Page 46 - bne_Magazine_April_2018

46 I Eastern Europe bne April 2018
Bonds are back
Bonds are also doing well as yield-hun- gry investors search the world for decent returns. The Russian treasury bonds, or OFZs, have been especially popular with international investors. Russia has a winning combination of low and falling inflation and interest rates, a recover- ing economy and pots of cash in reserve making a default almost impossible.
There have been fears that as part of the new US sanctions regime on Russia these bonds would be put out of bounds for US investors, but the January 29 deadline came and went without any change.
button from the comfort of their trading desk in London or New York.
The result of the exchange merger was MOEX, which has followed through by investing heavily in IT and continuously developing new products and platforms.
“MOEX is unique globally in terms of the breadth of the asset classes that trade
on the exchange. We’re the platform of choice not just for Russian stocks and derivatives. But for bonds. And for cur- rency trading. Combined with the central counterparty and the depositary, we have a very powerful offering,” says Lapin.
not just banks and brokers, but large corporates as well can trade directly on our FX Market.”
Retail rush
But maybe the most exciting and signifi- cant change has been the rush of retail investors to open individual accounts and they are starting to play the market.
The Russian authorities have been trying to harness the massive domestic savings ever since former president Boris Yeltsin singed off on the legal basis for Russian mutual funds, the so-called PIFs, in 1997. Russians have hundreds of millions of dollars stashed in the large glass pickling jars under their beds (called “banka” in Russia), which is out of circulation. However, the authorities' timing for its various drives have been ill-stared. Yeltsin’s PIFs appeared a year before the financial system went into meltdown on August 17, 1998. Another attempt with the “people’s IPO” of state bank VTB in 2007 also went badly wrong after the market crashed within a year leaving the stock’s price underwater ever since.
For most Russians looking for a way to protect their nest egg against the ravages of high inflation the default option has been to deposit their cash (preferably
in dollars) in a bank account. Equity
and mutual fund investments maintain
a single digit share of overall retail investments.
But that is changing now. With infla- tion now down to 2.2% as of the start of February and the central bank monetary policy rate falling fast – the Central Bank of Russia (CBR) cut rates again in Febru- ary to 7.5% – retail investors have started to actively look for alternative invest- ments that pay a bit more. Moreover, the government has been encouraging this switch with new “investment accounts” that come with significant tax breaks.
“In 2017 we opened 230,000 individual accounts, bringing the total to 350,000,” says Lapin, “There is still a long way
to go to unleash the full potential of Russian savings, but the appearance of long-term retail investors is a big step in the right direction.”
“The goal of Russia’s economic managers was not to ensure stability but to bring predictability to the markets”
More financial sanctions could still be imposed, but the United States Secretary of the Treasury Steven Mnuchin said on February 11 that the bonds will not be targeted. Many western investment banks have since marked their recommenda- tions on these bonds back up to Buy.
“We’re big believers in the Russian fixed income market. Russia has a strong debt culture. One of the trends we’re seeing is corporate bond issuance replacing bank borrowing. And thanks to the market infrastructure reforms, there is an expand- ed pool of buyers both on the domestic and the international side,” says Lapin.
Part of the reason for the rise in foreign investment in Russian fixed income instruments is that it has become so much easier to do. The Russian capi- tal market was totally transformed in 2012 when the two main exchanges
– the RTS and its sister exchange, the ruble denominated Moscow Interbank Currency Exchange (MICEX) – were merged, a central depository was finally set up after a decade of debate and
the capital market was plugged into international settlement and clearing systems Clearstream and Euroclear. Now a trader can buy and sell Russian stocks and bonds with the proverbial click of a
www.bne.eu
At the recent Gaidar Economic Forum in Moscow in January all three of CBR gov- ernor Elvira Nabiullina, Russian Finance Minister Anton Siluanov and Minister
of Economy Maxim Oreshkin sang from the same song sheet: the goal of Russia’s economic managers was not to ensure stability but to bring predictability to the markets.
A good example of this change is FX trading which is one of MOEX’s biggest business lines along with the stocks and bonds. The ruble remains volatile as it is still tied to the battered price of oil and
as the current account surplus shrinks the value of the national currency has also become more sensitive to ebb and flow
of flight capital because of the reduced size of the current account surplus.
MOEX has dealt with the problem by investing into its derivative trading plat- form and products so clients can hedge against excessive swings. More recently the exchange has offered big companies the possibility of taking on currency trading themselves to better manage their FX risk.
“In Russia, currencies are largely traded on-exchange,” says Lapin. “And last year we introduced a new program whereby