A senior figure at investment bank BCS Global Markets argues that Russian retail investment is likely to produce an upsurge in Russia’s stock market because of the total volume of retail deposits in Russian banks, recent interest rate cuts, low taxation, and competent advice from banks and companies.
Russia’s stock market is already experiencing an increase in activity by Russian retail investors.
The proportion of retail transactions in the total equity trading volume swelled to 40 from 34 per cent during the first five months of 2020. These deals were worth a total of 7.9 trillion roubles (about $110bn), a year-on-year increase of 150 per cent, Luis Saenz, co-head of global equities at BCS Global Markets, told EmergingMarkets.me, citing Moscow Exchange.
Citing Russia’s central bank, Saenz said that, as of June 1, retail bank clients held 31.41 trillion roubles ($448bn)indeposits.
Even if 15 per cent of this amount ($67.2bn) made its way into Russian equities, it would account for 35 per cent of what is the current free float according to MSCI Russia,$193bn, and would lead to re-rating Russian equities, Saenz said.
There is a combination of potential stimuli to large-scale retail investment, according to Saenz.
One of them are recent interest rate cuts.
In June, the central bank slashed its key rate to a five-year low of 4.5 per cent. For comparison’s sake, the regulator’s rate for July 2015 stood at 11.5 per cent.
Sberbank, which accumulates the lion’s share of the country’s deposits, last week cut its deposit rate to 3.6 per cent, which is 90 basis points below the central bank rate.
The risk-free rate in Russia has dropped to 6.38 per cent from 8.28 per cent in mid-March as suggested OFZ government bonds maturing in 2039, Saenz said.
Moreover, banks such as Sberbank, VTB or TCS educate their retail deposit holders on stock investing “in a more systematic, client-friendly way”, while investor relations units at corporates “are making a real effort in educating local retail on why to invest in their stock”, he said.
BCS Global Markets believes that Sberbank, oil companies Novatek, Rosneft, Tatneft and Lukoil, and gas giant Gazprom would be “great starting points” for retail investment, Saenz said.
These six companies are among the firms listed as Russia’s top 10 brands by London-based branded business valuation consultancy Brand Finance.
BCS Global Markets, which has offices in Moscow, London, New York and Limassol, Cyprus, is a division of Russia’s BCS Financial Group.
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