Page 71 - IFR Opportunities in Russian capital markets

CHAPTER03
ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 3.22: Tax payment calender, 2007 (continued)
Month Date Specific tax paid
December 25 Unified production tax 28 Profit tax
Source: Garant, Russian treasury, Alfa Bank research
Foreign investment in Russian funds
Amount due, RUB bn
90 190
For the first five years of the Russian stock market's life, foreign portfolio investors were by far the largest investors. However, following the 1998 financial crisis, Russian investors have played an increasingly important role and today hold about half of the free float of traded shares.
This means that Russia remains vulnerable to external shocks and as the Russian market grows in size it is moving ever more in step with other GEMs (see ‘The links between GEMs’ below).
A sell-off in one market will cause traders to take profits in other markets to cover losses and so a rout on the Shanghai exchange will cause a sell-off in Moscow.
The nature of international portfolio investors has changed in the last three years and, following the hype about emerging markets, several BRIC funds started marketing to retail investors, hoping to catch the wave of rising asset valuations bringing in significant amounts of fresh capital. 2005 was a record year for allocation of new money, with US$20.3bn flowing into GEMs, and between January and May 2006 more than US$30bn came in. Whereas US retail investors typically had 10% of their money invested abroad in 2004, this jumped to 70% by the end of 2005, with a significant proportion going to GEM funds.
However, retail investors are quick to withdraw their investments and as the global equity markets sold off hard in May 2006, over the next three months investors pulled out US$16.9bn from GEM funds.
Money slowly returned after the first scare passed and GEMs reported a net inflow of US$18bn by the end of 2006; however, the bulk of this net flow is going to China and China regional funds, which so far have taken in US$7.5bn of new money in 2006 according to Emerging Portfolio Fund Research.
The rebalancing of the important MSCI index (see section above on index weightings) and especially the inclusion of Gazprom in the index, brought in more new money as traders adjusted their portfolios to reflect Russia's increased importance in the index. However, Aton Capital estimates this rebalancing could be worth as little as US$1–2bn, which is "an important contribu- tion, but hardly a major market driving force for the trillion dollar Russian equity market."
While this episode shows that Russia's equity market is now more prominent on international investors' radars, it has yet to cause the kind of enthusiasm that China's equity market enjoyed in 2006 (see Table 3.23).
Table 3.23: Inflows to Russia, GEM and BRIC funds, 2006 – Feb 2007 (US$m)
Month Russia & CIS China* India Brazil Russia % of BRICC** GEM BRICC
*China includes both China and Greater China fund categories
**Russia as a % of Russia, China, India and Brazil country specific funds Source: Emerging Portfolio Fund Research
Full year 2006 Last month Dec 6
Dec 13
Dec 20 Dec 27 Dec 31 Jan 10 Jan 17 Jan 2007 Feb 2007
1,628.1 15,514.2
38.7 470.5 64.0 508.4 –1.7 724.7
6.5 438.9
2.9 663.2 –26.2 693.5 –13.5 60.6
22.3 1,641.8 36.5 –627.7
2,708.3 2,053.4 7.4
–59.0 0.0 8.6 –121.9 10.6 13.9 10.5 24.7 –0.2 –4.5 5.8 1.5 24.7 0.0 0.4 28.3 24.8 –3.6 –78.4 –43.1 – 56.9 34.7 1.3 20.8 69.2 –
4,469.6 7,925.1
–843.7 24.2 672.2 12.8 –23.1 91.6
–423.1 68.0 468.7 371.9 584.9 97.0 –81.0 –29.5 821.7 195.3 331.8 1.0
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