Page 10 - bneMag February 2021_20210202

10 I Companies & Markets bne February 2021
Russian retail investors piling into the stock market for the first time, but CBR worried about rising risks
Ben Aris in Berlin
Russian retail investors are finally investing in stocks as they look for better returns following the steady fall of interest rates at banks in recent years. But the CBR is worried that risks for the financial sector are rising as a result.
With inflation in double digits for much of the time following the collapse of the Soviet Union in 1991 Russians have always been on the hunt for ways to protect the value of their savings. The default option has been to keep their savings in bank deposits that pay high interest rates.
However, following a long run of sustained interest rate cuts by the Central Bank of Russia (CBR) to the point where the overnight prime rate is now almost “normal” – the CBR cut rates to 4.25% at its last meeting in October – bank deposits no longer pay an attractive return for most Russians, who have begun to cast about for other investments.
Retail investments into stocks have been accelerating every month in 2020, reports the CBR, as cited by The Bell. The third quarter of 2020 set a new record number of brokerage companies’ clients, up by more than a quarter, or 1.6mn new clients, to a total of 7.6mn compared to the quarter before. Over the year the number of new clients with brokerage firms has already more than doubled.
The number of individual investment accounts (IIA) for the year from September 2019 to September 2020 increased two and a half times and reached 2.9mn, and 525,000 of them were opened in the third quarter, reports the CBR.
In October 2020, the Moscow Exchange recorded new historical records in the stock market:
MOEX has also reported record numbers of new clients this year, with adding 736,000 year to date as of October as well as record volumes of transactions, with more than 1.2mn customers making at least one transaction with shares.
The exchange is trying to keep up with demand from these retail investors and in August launched the possibility to buy
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Russian retail investors are looking for alternative investments since bank deposit interest rates have fallen.
foreign listed companies via the MOEX exchange, which has been possible since Russia was hooked up to international settlements and payment system Clearstream in 2012. By the beginning of November the daily turnover in trading foreign- listed stocks was up to RUB1.5bn ($20mn). Private investors now account for 43% of the volume of all trading on the stock market, up from 34% in 2019, and 45.8% of trading
in foreign shares.
The authorities have long tried to encourage the average Russian to invest in order to create a new source of capital, but each attempt in the past has been met with disaster.
In 1996 then-president Boris Yeltsin launched the so-called PIFs (mutual investment funds) and several international companies like Franklin Templeton moved in hoping to reap profits from an investment bonanza; except within 18 months the market crashed in the 1998 crisis.
Another attempt was made to rope retail investors into the stock market with the IPO of VTB Bank, dubbed “the People’s IPO”, in May 2007. The bank raised over $8bn in an offer priced at 13.6 kopecks ($0.005), which over 100,000
retail investors bought; except again within 18 months the markets crashed again, leaving the retail investors holding shares worth half their purchase value. Today the shares
Russian retail investors flock to the market
Number of individuals with a brokerage acount on the Moscow Exchange (m)