Russian stocks including Gazprom OAO (ADR)(OTCMKTS:OGZPY) rose in London and New York after a deal imposing a cease-fire in eastern Ukraine abated concerns related to sanctions. The companies were under pressure as they feared that new sanctions against Russia will intensify the country’s economic slowdown.
The biggest U.S. exchange-traded fund, ‘The Market Vectors Russia ETF’ that holds Russian shares including Gazprom OAO (ADR)(OTCMKTS:OGZPY) jumped 4.7%, extending its six-day gains to 18%. The agreement to stop deadly fight between government troops and pro-Russian separatists was finalized as Russia’s economy is sliding into recession.
Decline in oil prices
The problem became worse as international sanctions coincided with a sharp decline in the oil prices. It is a major export product of Russia. Any decision on whether the EU will toughen or ease sanctions remain at bay at Thursday’s summit as the policy makers will wait and watch developments on the cease-fire agreement.
Gazprom OAO, Russia’s biggest firm has surged more than 5% in last few trading sessions. It is trading at the highest level in this year. It is biggest exporter of natural gas in the world and trades at 3.2 times projected twelve-month earnings. It reflects an 81% discount compared to the average valuation of global competitors.
The future ahead
Gazprom and other Russian ADRs will closely monitor development on cease-fire. If it holds, investors will come back in, believes Gary Greenberg, who is a money manager at ‘Hermes Investment Management. The deal is a good first step but should be followed by second, third and fourth steps. Then will the Russian stocks turn into a convincing buy.
The U.S. and EU have threatened more sanctions against Russia in case of worsening situation in Ukraine. Russia’s economy is expected to decline 4%, following a 48% plunge in oil prices in 2014.