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bne October 2021 Cover story I 35
In just the last two years Russia's retail investors have been piling into stocks as bank account interest rate returns fall to next to nothing.
SPB Exchange driving Russia's retail equity investment revolution
to post-Soviet record lows. The CBR hiked rates to 17% in 2014 during an oil price shock that caused a deep devaluation in the ruble, but since then it has cut rates several times, bringing them down to 4.25% at
the start of this year. Inflation also fell to record lows of 2.3% in 2019, before starting to rise again more recently, but that meant the real
rate of returns on bank deposits
fell from whole percentage points into mere tens of basis points and Russian savers began to look around for almost the first time for a better investment that paid a bigger return.
The SPB Exchange has been around for more than a decade, but it has really only come into its own in the last 18 months and only just begun to earn a profit as the traded volumes took off.
Last year the total volume of traded international shares on SPB Exchange was $167bn vs MOEX's reported RUB86bn ($1.17bn), according to MOEX Annual Report. In this July alone there were $31.38bn foreign stocks and depositary receipts traded on SPB Exchange against $27.25bn
of stocks, depositary receipts and investment funds traded on MOEX.
The coronavirus (COVID-19) pandemic has been a catalyst to growth of the business but also did not lead to a sell-off during the worst of last year’s crisis in April.
Trading volumes continued to rise
this year even as daily life returned to normal post-COVID in Russia. Total trading volume reached approximately $206bn in 1H21, an increase of 356% from approximately $45bn in the
six months ending June 30, 2020.
Almost all of the turnover on SPB Exchange is in foreign listed stocks and as a result it works long hours
to overlap with the international markets: trading is possible 19 hours a day from 7:00am in the morning
to 1:45 am at night Moscow time. Between 7am and 2:30pm, when the US markets are closed, the trading on the exchange relies on its own pool of
Ben Aris in Berlin
Russia is going through a
retail investment revolution. Plunging interest rates at bank deposits – long the favoured store of wealth for the average person – have led to a boom in Russians investing into equities. And tired of seeing their savings regularly hammered by the volatile ruble, investing in foreign stocks, denominated in dollars, has ballooned in the last two years.
All this is possible thanks to a confluence of factors. Russia’s leading banks have begun to focus on retail investments, made easy by the burgeoning fintech explosion where Russia is a world trendsetter. The financial market reforms a decade ago mean Russia’s capital markets are hooked seamlessly into the international capital markets. And most importantly, the St Petersburg- based SPB Exchange has built a
unique system that allows punters to register an account in a minute and
immediately buy and sell US, and other international stock, even when those markets are closed for trading.
Trading on SBP Exchange has ballooned in the last two years and equity daily trade volumes are now bigger than those on the better-known rival the Moscow Exchange (MOEX), which
also since last summer has offered retail investors access to internationally listed stocks. There are many differences between the two exchanges, but the key one is that investors can buy these stocks on SPB Exchange using dollars, but MOEX only accepts rubles, adding another layer of FX risk to investments.
Volumes balloon
The explosion of investments into equities in general, not just foreign listed shares, has been brought about by nearly seven years of consecutive rate cuts by the Central Bank of Russia (CBR) that have brought interest rates down
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