Small investors take hit, but pile in for more
A year and a half ago, Dmitry Kucherov invested his life savings into the share floatation of Russia’s second largest bank VTB. As of last week, the shares had lost roughly three quarters of their value.
"I have lost about 70 per cent of my investment, perhaps even more if you take inflation into account.’
Their memories of the 1998 meltdown still fresh, most Russians are suspicious of the stock market. But, surprisingly, many saw the latest sell-off as an opportunity: The country’s stock markets registered the biggest jump in new brokerage accounts last week. Aleksey Moiseev, Head of Fixed Income Research at Renaissance Capital, says the sell off means that stocks are cheaper, and that paradoxically, this is bringing some investors in.
“More people than usually opened up VTB brokerage accounts last week as opposed to the previous average. Definitely there's a significant movement of residential or retail investors into the stock market. Clearly a lot of risks are associated with this market still but it's about half cheaper than three months ago.”
But a cheaper market is hardly a guarantee of future gains. Speculative foreign money makes up almost 70 per cent of liquidity in the Russian stock market. Unless foreigners return to Russian assets, local investors have little chance of making a profit. While the level of stock-market literacy among most Russians remains low, there’s a small but growing band of amateur investors. People like Kucherov.
“Of course I now understand the risks, but when everything is falling, it must be a good time to buy, perhaps some more VTB shares!?.”
With that kind of infectious optimism, the pool of Russia’s retail investors is bound to grow.