Page 90 - bne IntelliNews Russia OUTLOOK 2025

market in their droves, looking for better returns and returning to Russia’s traditional store of wealth: long-term banking deposits.
In the last few years before the invasion of Ukraine, Russia’s equity markets went through a revolution as retail investors closed their long-term bank deposit accounts and flooded into the equity market for the first time.
Russia’s economy was firing on all cylinders and CBR Governor Elvira Nabiullina had been cutting rates continuously as inflation fell. The CBR has a long-term goal of bringing inflation down to 4%, but things were going so well that in 2021 she began to talk about inflation dropping to 3% as soon as 2022. Since the war started inflation has soared to peak at 9% in August and the prime interest rate has been hiked to 21%, with another hike to at least 22% expected before the end of the year. But that makes the real return on bank deposits very lucrative indeed. The CBR has been complaining that it is now more profitable for companies to simply deposit their free cash in a bank than to invest it and try to grow their businesses. Retail investors have woken up to the same logic and bank deposits have jumped by half this year.
Russians are inflation-averse and have always looked for ways to protect their nest eggs from the ravages of rising prices. With inflation in double digits for most of the time since the fall of Soviet Union their preferred store of wealth is in high yielding bank accounts.
That changed in 2007, when inflation fell to single digits, but equity investments didn't really take off until about 2020. As Nabiullina’s easing policy continued in the years before the war, the real spread retail investors were making on long deposits fell to almost nothing. Casting around for a better return on their life savings, retail investors started piling into the equity market. The job was made easier as the rapidly maturing digital banks began to roll out online brokerage services and investment accounts as part of their banking apps.
Despite the war and the departure of foreign investors, who used to own half the market, Russian retail investors got back into the market, driving the ruble-denominated MOEX index up to over 3,500. But now they are leaving again.
The decline of the Russian stock market is due to the flow of capital into more profitable conservative instruments, dividend gaps and investor concerns about the level of debt burden of issuers, RBC reports, citing the CBR’s First Deputy Chairman Vladimir Chistyukhin.
As reported by bne IntelliNews, the Russian economy is cooling as the military Keynesian effects of heavy spending on defence start to wear
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