[RUSSIA] Stocks Slide 3.7% as Oil Price Dips Below $120

The country's oil stocks continued their slide Tuesday, pulling the country's MICEX Index down 3.7 percent as the global oil price dropped below $120. Rosneft, the country's largest oil producer, led the way with a fall of 6.8 percent to 216.33 rubles, its steepest drop since its IPO two years ago. LUKoil, Russia's No. 2 producer, fell 4.3 percent, to 1,852.99 rubles, its biggest decline in more than a week.

Plummeting oil prices and the U.S. financial crisis "undermined the domestic stock market terribly and set it up to be sold heavily," said Ronald Smith, head of research at Alfa Bank.

But the trigger for local stocks' woes, including oil stocks, Smith said, was Prime Minister Vladimir Putin's criticism of steel and coal producer Mechel last month, which wiped about $8 billion from the company's market capitalization.

"The Mechel situation reminded investors that Russia is still an emerging market and therefore able to surprise negatively at unpredictable moments," he said. "This triggered a sharp fall in the market, allowing it to catch up to the middle of the pack globally."

Over the last four weeks, the price of oil has fallen 18 percent to $118 from a record of $144 per barrel on July 2, increasing investors' nervousness.

The dollar-denominated RTS Index dropped 4.4 percent to 1,812, its biggest decline since July 25, the day after Putin's comments on Mechel. The ruble-denominated MICEX Index closed at 1,397.46, its lowest level since October 2006.

Both indexes have lost more than 24 percent since May. Another big loser Tuesday was Tatarstan-based oil producer Tatneft, which dropped 5.8 percent on the MICEX. Gazprom Neft shed 6.3 percent, and Surgutneftegaz was down 3.7 percent.

Alexander Potavin, an equity analyst with Antanta-Pioglobal Investment Group, blamed the falling oil stocks on "a change in investment preferences by some big Western companies and speculators."

President Dmitry Medvedev's appeal to state officials and power structures to stop creating "nightmares" for businesses has so far failed to impress foreign investors, he added.

Tom Mundy, an oil and gas analyst at Renaissance Capital, said the weakness in the market would continue in August and possibly part of September.

"Russia's stock markets continue to be strong, and there's still a lot of value to be found," he said. "Investors are likely to stay away this summer but trickle back in September ... after their vacations."

Dipping oil prices are expected to affect all domestic producers equally, analysts said, as investors have already factored in any favoritism of government companies over private ones.

The sliding stock prices, especially in the oil and gas sector, are expected to be short term but would offer investors the opportunities to buy cheap "while the bottom is hard to pick," said Smith, of Alfa Bank.

"The market valuations of Russian oil companies are very cheap, and bargain hunters should soon appear to put a floor under stock prices," he said. "With a sharp correction this August, we are well set up for an autumn rally."

Source: The Moscow Times|By Tai Adelaja

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