London-to-Moscow Stock Market Move Reversed as LSE Trading Jumps

Apr 02, 2014 8:23 am ET

April 2 (Bloomberg) -- President Vladimir Putin’s incursion into Ukraine has stunted the Moscow exchange’s push to lure Russian equity traders away from London.

While average daily trading is surging in both places amid the crisis, investors are turning more to the U.K. to trade Russia’s largest companies. Average daily volume in 10 of the country’s biggest stocks was 46 percent higher in the U.K. than in Moscow over the past 30 days, according to data compiled by Bloomberg. That gap had vanished before Putin began taking Crimea from Ukraine a month ago.

The measures that Moscow executives implemented to attract traders, including aligning their settlement system with international markets and extending trading hours, are being negated by the Ukraine conflict. The U.S. and the European Union have vowed to step up sanctions on Russia’s military, energy and financial industries if Putin pushes further into Ukraine.

“The switch to local shares from depositary shares totally reversed earlier in the month,” according to Luis Saenz, head of equity sales and trading at BCS Financial Group in London. Prior to the Ukraine crisis, investors had been “betting that Euroclear access in July would provide more firepower” in Moscow.

The Bloomberg Russia-U.S. Equity index of the most-traded Russian shares in the U.S. rose 0.5 percent to 85.73 yesterday, after plunging 17 percent in the first quarter, the worst decline since the end of June 2012. The nation’s benchmark Micex stock index fell 0.9 percent to 1,362.75 at 4:22 p.m. in Moscow.

Trading Volume

The average volume of the 15 largest Russian companies trading in London climbed to $1.4 billion last month from $750 million in February and $830 million in the year-earlier period, according to exchange data. The average volume in 334 shares and one depositary receipt listed on the Moscow exchange jumped to 64.9 billion rubles ($1.9 billion) in March from 34 billion rubles in February.

“We’re seeing different types of behavior of the customers,” Alexander Afanasiev, chief executive officer of the Moscow Exchange, said in a Bloomberg Television interview on March 25. “Some of them are exiting the market, some of them are using the volatility, some are seeking new opportunities because they think that the Russian assets are currently definitely undervalued.”

Share Premium

In another sign that investors are preferring to trade Russian equities overseas amid the crisis, the share price premium in London has been widening. The London-listed global depositary receipts of natural gas producer OAO Novatek traded at the highest premium versus the Moscow stock in three years on March 14 while OAO Magnit’s gap tripled from a February low, according to data compiled by Bloomberg.

Harry Stein, a spokesman for the LSE, declined to comment on why investors were favoring depositary receipts over local shares and whether the trend would persist.

“Longer term, people will prefer Moscow shares to GDRs or ADRs,” Andrey Braginskiy, the Moscow-based managing director for communications at the exchange, said by phone on March 31. “Our goal is to have more volume traded in Moscow.”

The Market Vectors Russia ETF, the biggest U.S. exchange- traded fund that holds Russian shares, gained 0.8 percent to $24.19 yesterday after losing 17 percent in the first quarter. The RTS Volatility Index, which measures expected swings in futures, fell 2.4 percent to 32.76 in U.S. hours.