11 May 2004 03:33
Stocks, Bonds and Ruble All Tumble
Russian bonds, equities and the ruble all fell sharply Friday as speculation grew that the U.S. Federal Reserve will
hike interest rates sooner than expected, triggering an exodus from emerging market investments.
Contributing to the decline was increased legal activity surrounding Yukos, the nation's most liquid energy
stock and the biggest component of the benchmark RTS stock index.
Yukos shares plunged 10 percent to their lowest level in more than two years after prosecutors searched the
company's offices and questioned senior management in connection with a $3.5 billion tax claim. By the close of
trading Friday, the RTS had lost 5 percent of its value, while the more liquid ruble-denominated MICEX was off 4.4
percent in a marketwide sell-off.
The national currency also continued to slide toward 29 to the dollar, and Russia's benchmark sovereign bond,
which matures in 2030, fell to nearly 85 percent of face value. The paper now yields 8.6 percent, up from 6.6 percent
just six weeks ago.
"This is a very vicious liquidity-driven correction," said Al Breach, senior economist at Brunswick
UBS.
Washington said Friday the U.S. economy added 288,000 jobs in April, making it more likely that an inflation-wary Fed
will lift interest rates from a 45-year low of 1 percent as early as next month. International investors reacted to the
jobs data by selling their emerging market bonds at the sharpest rate in more than five years, according to J.P. Morgan
Chase's index of emerging-market debt.
Debt funds, such as some hedge funds, have been borrowing cheap money in America to buy Russian bonds and equities
and other higher- yielding assets, in a practice known as "carry trades," Breach said.
Higher rates in America would make carry trades more costly.
Breach also said the ongoing -- and apparently escalating -- legal assault on Yukos has spooked bottom-feeders,
suggesting a prolonged correction. "People don't quite know what's going on in the country and are not
going to bet on buying this cheapness," he said.
Finance Minister Alexei Kudrin told Kommersant last week that the government had "only just started"
pressing tax claims against Yukos, raising concerns that the company may be forced into bankruptcy and sparking a 20
percent slide in the company's share price over the three-day working week.
In a closed hearing on Friday, the Moscow Arbitration Court adjourned the tax fraud case until May 14. The trial of
core Yukos owner Platon Lebedev, who has been incarcerated since July, is slated to start a week later, while that of
his partner, Mikhail Khodorkovsky, will likely commence in June or July.
Markets in Moscow were closed for a national holiday Monday, but proxy stocks traded abroad continued to drop, with
companies like Gazprom, Norilsk Nickel, Rostelecom, UES and Mosenergo all losing more than 6.5 percent in intraday
trading.
Nonetheless, most analysts polled Monday said they do not expect the current slump to indicate a qualitative
revaluation.
"The price correction in stocks outside of the natural resource sectors [and] in sovereign bonds is clearly way
overdone," Alfa Bank chief strategist Chris Weafer said in a note to clients.
"Both equity and bond prices [fell] with a great big 'thump' while ignoring the fact that the price of
oil actually rallied almost 10 percent in the same period," adding an additional $100 million in export revenues
each day, he said.
.TX-..**********************************************
[The Moscow Times] |
RUSSIA IN FACTS
