Exchange Forum 2021: 'Departure from 'soft' monetary policy awaits us'

“The role of private investors is increasing”

Following the results of the first day of the Exchange Forum, we will analyze the key points. The first block was participated by Chairperson of the Bank of Russia Elvira Nabiullina, Finance Minister Anton Siluanov, Minister of Economic Development Maksim Reshetnikov, Chairperson of the Financial Market Committee Anatoly Aksakov. The discussion was moderated by Oleg Vyugin, now chairperson of the Supervisory Board of the Moscow Exchange (formerly the first deputy chairperson of the Bank of Russia, head of the Federal Financial Markets Service).

In my opinion, this is one of the most interesting blocks of the forum, which discussed global issues in the financial market on a national scale. So, in the financial market, the role of private investors (individuals) is increasingly growing. Thanks to the influx of private funds, the volatility of stock prices decreased, they brought calm — a vital condition for the development of the entire market. As a result, potential issuers revived, new industries need capital for development, and more companies are considering entering the stock exchange through an initial public offering (IPO). The placements that have taken place over the past 12 months have awakened the market — since there have been no significant IPOs for a long time. This market stagnated throughout the 2010s. Private investors (not to mention institutional investors) were happy to participate in the Ozon and Fix Price placements.

All this was facilitated by the flow of funds from deposits to the exchange, deposit rates became lower than the level of inflation, and the Moscow Exchange recorded a record influx of private investors in 2020 (there was an article earlier about this). The average private investor today is a young man of 35-40 years. This is good news, the old generation is leaving, and the two waves of voucher privatisation with it, in which the older generation did not participate due to their financial illiteracy.

More than 2,2 million IIA owners

The ministry of finance calls for simplifying the procedure for entering the market for investors, increasing the transparency of operations and improving the financial literacy of private investors. The development and implementation of so-called “long” instruments for pension savings is becoming increasingly important, and one of the ways out is the widespread use of insurance products with an investment component. This niche, in my opinion, is in its infancy, although there are offers of this kind on the market. Besides, the modernisation of individual investment accounts (IIAs) introduced in 2015 is being discussed, with the aim of turning the second type of IIS into a more long-term instrument.

For your reference: IIAs appeared in 2015 to attract public money to the stock market, and by May 2020, according to the Moscow Stock Exchange, they were held by more than 2,2 million people. The owners of such accounts can receive one of two tax benefits: the return of personal income tax from the amount credited to the IIS within 400,000 rubles a year (type A) or a full exemption from personal income tax of income received on the account (type B). In both cases, the condition for receiving the benefit is to keep the account for three years and not withdraw funds from it. An investor can have only one IIS open, and up to 1 million rubles can be deposited to it per year. It is not yet possible to withdraw money from such account without closing it.

For its part, the ministry of finance is looking for and offering new tools to raise funds for its needs in the form of perpetual bonds, infrastructure bonds. All this provides additional investment opportunities for private investors and pension funds.

“Departure from 'soft' monetary policy awaits us”

The risks of private investors working independently in the financial markets, especially in the initial public offerings of issuers, were also discussed. In my opinion, it is better to participate in secondary public offering (SPO), that is, issuers that are already traded on the stock exchange, are familiar to the market, and have a clear financial picture. One of the most serious risks is the so-called misselling — the unfair practice of selling low-quality investment products to a private investor who is not familiar with the nuances of working with financial instruments.

The way out of this would be the development of forms of collective investment, which are managed by proven brokers and where the principle of investment diversification is implemented. This is especially important in the Russian stock market, where there is low liquidity of shares (turnover is scanty by global standards) and in general, few companies are represented on the market.

At the macroeconomical level, a gradual departure from the “soft” monetary policy awaits us that we have seen in our country and in the world as a whole, due to attempts to stimulate demand during the pandemic. A huge amount of money has been printed all over the world, which accelerates the flywheel of inflation, and this comes to us in the form of import inflation (when goods imported into the country become more expensive). As a result, we see a tightening of the policy of the Bank of Russia — the key rate has been raised. And, as I think, by the summer, we will see another increase.

It was interesting to hear from the Bank of Russia and the government's financial and economic bloc assurances that measures are being prepared to stimulate the creation of a “green” economy (which is very much in trend) and the realisation that the world is rushing at full speed to the fourth energy transition, in which we have one competitive advantage — developed nuclear energy. A separate article is planned about this, it will be interesting.

In general, the first day of the forum made a good impression. The quality of the participants is at a very high level, and in the following blocks, the specialists analysed in great detail the current problems of the market and regulatory issues, as well as the educational component. It should be noted that our stock market has all the necessary infrastructure for mass development.