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Foreign Affairs: Kiev Stock Market Surges as Moscow Sinks

Tuesday, 29 Apr 2014 08:37 PM

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 Kiev 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 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 Kiev-based managing director at Dragon Capital Ltd., said by phone Tuesday. “Ukraine’s economy is in bad shape, but there are signs it’s heading in the right direction.”

Editor’s Note: Billionaires Dump Stocks (See Video)

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 Monday, 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 Monday.

‘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 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 Tuesday. “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 earnings, compared with a valuation of 14 for India’s S&P BSE Sensex Index and of 10 for Brazil’s Ibovespa.

The Bloomberg index of the most-traded Russian stocks in the U.S. gained 0.7 percent Tuesday 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.

The Market Vectors Russia exchange-traded fund, the largest U.S.-based ETF investing in the nation’s shares, rose 0.2 percent to 22.65 Tuesday, 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  to 38.53 in U.S. hours Tuesday. Futures on Russia’s RTS Index added 0.3 percent to 111,970. Russian markets are closed for national holidays Thursday and Friday.

Editor’s Note: Billionaires Dump Stocks (See Video)

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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.
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2014-37-29
Tuesday, 29 Apr 2014 08:37 PM
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