The russian securities market is experiencing hard times

Russian economist Igor Nikolayev is the thinking leader, whose opinion matters. Chief research fellow at the Institute of Economics with the Russian Academy of Sciences spoke in an interview with CAPITAL IDEAS about the Russian Federation securities market

 

Recently, a new expression almost became a meme: ‘…the world has changed and will not be the same…’ Is it applicable to the securities market in general and to Russia in particular?

It is a fair characteristic of the changes the world is undergoing. However not all institutes, spheres of activity, etc. transform simultaneously. Besides, the transformation processes run at different paces. The securities market is not excluded. It was actively developing in Russia in recent years. By early 2022, 33.5 trillion rubles worth of debt securities, for example, were issued. Yet, later, began a decline of the said indicator (down to 32.7 trillion rubles as of May 1, 2022). Does it really mean that some fundamental, essential changes took place?

Of course, not. They can happen, if a tendency detected in the first half of 2022 evolves. By the way, a similar thing happened to the Russian stock market, but the ‘squeezing’ process had started even earlier – in late 2021. As of November 1, 2021, Russian issuers’ marketable listed stocks were worth 57.2 trillion rubles, and then on May 1, 2022, the said indicator came to 38.4 trillion rubles. Thus, the question now, is whether such heavy quantitative changes could turn into qualitative changes. If there is a transition, then we will be able to say that the securities markets world has changed.

According to a number of western experts the Russian securities market is a low liquid and low capacity one and thus, not especially attractive. Is it so?

The Russian securities market is facing challenging times and you could agree that it is currently not lucrative. The numbers, I have mentioned above, speak for themselves. The capacity of the market is on a decline, and liquidity is a problem. The characteristic of the stock market is that many companies decided not to pay dividends at the end of 2021. A similar decision was made by the PAO (OJSC) GAZPPROM and this turned out to be a significant event. This unfortunately was a negative sign. That is all about the attractiveness of the securities’ market today.

The cumulative outcome of sanctions from the West against Russia made many foreign companies and investors leave Russia, how does it affect the Russian securities market?

This is one of the factors, which explains why the Russian securities market is shrinking today. From the beginning of the current crisis, restrictions on selling securities by non-residents were introduced. The above restrictions have not prevented the market’s decline but they at least mitigated the decline.

The Corona virus negatively affected business activity around the globe. Was the Russian securities market ‘infected’ by COVID? If yes, then did the world ‘recover’ and what is the outlook: Europe is overwhelmed by a new wave of the pandemic and hence, by autumn, it will probably come to Russia.

The Russian securities’ market was ‘infected’ by COVID, but not detrimentally so. Value wise, the Russian stock market (domestic marketable securities) had reached the bottom by November 2020: as of November 1, 2020, its total value came to 36.1 trillion rubles, which was 10.7% less than in the preceding year.

However, as already mentioned, as of November 1, 2021, the market had recovered to 57.2 trillion rubles. It means an annual market increase of 58.3 percent – a very decent indicator. Later by late 2021, we experienced the worst COVID wave. Besides, already in 2022, known events took place and the events influenced the market as well. That is why the Russian securities market has not completely recovered from COVID, and underwent new shocks, which clearly affected the market’s state in a bad way. If the shocks continue, I believe the COVID factor will not be of any significance.

The conventional wisdom is that one serious obstacle to the Russian securities market growth is the weak financial literacy and low income of the population. Do you share this judgement?

Low financial literacy and the low standard of living of the population are certainly obstacles for the development of the securities market . On the other hand, the population’s financial literacy is still on the rise, which is good. How- ever, real disposable income is falling, which is bad. These factors alone though, do not determine the negative effect on the Russian securities’ market. The aforementioned external shocks is one of the main factors. Elevating financial literacy or not, it is unlikely that you can overcome this. This is our life.