Russia Traders Lose to Cows as Winter Hits Moscow Market
(Bloomberg – bloomberg.com – Ksenia Galouchko and Michael Patterson – November 15, 2012)
Russian Prime Minister Dmitry Medvedev’s efforts to give his citizens a better night’s sleep and ease stress for the nation’s farm animals are undermining his push to make Moscow a global financial center.
Trading of Micex Index (INDEXCF) stocks has dropped 15 percent in Moscow since Oct. 28, when London rolled back its clocks by one hour for daylight savings and Russia left its time unchanged, according to data compiled by Bloomberg. Turnover in 10 Russian companies with London listings rose 19 percent in the U.K. capital, Europe’s financial hub.
The difference between clocks in London and Moscow grew to four hours from three after Medvedev ended Russia’s switch to winter time last year, saying it disrupts the “biorhythm” of people and confuses milk cows. The change has cut liquidity for stocks in Moscow and hurt Russia’s efforts to boost the role of finance in its oil-dependent economy, according to hedge fund Verno Capital. It also means longer hours for traders who buy and sell shares in both cities.
“Traders are stressed out,” Dmitry Ryzhkov, the vice president of equity sales at Alfa Bank in Moscow, said in a Nov. 13 phone interview. His workday has increased to 12 hours from 11 hours before Oct. 28. “I would very enthusiastically support the return to time changes.”
The government may decide by next month whether to revive the clock switching, Sergey Kalashnikov, a Russian lawmaker who submitted a bill to parliament that would reinstate the winter time, said by phone on Nov. 13. President Vladimir Putin, who swapped jobs with Medvedev in March, said at a Sept. 25 press conference that policy makers are reviewing the issue.
It’s important for time differences to “get more predictable,” Alexander Afanasiev, chief executive officer of the Moscow Exchange, said at an investor conference in London on Nov. 13. Natalya Timakova, Medvedev’s press secretary, declined to comment by e-mail on Nov. 13.
Micex trades slumped to an average 37 billion shares in the 11 days after the time gap with London widened, from 43 billion in the previous 11 days, according to data compiled by Bloomberg. The 15 percent slump this year compares with a 27 percent drop to 42 billion shares during the same period of 2011, the first year Medvedev’s policy came into effect.
Foreign investors own about 66 percent of Russian shares available for trading, Citigroup Inc. said in an Aug. 29 report.
Trading in the U.K.’s FTSE 250 Index has climbed 1.3 percent since the time switch this year and increased 25 percent in Turkey’s ISE National 100 Index. Trading for the Shanghai Composite Index and Standard & Poor’s 500 Index fell 7.3 percent and 3.8 percent, respectively.
“The time difference is responsible for the low volumes” in Russia, Andrey Vashevnik, who manages $25 million as chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone on Nov. 12. “It prevents people from doing bigger trades in the morning.”
In the first hour of Micex trading, from 10 a.m. to 11 a.m. Moscow time, transactions have dropped by an average 15 percent since Oct. 28, to 4.9 billion shares, according to data compiled by Bloomberg.
The 20 biggest trades by volume in Micex-listed shares of OAO Gazprom, Russia’s state-controlled gas exporter, and OAO Lukoil, the nation’s second-biggest oil producer, occurred after the first hour of trading, data for Nov. 13 show. The two stocks have the highest weighting in the Micex Index, which has slipped 2.1 percent this year. The Micex rose 0.1 percent to 1,373.09 by 4:55 p.m. in Moscow.
Shares in Russia, the world’s largest energy exporter, trade at the lowest valuations among 46 emerging and developed markets monitored by Bloomberg. The Micex Index is valued at 5.3 times estimated earnings, compared with 12 times for the MSCI All-Country World Index (MXWO), the data show.
Medvedev, who made finance a cornerstone of his plan to diversify Russia’s $1.9 trillion economy, said in February 2011 he was ending a 30-year system of switching to winter time to reduce stress associated with the change.
It “really disrupts the human biorhythm, it’s annoying,” Medvedev said in comments broadcast on state television channel Rossia 24 on Feb. 8, 2011. “Not to mention the poor cows and other animals that don’t understand the time switch and don’t understand why the milkmaids come to them at a different time.”
Vladimir Cheverov, director of the milk processing department at the Moscow-based Russian Milk Producers Union, said he supports Medvedev’s decision to cancel the time change.
“For us, any kind of departure from the natural time cycle creates additional difficulties, costs,” Cheverov said. “The cow doesn’t have a watch, she doesn’t change the time.”
Out of Favor
Milk production is expected to advance to 32.1 million tons for the full year, which would be 600,000 tons more than in 2011, Agriculture Minister Nikolai Fedorov said on Sept. 19.
Medvedev’s decision is falling out of favor with the public. Twenty-nine percent of the 1,600 Russians surveyed by the government in September said they had a negative view on the cancellation of winter time, up from 6 percent in February 2011.
The proportion with a positive view fell to 35 percent from 73 percent, according to the poll by the state-run All-Russian Center for the Study of Public Opinion, or VTsIOM, which had a margin of error of plus or minus 3.4 percentage points.
“The rest of the world switches time and the people and cattle there are OK,” Slava Rabinovich, chief executive officer at Diamond Age Capital Advisors in Moscow, which manages $210 million in Russian assets, said by phone on Nov. 13. “The well- being of cows and people isn’t a convincing argument.”
Russia is taking steps to boost the appeal of its markets to international investors. The nation’s stocks will be traded on Euroclear Bank SA’s platform from July 2014, Elena Gusalova, the National Settlement Depository’s director of research and development, said at a conference organized by BCS Financial Group in London on Nov. 13. Euroclear settles more than $730 trillion of transactions a year, according to its website.
The Moscow Exchange will move to settling transactions over two days by the end of 2013, from the current immediate settlement, Sergey Sinkevich, the head of primary markets at the bourse, said on Nov. 13 in London. The country merged its two competing depositories on Nov. 6 to bring settlement procedures into line with international norms.
Trading of Russian companies in London is still more active than in Moscow. The 30-day average value of trades in 10 Russian companies tracked by Bloomberg in London has been higher than the same companies’ Moscow-listed shares since December, with the gap averaging 49 percent during the period. It hit 95 percent on May 28, the widest since the data began in 2007.
While Russian policy makers are improving the nation’s financial markets, the time gap with London amounts to “one step back” for the government’s progress, said Bruce Bower, a partner at Verno Capital in Moscow, which manages about $200 million.
“The volumes are lower,” Bower said. “I would welcome a decision to go back to time-switching.”
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