Kyiv Trouncing Moscow as Crisis Sparks Stock Market Divergence
Ukrainian stocks are soaring this
month while those in Russia plunge, deepening the divergence
since the crisis between the neighboring countries began late
last year.
The UX Index of stocks traded in Kyiv has surged 9.2
percent, the most among 93 stock gauges after Dubai’s benchmark,
as the former Soviet republic prepares to receive the first
installment of a $17 billion bailout from the International
Monetary Fund. Moscow’s dollar-denominated RTS Index (RTSI$) has slumped
5.9 percent, the third-worst performance, amid concern that
sanctions against Russia will push the country into recession.
“We’re yet to see the full impact of sanctions on the
Russian economy, while growth is already slowing,” Dmytro Tarabakin, a Kyiv-based managing director at Dragon Capital
Ltd., said by phone yesterday. “Ukraine’s economy is in bad
shape, but there are signs it’s heading in the right
direction.”
The Ukrainian benchmark has outperformed Russian equities
amid a crisis that so far has culminated in Vladimir Putin’s
annexation of Crimea and a buildup of troops along the border.
The conflict has escalated since November when President Viktor Yanukovych pulled out of a European Union cooperation accord,
favoring ties with Russia. The decision kicked off protests that
led to his downfall earlier this year, souring Ukraine-Russia
relations.
Dollar Bonds
The returns for the two nations are more evenly matched in
the bond market. Ukrainian dollar debt has lost 6 percent this
year while Russian securities sunk 4.8 percent through April 28,
JPMorgan Chase Co. indexes show.
Ukraine is awaiting IMF approval for a loan to boost its
shrinking economy as separatist unrest threatens to split the
nation’s east and raises Russia-U.S. tension to levels not seen
since the Cold War. The nation will probably receive the first
part of an IMF bailout next month, along with smaller payouts
from the European Union, the World Bank and Japan, Deputy
Finance Minister Vitaliy Lisovenko said last week.
Reserves at a nine-year low and forecasts that gross
domestic product will plunge 5 percent in 2014 have made the
Ukrainian hryvnia the world’s worst-performing currency.
Russia faces a 50-50 chance of recession, the highest since
Bloomberg started to track the measure, as the crisis in Ukraine
raises the risk of further sanctions. The probability of a
recession over the next 12 months rose to 50 percent, the
highest since at least June 2012, according to the median
estimate of eight economists surveyed before the U.S. and the EU
announced their latest salvo of sanctions on April 28.
‘Done Nothing’
The U.S. imposed additional sanctions on seven Russian
officials and 17 companies linked to Putin’s inner circle,
saying Russia “has done nothing” to meet its Geneva
commitments to de-escalate the crisis. The EU added 15 names to
its blacklist.
Ukraine’s market is a fraction the size of Russia’s. About
7.25 million shares have changed hands per day on the Ukrainian
Equities Index (UX) on average over the past year, according to data
compiled by Bloomberg. That compares with approximately 33
billion on the Micex 10 Index of the most liquid stocks of
Russian companies.
Since Yanukovych opted to seek stronger ties with Russia on
Nov. 21, the UX gauge has slumped 13 percent in dollar terms,
while the RTS Index has retreated 19 percent.
‘Cheap’ Stocks
“I wouldn’t expect any serious buying in both Ukrainian
and Russian markets before geopolitical tensions ease and the
conflict is resolved,” Slava Breusov, an analyst at Alliance
Bernstein LP in New York, said by phone yesterday. “People know
that Russian equities are cheap, but no one seems to be
confident that things will get better from where they are now.”
The Micex Index in Moscow trades at 4.7 times estimated 12-month earnings, compared with a valuation of 14 for India’s SP
BSE Sensex Index and 10 for Brazil’s Ibovespa.
The Bloomberg index of the most-traded Russian stocks in
the U.S. gained 0.7 percent to 79.29, trimming its decline this
month to 7.1 percent. Yandex NV, Russia’s largest search-engine
company, surged 6.6 percent to $25.59 yesterday.
The Market Vectors Russia (RSX:US) exchange-traded fund, the largest
U.S.-based ETF investing in the nation’s shares, rose 0.2
percent to 22.65 yesterday, paring this month’s drop to 5.6
percent.
The RTS Volatility Index, which measures expected swings in
the stock-index futures, increased 0.7 percent yesterday to
38.53 in U.S. hours yesterday. Futures on Russia’s RTS Index
added 0.3 percent to 111,970. Russian markets are closed for
national holidays tomorrow and May 2.
United Co. Rusal, the world’s largest aluminum producer,
dropped 1.7 percent to HK$3.46 at 10:42 a.m. in Hong Kong
trading. The MSCI Asia Pacific Index was little changed.
To contact the reporter on this story:
Halia Pavliva in New York at
hpavliva@bloomberg.net
To contact the editors responsible for this story:
Nikolaj Gammeltoft at
ngammeltoft@bloomberg.net
Rita Nazareth, Matthew Oakley