Retail investment in stocks growing in Russia
Amid low bank deposit returns, Russians are trying alternative investments
As interest rates of bank deposits have dropped to a historic low in Russia this year, the population tends to invest in bonds, housing and stocks. Although the Central Bank sees certain risks ofthe stock investment boom, it admits that it is a natural stage of the development of the market.
Russian retail investors are finally investing in stocks, as they are looking for better returns following a steady fall of interest rates at banks in recent years, says bneIntelliNews. This year, the Central Bank has cut its key interest rate to the lowest level in modern history, and commercial banks have cut their deposit rates in parallel. In March 2019, the top ten commercial banks offered an average deposit rate of 7,72%, while in October 2020, the figure dropped to 4,53%. It is just enough to cover inflation, which is expected to total 4,2%-4,3% at the end of the year.
Unfavourable rates have caused a mass exodus of bank depositors. For example, foreign currency deposits, where rates are now close to zero, have lost 635 billion rubles ($8,4 billion) this year. The volume of ruble deposits is still growing, but according to the Central Bank, ordinary Russians are looking for alternative investments more and more energetically.
Retail investments in stocks have been accelerating every month this year, reports the regulator. In the third quarter of 2020, the number of brokerage companies’ clients increased by more than a quarter and reached 7,6 million. In October 2020, Moscow Exchange also saw a record number of new clients and volume of transactions, with more than 1,2 million customers making at least one transaction with shares. Private investors now account for 43% of the volume of all trading in the stock market, which is 34% higher than in 2019, and 45,8% of trading in foreign shares.
However, the Central Bank is worried that the stock investment boom may bring certain risks to the Russian financial system. The regulator warns of the danger of a boom mentality, when hype about rising returns causes investors to be incautious while making investment decisions. Besides, the increasing popularity of foreign financial market instruments means a capital outflow from the Russian economy. Active citizen participation can also increase the volatility of the stock market, considers the Central Bank.
At the same time, the regulator admits that the risks are limited. The law on the categorisation of investors, which came into force in July 2020, should help to overcome them, states bneIntelliNews. According to the legislation, unqualified investors who have not passed special tests have no access to high-risk instruments, such as shares that are not included in the calculation base of the largest indices or bonds of issuers with a low rating.