Russian Stocks Sink as Reserves Dwindle, Oil Prices Retreat

By William Mauldin

Nov. 19 (Bloomberg) -- Russia's Micex Index fell the most in a week as the lowest oil price in almost two years added to concern the central bank may struggle to defend the ruble after spending $57.5 billion to prop up the currency.

The 30-stock Micex sank 7 percent to 537.39 at 2:32 p.m. in Moscow, after the bourse halted trading for an hour because of the declines. The drop was the biggest fluctuation among more than 80 benchmark indexes that Bloomberg tracks worldwide.

The central bank spent $57.5 billion propping up the ruble in September and October, Chairman Sergey Ignatiev said today, draining the world's third-largest reserves after China and Japan. Crude oil dropped to below $54 a barrel in New York.

``It's a vortex of despair,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. Russian stocks are weighed down by ``an economy rendered sclerotic by the vanishing of credit, a market paralyzed by margin calls and illiquidity, the opacity of earnings through 2009 and the ruble quivering while speculators circle,'' he said.

The central bank on Nov. 11 allowed the ruble to depreciate 1 percent again the dollar-euro basket of currencies, triggering a 13 percent decline in the Micex Index that day.

The currency may weaken to 35 against the dollar-euro basket by the end of next year, from about 30.7 yesterday, according to the median estimate of 16 currency strategists, economists and investors surveyed by Bloomberg.

`Pressure'

Crude oil for December delivery sank for a fourth day today, slipping as much as 2 percent to $53.30 a barrel in after-hours trading in New York, the lowest in almost 22 months.

``There is still a lot of pressure on the oil prices because of the slowdown in global demand,'' said Thomas Mundy, strategist at Renaissance Capital in Moscow. ``That doesn't encourage anyone to come back in Russia.''

The RTS Index retreated 0.7 percent to 597.31. The dollar- denominated Russian Depositary Index, a measure of Russian global depositary receipts trading in London, lost 4.8 percent. Energy producers dominate the three indexes.

Rosneft, Russia's biggest oil producer, sank 4.95 rubles, or 5.7 percent, to 82 rubles, a record low. OAO Lukoil, the second- biggest producer, fell 4.4 percent to 791.11 rubles.

Finance Minister Alexei Kudrin said the government has spent 90 billion rubles ($3.3 billion) out of a planned 175 billion rubles this year investing in domestic stocks and bonds. The 50- stock RTS is the third-worst national equity benchmark in the world in the last three months because of declines in crude and selling triggered by shareholders to meet margin calls from banks and brokerages.

Raw Materials

``The stock market, I think, is probably close to a bottom,'' Zeljko Bogetic, the World Bank's chief economist in Moscow, said in an interview. ``Now you're going to see a real impact biting on industry.''

The Micex is 4.9 percent above its low of 513.62 for the year, while the RTS is 8.7 above its low this year.

Metals companies and coal mining shares declined on the outlook for raw-materials prices.

OAO Raspadskaya, a Russian coking coal producer, dropped 8.9 percent to 1,903 rubles. OAO GMK Norilsk Nickel, the country's biggest mining company, sank 8.1 percent to 1,920 rubles as price of nickel lost as much as 3.3 percent in London.

For coal prices, ``we forecast an about 40 percent reduction in 2009 from the highs of this year's spot price, while our conservative long-term prices fall by 60 percent by 2012 from our average 2008 levels,'' according to Tim Dudley, a London-based analyst with Arbuthnot Securities Ltd.

Investment

Russia attracted 2.3 percent less foreign direct investment in the first nine months than in the year-earlier period as the global credit squeeze deterred investors from emerging markets.

Direct investment amounted to $19.2 billion and total foreign investment, including credits and flows into the securities markets, was $75.8 billion, almost 14 percent less than a year earlier, the Moscow-based Federal Statistics Service said in an e-mailed statement. Foreign investment in stocks and bonds fell 16 percent to $1.3 billion, it said.

AFI Development Plc, billionaire Lev Leviev's Russian real estate developer, climbed 2 cents, or 1.8 percent, to $1.15 at 11:06 a.m. in London. The company said in a statement that it will pay $200 million, or more than a third of the $569 million in cash it had on Sept. 30, as an interim dividend.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.