Ksenia Galouchko, Jeff Kearns and Leon Lazaroff

Options traders are paying the most for protection against declines in Russian stocks since July 2010 compared with European and Asian equities, concerned anti- government protests will cut demand for the nation’s assets.

Implied volatility, the key gauge of options prices, for six-month contracts on the Market Vectors Russia Exchange Traded Fund (RSX) is 36 percent higher than that for the iShares MSCI EAFE Index ETF, which tracks U.K., German and Japanese stocks, data compiled by Bloomberg show. The gap touched a 18-month high of 43 percent on Jan. 4 and is trading above the average premium of 24 percent over the past year, the data show.

The Bloomberg Russia-U.S. 14 index of Russian companies traded in New York slid 10 percent in December, the most in three months, as demonstrators took to the streets protesting the results of elections which saw Prime Minister Vladimir Putin’s United Russia party retain its majority in parliament. Futures (VEA) expiring in March on Moscow’s dollar-denominated RTS index dropped 0.1 percent to 141,835 in U.S. trading yesterday.

“People are really worried that something bad is going to happen in Russia,” Hawk Sunshine, who manages $300 million, including options, at IFC Metropol in Moscow, said by phone yesterday. “In times of increased market stress, investors pull out of risky assets and go to more conservative assets and the Russian market is considered a risky asset.”

The Russia ETF trades on the NYSE Arca exchange and tracks the U.S.-listed shares of 48 Russian companies. OAO Gazprom (OGZPY), the world’s biggest natural-gas exporter, is the fund’s largest holding, accounting for 9.4 percent of its market weight. OAO Lukoil (LUKOY), Russia’s second-largest oil producer, is the second- biggest, followed by OAO Sberbank (SBER), Russia’s largest lender.
Ballot Box Fraud

American depositary receipts of Moscow-based Gazprom (GAZP) added 0.8 percent yesterday in New York to $11.09, Lukoil ADRs advanced 1.4 percent to $55.05, and Sberbank (SBRCY)’s led gainers on the Bloomberg Russia-U.S. 14 index, jumping 3 percent to $10.62. The index climbed 1.1 percent to 93.90 while the Russia ETF rose 0.9 percent to $27.33.

At least 30,000 people rallied in Moscow on Dec. 24 amid allegations that the Dec. 4 parliamentary poll was tainted by ballot box fraud. Alexei Kudrin, finance minister until September when he was fired for opposing increased military spending, said on Jan. 6 that opposition leaders should pressure the government into holding a fresh election, according to the website of the Echo Moskvy radio station.

Putin, who stepped down as president in 2008 because of a constitutional limit on serving more than two consecutive terms, will stand for a third stint in a March vote that he has pledged will be fair.
Contested Elections

The fact that the Duma elections “were contested” is behind the widening of the Russia ETF premium to the EAFE fund, Etai Friedman, head of equity derivatives trading at brokerage Mkm Partners LP, said yesterday from Moscow. “I don’t think the possibility of Putin’s government going down is being priced in.”

The RTS Volatility Index (RTSVX), which measures expected swings in the index futures, gained for a second day, adding 2.6 percent to 41.86, the highest level since Dec. 22.

Six-month options on the Russia ETF with a strike price nearest the underlying share level have an implied volatility of 40.81, according to data compiled by Bloomberg. That compares with a level of 28.08 for the EAFE fund, the data show.

United Co. Rusal (486), the world’s largest aluminum producer, rose 0.4 percent to HK$4.68 in Hong Kong trading as of 11:21 a.m. local time. The MSCI Asia Pacific Index gained 1 percent today before a meeting in Berlin between German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde that will focus on Greece.
Stake Purchase

VimpelCom Ltd. (VIP), Russia’s second-biggest mobile-phone operator, rose to a one-month high in U.S. trading after the Amsterdam-based company said it may sell a stake in an Algerian joint venture. Algeria’s Finance Ministry agreed to buy a 51 percent stake in mobile telephone operator Orascom Telecom Algeria, Zoheir Meziane, an adviser to the Post and Telecommunication Minister, said on Jan. 8.

“Any resolution to the Algerian dispute between Orascom Telecom and the government is positive and should be supportive for the stock,” Tom Furda, director of Russian equity sales at Auerbach Grayson & Co.’s Moscow-based brokerage partner UralSib Financial Corp., said by phone in New York.

VimpelCom climbed 1.9 percent to $10.11, the highest level since Dec. 9. Terms of the transaction weren’t disclosed.
Oil Prices

Oil, Russia’s biggest export earner, dropped for a third day as German industrial output declined, and as concern eased that Iran will block crude shipments from the Persian Gulf.

Crude for February settlement declined 0.2 percent to $101.31 a barrel on the New York Mercantile Exchange. The futures rose 0.3 percent in electronic trading today.

Brent oil for February settlement lost 0.5 percent to $112.45 on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, dropped 0.8 percent to $110.39.

The RTS index in Moscow fell 0.1 percent to 1,428.96 yesterday and the 30-stock, ruble-denominated Micex (INDEXCF) index gained 0.5 percent to 1,448.36, the highest level since Dec. 8.

The EAFE fund tracks 933 companies with 61 percent of its market value concentrated stocks from the U.K, Japan, Australia, Switzerland, France and Germany, according to the iShares website. The three largest holdings are Nestle SA, Vodafone Group Plc and BP Plc.

http://www.bloomberg.com/news/2012-01-10/hedging-at-18-month-high-to-europe-on-protests-russia-overnight.html