MOSCOW: Russian stocks showed the biggest daily fall in three months on Tuesday after ratings agency Fitch warned of downside risks to Russia's credit status following Vladimir Putin's victory in Sunday's presidential election, which has fuelled a new wave of street protests.
Fitch said late on Monday that protests against Putin, who won a six-year presidential term after securing nearly 64 percent of votes in the first round of the poll, remain a source of political risk that needs to be monitored.
Noting pledges by Putin to further increase public sector wages and spending on the military, Fitch also repeated its concerns about Russia's non-oil and gas fiscal deficit, currently about 10 percent of GDP, which it has said is a factor constraining the country's credit rating at BBB.
If the non-oil and gas fiscal deficit is not cut significantly, Fitch warned, a sharp and sustained fall in the price of oil, Russia's chief revenue source, would have "a damaging impact on the Russian economy and public finances and would likely lead to a downgrade."
The dollar-based RTS stock index fell 3.7 percent to 1,687.7 points by 1350 GMT and its rouble-traded peer MICEX was down 3.3 percent at 1,572.6 points, off its strongest since August of 1,629.5 hit the previous day.
"Of course, the recent international newsflow has been negative on Russian elections and that may be reflected in Russia suffering more than other emerging markets," said John Quinn, head of Russia equity sales at Deutsche Bank.
Hundreds of anti-Putin protesters were detained on Monday in Moscow and St Petersburg, and another big protest against the result of the presidential vote is scheduled for Saturday.
Prime Minister Putin outpaced other candidates, gaining 63.6 percent of the vote in a poll international monitors said was clearly skewed in his favour.
Opponents claim the election was rigged in a similar way to December's parliamentary vote, while activists reported "carousel voting rings" and ballot stuffing.
"There are two key domestic market determinants now - whether the protests will generate violence, and what policy will the new government pursue?" said Kingsmill Bond, chief strategist Russia at Citi in Moscow.
Analysts at Gazprombank said in a note they recommend closing long positions in the main benchmarks, including RTS and MICEX indexes, as well as Sberbank and Gazprom shares, a day before public holidays from March 8-10.
"Russian equities have been a strong performer year-to-date and this move is just profit taking in a global emerging market "risk-off" moment," said Deutsche Bank's Quinn.
Shares in Russian steel and coking coal producer Mechel underperformed the market, falling 6.1 percent while shares in the country's third largest steelmaker MMK shed 5.7 percent after China cut its economic growth target for 2012 to an eight-year low of 7.5 percent.
"From the view of short-term profits, on a one-month horizon, it would be logical to shun the metal sector and buy shares in oil and gas companies or banks," said Roman Rodin, the head of trading at BKS brokerage.
The rouble also fell victim to profit taking and globally rising risk aversion, losing 0.9 percent to 29.61 versus the dollar and easing 0.2 percent to 38.88 against the euro.
Versus the euro-dollar basket, used by the central bank to monitor the currency market, the rouble weakened 0.5 percent to 33.78.
"Some profit taking in short positions in foreign currencies can be felt, and only a new inflow of funds could move the basket down," said a dealer at a European bank in Moscow.
The yield on Russia's 30-year benchmark Eurobond rose to 4.09 percent from its lowest level since end-2010 of 3.93 percent seen last week, indicating investor wariness about keeping exposure to Russia.
Comments
Comments are closed.