Russian metal and mining companies are winning back investors’ favor this year, avoiding a broader selloff in equities as the weakening ruble helps boost their profits from exports.
Eight of the 10 best performers in the RTS Index (RTSI$) in 2014 are producers of raw materials from steel and nickel to diamonds and soil nutrients. While the dollar-denominated gauge sank 37 percent, United Co. Rusal, the world’s largest aluminum company that touched a record low in November 2013, led the rally in non-oil commodity stocks with an almost fourfold advance.
While stocks from lenders to utilities and airlines have tumbled as Russia’s economy headed for the first recession since 2009, the slumping ruble has lifted metal and mining companies that have costs in the local currency and make sales abroad. Crude, the country’s top export, has sunk into a bear market, driving a 38 percent decline in the ruble and exacerbating the impact that international sanctions linked to the Ukraine conflict have had on gross domestic product growth.
“The stocks of metal and mining companies are turning from ‘l’enfant terrible’ into the best performers,” Alexander Losev, the chief executive officer of Sputnik Asset Management in Moscow, said by e-mail on Dec 4. “Serious ruble devaluation is benefiting metal producers since their costs are in rubles and revenue from exports is in dollars.”
A recovery in major metal prices including aluminum and nickel also has boosted the stocks. The weighting of metal and mining companies in the benchmark Micex Index (INDEXCF) rose to 13.9 percent this year from 10.4 percent in 2013, almost matching the contribution of banks, the largest of which are sanctioned by the U.S. and Europe over the conflict in Ukraine.
Metal Prices
“The metal and mining companies almost doubled their earnings due to the weaker ruble,” Kirill Chuyko, BCS Financial Group’s head of equity research said by phone from Moscow. “At the same time commodities prices are advancing, or at least not falling as much as oil,” he said.
While Russian oil exporters have also benefited from the falling ruble, the plunge in prices has outweighed the cost advantage. Brent crude has dropped 38 percent in 2014. OAO Bashneft’s preferred shares have tumbled 41 percent this year, the most among oil companies on the RTS Index. OAO Rosneft (ROSN) is down 12 percent.
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