‘We have seen an increase in trading in recent days’
A crisis-related investment boom may bring fresh risks to amateur investors
In February, extreme volatility hit stock markets worldwide. According to Russia’s Central Bank, such a development is likely to hurt ordinary Russians who are trying their hand at becoming investors. However, brokers and banks are insisting their clients know what they are doing and see no cause for concern.
The turmoil rocking financial markets has highlighted Russia’s dilemma over how to deal with the country’s retail investment boom, says The Moscow Times. In 2019, the number of accounts on Moscow Exchange almost doubled to 3,9 million. Some forecasts expect the number of private investors in Russia to reach 10 million in the next few years. According to Sberbank’s investment arm, the rise of local investment can reshape the entire equity market lifting valuations, improving liquidity and lowering volatility.
While Russia’s Central Bank agrees with the possible benefits for the country’s economy, it remains concerned that inexperienced investors may suffer from risky products, market volatility and aggressive promotions. “Most of them have never tried this before. It may be the first experience in their life,” explains Mikhail Mamuta, head of the Central Bank’s Service for Consumer Protection and Financial Inclusion, adding that Russians do not completely understand the link between risk and interest rates. According to a study conducted by the regulator a few years ago, many people believe that higher returns mean lower risk, as they attribute high returns on bonds to financial stability and willingness to share profits. Thus, the Central Bank has spent months in discussions with banks and brokers over a new set of regulations designed to protect private investors.
“I understand their concerns. Several years ago there were few customers and few market participants. It was simpler to regulate and oversee the industry. Now the regulatory task has become more complicated,” says head of Tinkoff Investments Dmitry Panchenko. He admits that the total level of financial education in Russia is extremely low but points out that new investors “are not stupid”. “They are starting with small amounts of money, they ask a lot of questions and they read a lot of information. They learn by doing, and [...] they behave rationally. Their first investments are comparable to one month’s salary or even less.”
“We have seen an increase in trading in recent days,” says Alexey Yevsyutin of BCS Premier brokerage. He explains that active traders view the increased volatility as an opportunity to make money, while long-term investors are adding cheaper assets to their portfolios. “Some clients are rebalancing their portfolios by increasing the share of short-term quality bonds, with the goal of protecting themselves from possible further declines in equity markets,” he says.