Concerns over oil profits batter Russian stocks

By CATRINA STEWART, AP Business Writer
MOSCOW - Russian stock markets fell sharply on Tuesday, weighed down by concerns over oil profits following a continuing slide in prices for crude and reports that the Kremlin might not support tax cuts for the industry.

The dollar-denominated MICEX index tumbled 9.1 percent, bringing it to a low of 40 percent below its May high of 1158.1 points. The ruble-denominated benchmark RTS — which dropped 7.5 percent Tuesday — has fallen 44 percent to 1395.1 points in the same period.

Investor sentiment toward Russia has suffered in the wake of high-profile corporate conflicts, and Prime Minister Vladimir Putin's public attack on steelmaker Mechel in July. Russia's conflict with Georgia and resulting tension with the United States and Europe persuaded many portfolio investors to turn to safer markets.

"There are no serious reasons why the market should collapse," Roman Goryunovin, the chairman of Russia's main stock exchange, RTS, said in televised comments. "The economic situation is good. Stocks are increasingly undervalued now, which may act as a signal for investors that they can buy cheaply into the assets they find attractive."

Mining company Norilsk Nickel and Sberbank led the blue chips down on the RTS on Tuesday, falling by 12.8 percent and 10.2 percent, respectively.

The plunge of stock prices in Russia, the second-largest producer of oil in the world after Saudi Arabia, has coincided with a slide in prices for crude. Oil slipped below $104 a barrel Tuesday for the first time since early April as Saudi Arabia's oil minister signaled OPEC won't cut production.

Crude's decline puts the contract within striking distance of the psychologically important $100 threshold, a level first reached on Feb. 19.

"It seems like every step down in oil is reflected at least as much in percentage terms in the Russian stock market," said Erik DePoy, a strategist at Alfa Bank. "It's a very thin market and ... it doesn't take much to send it down. There are no buyers, and several sellers."

Investors were further spooked after news reports cited Russian Finance Minister Alexei Kudrin as saying that his ministry did not support further tax cuts in the oil sector, given that energy exports will account for less of GDP in coming years.

"This was a huge bucket of cold water on the market, which was already shivering in the cold," DePoy said.

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