Manufacturing and Export of Russian Technologies High-Tech Industrial Products, also known as Rostec, and banks such as InvestCapitalBank and SMP Bank.
Louis XVI
“Everything that is excessive is insignificant as Charles Maurice de Talleyrand used to say in such cases,” Sechin said in an e-mail via his press office when asked about the sanctions, citing the French diplomat who served under Louis XVI as well as Napoleon Bonaparte.
Rosneft fell 1.8 percent in London to $6.12. The company was among six government-related entities whose ratings were cut to BBB- by Standard & Poor’s, the lowest investment grade, after the shares stopped trading.
“It seems that the new set of sanctions will have very limited impact on the Russian economy overall and Rosneft in particular,” Mattias Westman, who oversees about $3.3 billion in Russian assets as chief executive officer of Prosperity Capital, said in an interview from London yesterday.
The rally in Russian equities may prove temporary as the crisis isn’t likely to find a quick resolution, according to Tim Ash, London-based chief emerging-markets economist at Standard Bank Group Ltd.
‘Bigger Picture’
“I don’t think it changes the bigger picture story,” Ash said by phone yesterday. “The relationship with the West is going to continue to deteriorate.”
Deeper sanctions against Russia are unlikely as the response from the EU will remain muted because of the region’s shared economic interests, said Neil Shearing, chief emerging- markets economist at Capital Economics Ltd.
“The big picture still remains that the steps taken so far have been relatively modest,” Shearing said by phone from London yesterday. “It’s going to take a significant escalation in the crisis in order for us to see a big step up in the nature of sanctions toward more aggressive measures.”
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