Director of Equity Financing, FINAM Investment Company, Moscow
Photo by: NTV
One of the most interesting sessions of the recent Third Annual Russian IPO Congress was focused on the recent profound changes in the equity investment scene in Russia. Indeed, as Alexander Oslon, President of the Public Opinion Foundation, noted: last year was a turning point in the history of Russia. 2006 will go down in Russia's economic history as the year we witnessed the birth of consumer equity investing in the Russian Federation.
A list of Russian stocks (Source: Bill Cara.com)
Many Russians have realized that investments in equities can be much more profitable than the bank deposits. The new Russian investor class is emerging at a very rapid pace. This due to the following reasons:
A. New challenges:
- The ongoing devaluation of U.S. dollar (which was for a long time, the major vehicle for cash savings in Russia)
- High real-estate prices -- for many Russians who already have adequate housing, the stock market looks like a better value than a new apartment in Moscow
- Low deposit interest rates at the banks
- Price and tariff hikes
- Limitations on the development of small businesses
B. Incentives for equity investing:
- Growth in real incomes
- Some history of equity ownership (Gazprom in the past, Rosneft shareholders in recent
months made profits significantly higher than the banking interest rate)
- The stability of the Putin Administration and the general belief among the Russian people that the process of succession in 2008 will be a stable one.
- The general popularity of equity investments
Graph illustrating results from a recent survey of Russian investors
Source: Public Opinion Foundation
Russia's six million consumer investors can be divided into four groups:
- Bears -- 6.2% - these are people who are are striving to sell their equity holdings, to have high profitability at low level of security.
- Rentiers -- 68.2% - want a stable, relatively high income at a high level of security.
- Bears/Strategists -- 11.9% - long-term buyers interested in increasing market value.
- Rentiers/Strategists -- 13.7% - prefer high dividends at a relatively low level of security.
Thus, the Public Opinion Foundation concludes that equity investing is now the most viable and secure way of preserving of small household capital in Russia.
Another presentation at the Third Annual IPO Congress was made by the Salvador D company. Their presentation studied the recent Russian phenomenon of the so-called "people's IPOs". Salvador D's analysts stated that the "people's IPOs" are in essence another round in the government's ongoing privatization campaign. In this political economy oriented view, the government creates:
- A new, broader strata of stakeholders in Russia's leading industries.
- A new anti-inflation factor.
- Another tool to secure the political support of Russia's emerging middle class.
An interesting definition of Sberbank's recent "people's IPO" was pronounced -- it was dismissed as the "redistribution of [asset] ownership among the narrow group of wealthy". In my opinion, this statement is mostly accurate.
You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and do not necessarily reflect the views of the FINAM Investment Company. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.