Russia Stocks Retreat as Crude Oil Falls on U.S. Budget Talks

Russian (INDEXCF) equities headed for their biggest drop this month as oil, the nation’s chief export, declined on concern U.S. lawmakers may not avert spending cuts and tax increases.

The 50-stock Micex Index fell 0.9 percent to 1,475.52 by 10:39 a.m. in Moscow, poised for the largest decline since Nov. 28. OAO Pharmstandard, Russia’s largest drugmaker, tumbled 3.9 percent, while OAO Bashneft, a regional oil producer, retreated 2.4 percent. OAO Mechel (MTLR), the country’s largest coking-coal producer, lost 1.4 percent.

Crude slid 0.9 percent to $89.34 a barrel in New York, the first drop in six days. Standard & Poor’s GSCI Index dropped 0.3 percent to 641.50. The RTS Index (RTSI$) declined 1 percent to 1,513.35. U.S. House Republican leaders canceled a vote on Speaker John Boehner’s budget plan and the chamber said no more votes will be held until after the Christmas holiday.

“As has been the case for several weeks, investors will be more interested in any news of the budget talks,” Chris Weafer, Sberbank CIB’s chief strategist in Moscow, said in an e-mailed report. “This is effectively the last full important trading day before the start of the New Year.” The Bloomberg Russia-US stocks (RUS14BN) gauge climbed 0.9 percent to 98.72 yesterday. The Market Vectors Russia ETF (RSX), the biggest U.S. exchange traded fund that holds Russian shares, added 1.2 percent to $29.97, the highest close since Sept. 18., while the RTS Volatility Index fell 0.3 percent to 20.51 points.

Russia receives about half of its budget revenue from oil and natural gas sales. The country’s markets are closed for New Year and Christmas holidays in the first week of 2013.

The amount of shares traded on the Micex was 20 percent below the 10-day average, according to data compiled by Bloomberg.

The Micex trades at about 5.4 times estimated earnings after adding 5.2 percent this year. That compares with a multiple of 10.6 times for the MSCI Emerging Markets Index, which has gained 14 percent.

Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.