Russian stocks slid the most in five yearsin the U.S. as concern mounted that plunging oil prices and aweakening currency will further harm an economy already forecastto fall into a recession next year.

The Bloomberg Russia-US Equity Index dropped 11 percent inits eighth day of declines in New York yesterday, posting itslongest losing streak since October 2008. Oil producer OAOSurgutneftegas (SGTPY:US) sank the most on the gauge, losing 22 percent.Crude fell to a five-year low as the United Arab Emirates saidOPEC won’t rein in production. Russia’s central bank raised itsbenchmark interest rate to 17 percent from 10.5 percent afterthe close of stock trading as the ruble slid below 64 per dollarfor the first time.

“We are probably already in a recession,” Oleg Popov, whohelps oversee $1 billion at Allianz Investments in Moscow, saidby phone. “As the currency’s collapse fuels inflation,undermines purchasing power and further slows the economy, allsectors of the stock market are getting sold off as if there isno tomorrow. The market is paralyzed with fear and is pricing inan unthinkable degree of risk.”

One-month ruble forwards rose 3.8 percent after tradingclosed in New York, reversing a decline, as Russia’s policymakers increased borrowing costs at an unscheduled meeting tolimit the currency’s drop and inflation risks, according to astatement on the monetary authority’s website.

Surgut, Lukoil

Russia’s $2 trillion economy has been deteriorating underpenalties imposed by the U.S. and its allies to punish PresidentVladimir Putin for supporting a rebellion in eastern Ukraine, aclaim he denies. Gross domestic product has been further crimpedas the collapse in oil drove declines in the ruble, which fellto a record 64.4455 per dollar yesterday. The currency plungeand a ban on some food imports in response to the sanctionspushed inflation to 9.1 percent in November, the fastest in morethan three years.

Surgut dropped to $4.33 yesterday, the lowest since October2011. Oil producer OAO Lukoil (LUKOY:US) slid 12 percent to $34.35 ontrading volume that was more than five times the daily averageof the past three months. The Market Vectors Russia ETF (RSX:US), thebiggest exchange-traded fund tracking the country’s stocks, sank12 percent to $13.93, the lowest level since March 2009, beforeclimbing 2 percent after the rate announcement.

Chris Weafer, a senior partner at Moscow-based consultingfirm Macro Advisory, said a currency intervention on the scaleof the $11 billion the central bank spent to prevent a possiblecollapse after Russia annexed Crimea in March is warranted.

Stock Valuations

“The danger is that further ruble weakness may underminethe economy to a greater extent than is justified by otherwisesound financials,” Weafer, who was rated by a EuromoneyInstitutional Investor Plc poll as Russia’s best equitystrategist in 2013, said by e-mail yesterday before the centralbank raised the benchmark rate. “Equities are stillspeculative, but the current valuation is well below anyjustification based on even a depressed earnings outlook.”

Stocks on Russia’s Micex Index (INDEXCF) sell for 4.5 times projected12-month earnings, the cheapest in emerging markets. The gaugehas dropped 5.3 percent this year while the dollar-denominatedRTS Index (RTSI$) of the country’s stocks tumbled 50 percent in theworst performance among 93 equity benchmarks tracked byBloomberg.

The U.S. Congress on Dec. 12 voted to impose toughersanctions that authorize, while not requiring, the country toprovide lethal assistance to Ukraine’s military as well assweeping measures on Russia’s energy sector.

Looming Recession

Russia, which gets about half of its budget revenue fromoil and gas taxes, may see its economy shrink as much as 4.7percent in 2015, the Bank of Russia said in a report yesterday.Inflation may quicken to 10.1 percent from a year earlier thismonth and reach 11.5 percent next quarter, according to thereport.

Futures contracts on the dollar-denominated RTS indexexpiring in March fell 6.1 percent to 66,970 in U.S. hours. TheRussian Volatility Index, which measures anticipated swings inthe stock futures, increased 14 percent to 78.30.

“It’s panic selling,” Anvar Gilyazitdinov, who manages$10 million at Rye, Man & Gor in Moscow, said by phone. “Thatmeans it may be a good time to buy for a long-term investor, whoexpects a rebound in oil prices and believes the market turmoilwill encourage authorities to find a solution to the Ukrainecrisis.”

Gilyazitdinov says he is considering buying Lukoil and OAONovatek, as well as Russian steel producers andtelecommunications companies.

To contact the reporter on this story:Halia Pavliva in New York at [email protected]

To contact the editors responsible for this story:Nikolaj Gammeltoft at [email protected]hard Richtmyer, Marie-France Han