Russian Stocks Soar 17%, Leading Rally for Emerging Markets

By Denis Maternovsky

Oct. 9 (Bloomberg) -- Russia's Micex Index rallied as much as 17 percent and emerging market stocks rose the most in three weeks as coordinated central bank rate cuts spurred investors to start buying shares at the cheapest valuations in a decade.

Russia's Micex Stock Exchange recovered from a 14 percent drop yesterday that reduced the value of companies to 3.9 times annual earnings, the lowest level of any European market tracked by Bloomberg. The MSCI Emerging Markets Index rose 2.8 percent to 622.86, after losing 23 percent this month.

South Korea, Taiwan and Hong Kong today joined the Federal Reserve, European Central Bank and China in an emergency bid to stem the worst financial meltdown since the Great Depression through a sudden reduction in interest rates. Emerging markets shares have lost half their value this year, the biggest annual slump recorded in more than two decades by the MSCI index.

``There are bargains on almost every single market around the world,'' Mark Mobius, who manages $30 billion as executive chairman of Templeton Asset Management Ltd., said in a Bloomberg television interview today. Mobius, 72, said he's looking to buy stocks in the markets that fell the most, including Russia, China, Brazil, Turkey, South Africa and India.

Investors pulled about $74 billion out of Russia since the war with Georgia in August in a selloff exacerbated by falling oil prices and global bank collapses, according to BNP Paribas SA data. The Micex Index dropped as much as 50 percent.


``Investors were skinned alive,'' said James Fenkner, managing director at Red Star Asset Management LP in Moscow. ``The extreme pessimism has lifted,'' though it may be months before confidence is fully restored.

Cash for Banks

Russian President Dmitry Medvedev said on Oct. 7 that the government will channel a further 950 billion rubles ($36 billion) into the country's biggest banks. Some of the money will come from currency reserves, the world's third largest, and add to $150 billion in loans, cash auctions and tax cuts to counter the credit squeeze.

The government will start delivering cash to banks in ``the next few days'' to ``calm the markets,'' Medvedev's senior economic aide, Arkady Dvorkovich, said in a Bloomberg Television interview in Moscow today.

The ruble strengthened to its highest level in four days against the dollar, rising 0.3 percent to 26.0422. Russia's central bank supported the currency with as much as $12.8 billion this week and about $5.7 billion last week, according to Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow.

Oil Producers

OAO Rosneft, Russia's biggest oil company, was 16 percent higher at 4 p.m. in Moscow, having gained as much as 25 percent, while the Micex was up 13 percent. Crude oil for November delivery climbed as much as 87 cents to $89.82 a barrel in electronic trading on the New York Mercantile Exchange.

OAO Sberbank, Russia's largest lender, rose 4.1 percent after earlier jumping as much as 14 percent.

The cost of protecting Russian government debt against nonpayment using credit-default swaps fell from the highest in more than four years to 325 basis points from 348. Contracts on OAO Gazprom, Russia's biggest company, declined 9 basis from a record 527, according to CMA Datavision prices.

The MSCI Emerging Markets Index declined 18 percent last month, valuing the 789 constituent companies at 8.7 times their average annual earnings, the cheapest since 1998, according to data compiled by Bloomberg.

Romania to Oman

Oman's Muscat Securities Market Index rose 8.3 percent today, the biggest one-day gain since 1997. Lithuania's OMX Vilnius Index jumped 11.6 percent, heading for its biggest one- day gain since the index began in 2000. Egypt's Hermes Index rose 4.4 percent today, after falling by a record 22 percent in the last two days.

Romania's leu climbed as much as 2.5 percent against the euro today to 3.8069, the best performer among European currencies, recovering from an almost four-year low after dropping 7.7 percent against the euro in the past month.

China's CSI 300 Index of shares fell 1.4 percent after earlier rising as much as 2 percent. South Korea's Kospi Index advanced 0.6 percent. Indonesia's exchange remained closed for a second day after stocks plummeted yesterday.

Bond prices fell as the extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 12 basis points to 5.27 percentage points, the highest spread since May 2004, according to JPMorgan Chase & Co.'s EMBI+ index.

Credit-default swaps on Ukraine climbed 42 basis points to 1075, the highest in Europe, after President Viktor Yuschenko called an early parliamentary election.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's or a country's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net