Russian Financial Markets Fall as Concern About Ruble Devaluation Mounts
Russian Stocks, Bonds Drop on Emerging Market Concern (Update3) (Updates
RTS index, bond yields, adds price of interest arrears notes in second
paragraph and plunge on J.P. Morgan index of dollar bonds in eighth
paragraph)
Moscow, Aug. 7 (Bloomberg) -- Russian stocks and bonds tumbled as
falling Asian markets raised concern investors will shun emerging
markets worldwide at a time when Russia needs more than $20 billion in
financing.
The benchmark Russian Trading System stock index fell 2.2 percent to
132.86, a 26-month low. Russian Eurobonds plunged, more than 5 points,
to 74 7/8, with the bond maturing I 2001 falling more than 5 points, to
74 7/8, driving the yield up 1.67 percentage points to 19.37 percent.
Russian dollar-denominated interest arrears notes dropped 4.75 points to
41.5 in New York. ''With global uncertainty, a possible devaluation in
China, and Japan mired in recession, investors are just not taking risks
and Russia is perceived as high risk,'' said Julian Mayo, head of
corporate finance at Regent pacific in London, which manages about $1
billion of investments in Russia. ''There is concern about a possible
devaluation of the ruble.''
Russia plans to borrow about $3 billion abroad through the end of the
year, including sales of $2 billion in foreign bonds, Finance Ministry
officials said. The government also plans to sell more than $20 billion
of ruble-denominated Treasury bills and bonds through the end of the
year. At the moment, it wouldn't find many buyers, even at dollar yields
near 20 percent, and ruble yields above 90 percent, analysts said.
''Capital markets are not starving for their paper,' said Eric Kraus,
chief strategist at Regent European Securities in Moscow.
Russia already has sold $11.3 billion in Eurobonds this year and swapped
$4.4 billion of short-term ruble-denominated bills and bonds into 7- and
20-year dollar bonds.
T-Bills
Russian Treasury bills and bonds plunged, with the yield on the
six-month bill soaring 13.04 percentage points to 91.12 percent. The
yield on the 10-month Treasury bill rose 16.86 percentage points to
94.52 percent.
According to J.P. Morgan's emerging market bond index, Russian dollar
bonds plunged 9.98 percent in New York trading. Their composite yield
spread to U.S. Treasury bonds with comparable maturities widened 203
basis points to 1517.
Rubles for September delivery fell 0.65 percent to 15.22 cents per ruble
in trading on the Chicago Mercantile Exchange. Rubles for December
delivery dropped 2.2 percent to 13.10 cents per ruble. At the central
bank's official exchange rate, one ruble is worth 16 cents.
Russian stocks and bonds also have been hurt by the growing perception
of risk in emerging markets as Asian emerging markets stocks continue to
drop. A possible devaluation of China's currency, the yuan, could force
other countries, such as Russia, to devalue to compete with China's
cheaper exports. ''The prospect of further turmoil in Asia has got to
lessen, then commodities prices will pick up and the status of the
emerging market asset class will increase,'' said Philip Manduca, chief
investment officer at Eldon Capital Management, which has about $100
million invested in Russia.
Malaysia's Kuala Lumpur Composite index fell 2.9 percent, while the
Philippine Composite index fell 2.2 percent.
Trading volumes on the Russian Trading System have been low this week
with only about $22 million in shares changing hands yesterday, compared
with about $80 million daily at the beginning of the year. 'General
Flight' ''There is a general flight from emerging markets,'' Kraus said.
''It's hitting Russia harder than anything else.''
Moscow utility AO Mosenergo fell 6.12 percent to 4.6 cents. Mosenergo
has dropped 63.7 percent so far this year. AO Tatneft, the
fourth-largest oil producer, fell 10 percent to 22.5 cents. Tatneft has
tumbled 84.5 percent this year.
International lenders have pledged $22.6 billion in IMF-led loans to
Russia this year and next, as long as the government increases revenue,
cuts spending and decreases its reliance on expensive borrowing. The IMF
paid the first $4.8 billion installment last month and will consider the
next payment, of $4.3 billion, in September.
Yesterday, the World Bank approved $1.5 billion of loans included in the
package. The first $300 million payment will be paid immediately.
That money wasn't enough to offset continued concern that Russia won't
be able to boost revenues quickly enough to satisfy international
lenders and pay its debts. ''The money's not going to save us,'' said
Andrei Ippolitov, a trader at Moscow brokerage Prospect Investment Co.
''The first tranche is not serious.''
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