Yevgenia Obukhova
A Difficult Decision: What private investors will prefer in 2023
Despite all the difficulties of 2022, Russians continue to save and look for tools in which to place savings. As before, the main requirement remains profitability – at least enough to protect the money from inflation.
In the past year, there were practically no “lifesaving assets” for the general public that would allow them to make decent money. Deposit rates, after the powerful spring surge, fell to about 7.5% per annum, lagging far behind the inflation rate (12% per annum at the beginning of December 2022). And although at the beginning of winter banks gradually raised deposit rates, it is unrealistic to expect a noticeable increase in them. It is not surprising that in general for 10 months of 2022, the volume of citizens’ funds on deposits not only did not grow, but even slightly decreased: from 34.93 trillion rubles at the beginning of the year to 33.44 trillion rubles at the beginning of November 2022 (-4.3%). Of course, this is partly the result of the revaluation of foreign currency deposits in connection with the strengthening of the ruble, but still the trend is obvious.
Will deposits be popular in 2023? Experts believe that most likely yes – in the absence of a clear alternative. Real estate is already clearly overheated; the beginning of the decline in prices for it, and the possible termination of preferential mortgage programs, are likely to force citizens to postpone real estate purchases. The stock market cannot yet present new reasons for growth. Deposits are a familiar and reliable tool.
The popularity of ruble deposits among the population is influenced by several factors, explains the Deputy Director of the Higher School of Finance of the Plekhanov Russian University of Economics, Tatyana Bondarenko. These are expectations for the dynamics of the economic situation in the country, which largely determines the predominance of the “savings” model of the population’s behavior, the attractiveness of alternative investment instruments (real estate, currencies, stock/derivatives/debt markets, gold, etc.), and the amount of the rate on ruble deposits relative to the inflation “felt” by the population;
“Thus, the growth of the rate on deposits is not a determining factor in their attractiveness, but in the absence of obvious alternatives, deposits can again become popular with the population – even if the current gap between rates and inflation is maintained,” says Tatyana Bondarenko. According to her, one of the reasons for an acceleration of deposit growth in 2023 may be the curtailment of state programs of preferential mortgages and the subsequent reduction in demand in the real estate market.
Alexander Abramov, Head of the Laboratory for Analysis of Institutes and Financial Markets of the Institute for Applied Economic Research, RANEPA, agrees with this. According to him, the main tool for individuals will remain bank deposits and cash in rubles and foreign currency – the main haven that allows saving money.
As for the stock market, from the autumn of 2021 (when it was at historical highs) to the autumn of 2022, the share prices of Russian companies fell by half, and there are no new reasons for growth yet. Meanwhile, it is profitability that is the main factor that attracts investors to the stock market – an incentive to abandon a reliable deposit in favor of riskier securities. It is logical to assume that there will be no noticeable inflow into Russian stocks until they show new growth – but there are objective reasons pointing to this.
If you look at the Russian stock market from a fundamental point of view, leaving aside geopolitics, you can see many attractive factors that indicate its good prospects, notes the “Strategy” of ATON for 2023. Current revenues and long-term prospects of most Russian public companies so far look stable, while market multipliers are 50–80% lower than the average values for the previous 5 years (2017–2021). And it is likely that positive forecasts of financial results for 2022 and 2023 will allow many companies to resume paying dividends at that time. According to ATON, in its isolation from the international capital market, the Russian stock market is becoming more and more similar to the domestic Chinese stock market, which effectively performs the function of attracting and distributing capital but at the same time is less correlated with movements in international markets.
However, some experts believe that in 2023, Russian private investors will treat the stock market with caution. “Currently, the national stock and debt markets are under pressure from the developing global energy and geopolitical crises,” says Tatyana Bondarenko. “Against this background, there is a flow of capital from more risky to defensive assets. Either the growth of profitability with the preservation of the level of risks, or the expectation of a change in the global trend with the subsequent growth of macroeconomic indicators, can make the market attractive again. Also, market liberalization for the arrival of external capital, for example by attracting investors from friendly countries, can also change the situation and give an impetus to growth.”
Alexander Abramov believes that the popularity of the Russian stock market is unlikely to grow – since it is difficult to imagine ideas for growth. “The only support for the Russian stock market remains the dividend story, but its development is not expected as global demand for oil and gas cools,” says the head of the laboratory for the analysis of institutions and financial markets of the Institute for Applied Economic Research.
“Our market does not have an incendiary long-term growth idea. There are no new companies on the stock exchange. There is another consideration: sooner or later Russian companies will return to the world market, and this return is likely to be associated with the restructuring of their business. And when reorganizing by transferring assets to another legal entity, minority shareholders very often suffer. So far I see that our stock market has not recovered after the fall, but has reached a plateau – we are again implementing the theory of ‘black turkeys’ (as opposed to the black swan), proposed by Lawrence Siegel and Paul Kaplan.”
However, against this background, the debt market – on which the rates significantly exceed the deposit ones – looks quite interesting. At the end of November, the Ministry of Finance placed new OFZ bonds at 10% per annum; high-quality corporate securities are traded at 8–9% per annum, but you can find a higher yield. “We can expect the activity of private investors in the bond market, where the Ministry of Finance has big plans and where the volume of corporate bonds is growing. So the debt market can be an escape,” says Alexander Abramov.
An interesting and difficult situation has developed in the real estate market. On the one hand, it is becoming cheaper, being clearly overvalued relative to the incomes of citizens. On the other hand, in the mass consciousness real estate is one of the most reliable assets that allow you to save money. According to the NAFI Analytical Center, the purchase of real estate over the past five years tops the rating of the most reliable ways to invest money: in various years, between 33% and 49% of respondents considered this investment tool reliable. Real estate is followed in the perceptions of its reliability by the opening of an account/deposit in a state bank (20% to 26%) and the purchase of gold (21% to 25%).
Real estate was most highly rated as a reliable (49%) and profitable (45%) investment tool in 2017. A significant decline in its investment attractiveness came in March 2022 (when the purchase of real estate was considered a reliable investment by 33% of Russians, and profitable by 36%), but by September the assessments of Russians had returned to the usually high indicators. Now 42% of Russians call the purchase of real estate a reliable investment, and exactly the same number – profitable.
Most likely, in 2023, the share of “investment” real estate transactions will significantly decrease due to the curtailment of state programs of preferential mortgages, Tatyana Bondarenko believes. Alexander Abramov agrees that much will depend on preferential mortgages. “But with so much housing under construction, when you can see how much of it in new buildings is empty, it is premature to consider real estate as an investment, in my opinion,” he emphasizes.
In conclusion, a few words about an asset which received sudden popularity in 2022 – gold. Gold prices are declining after the spring peak, and it is unlikely that investors who bought bullion in the spring are now satisfied with their investment. So here too – until there is a transition to clear growth, it is not worth giving it a serious inflow of private investors’ funds. Tatyana Bondarenko believes that a large flow of capital into gold is unlikely to occur due to the persistence of the high risks and restrictions of this instrument. And Alexander Abramov adds that gold is a panic asset, which is run to when there is a risk that all other assets will disappear. By now, everyone who wanted to invest in gold has already done so.
