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bne March 2021 Companies & Markets I 15
Russian retail investors put $8.6bn into foreign stocks, bonds in 2020
Ben Aris in Berlin
Russian retail investment into stocks and bonds has finally taken off after decades of effort by the financial authorities. In 2020 retail investors put RUB638bn ($8.6bn) into foreign stocks and bonds, according to the Central Bank of Russia (CBR), Tass reported on February 16.
Russians have been moving money out of their long preferred store of wealth – high interest deposit accounts with domestic banks – after a series of interest rate cuts have reduced the returns to insignificant amounts, and have been looking for investments with a bigger return.
The CBR kept interest rates on hold at 4.25% at its first policy meeting this year last week, and CBR Governor Elvira Nabiullina made it clear there would be no more cuts in the near future. But the margin that banks add to term deposits remains small, and with inflation running at over 5% at the moment a deposit at a bank barely makes any return for the depositors.
At the same time, ongoing reforms at the Moscow Exchange (MOEX) has made it easier than ever for Russians to invest in stocks and bonds listed on foreign exchanges, via the
local exchange. MOEX reports that it has over a million retail investors that have completed at least one trade last year.
Local money becoming a major market force
Russian retail investors have become a force on the local market that is providing some stability to the market due to the depth of the pool of local money. Retail investors now account for some 40% of the turnover on the exchange, according to some estimates, and tend to buy into the dips sooner than foreign investors, who have typically made up half of the holdings in the past.
The CBR said despite the growing interest of citizens in foreign securities, investments in securities of Russian issuers still account for 85% of the population's investments as of January 1, 2021.
The Moscow Exchange recently published retail investor statistics for January, who bought RUB28.5bn ($380mn) worth of Russian stocks.
Russian retail investment into stocks and bonds has finally taken off after decades of effort by the financial authorities. In 2020 retail investors put RUB638bn ($8.6bn) into foreign stocks and bonds.
Most of the inflows materialised in the last week of January (RUB44.5bn), while early in the month retail investors were net sellers. The inflows seem to be a reaction to the late- January market correction.
“As we have argued in previous notes, individual investors act as a cushion for the market in times of downward pressure. In the meantime, they are still holding on to a significant amount of the cash received in November, when they sold RUB115bn worth of stock to non-residents,” Sberbank said in a note. “Flows into mutual funds stayed positive at RUB28bn, of which we estimate a third went into the stock market.”
“Individual investors act as a cushion for the market in times of downward pressure and they are still holding on to a significant amount of the cash”
The number of brokerage accounts continues to grow fast and has reached 9.5mn, of which 1.5mn are active, i.e. with at least one trade carried out per month.
“Data on individual stocks in the portfolio of retail investors shows that retail money goes primarily into underperform- ing stocks. For instance, the weight of Sberbank in the top 10 stocks held by retail investors jumped from 10.5% to 14.2%, while Yandex appeared in the top 10 with a 7.3% weight. In the meantime, the weight of Gazprom and Lukoil, which have out- performed nicely, fell by 4 pp and 2 pp respectively. Essentially, retail investor flows mirror the moves of institutional inves- tors, who reduced positions in domestic stocks amid increased political uncertainty while favouring "reflation trade" stocks in the commodity universe,” Sberbank said.
Retail investors sending more money abroad
The $8.6bn invested in foreign assets in 2020 is twice the amount of money withdrawn from foreign currency accounts at Russian banks last year. That means Russians are investing
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