Alexander Abramov: Investing is still reasonable but profit is low

Russian stock market indices have lost almost have of their value since the beginning of the year and have not been able to bounce back yet. What prospects do Russian stocks have and is it even reasonable to consider investing? Invest Foresight interviewed Alexander Abramov, professor of the Department of Stock and Investment Markets at the Higher School of Economics.

— How did the sanctions imposed on Russia affect the stock market?

— The financial market was in the epicenter of the sanctions impact. The plan was to isolate the Russian financial market from the global market and thus cause certain irreparable damage to the Russian financial system in general.

Overall, the financial system, the banking system and the stock market were able to withstand the blow, thanks to the Central Bank’s sensible policy among other things. But, of course, prospects of the Russian financial market in the long haul are alarming.

— What exactly is causing concern? 

— The sanctions will have a long-term effect. We can see that they have already affected both the market’s liquidity and the yield of financial instruments, along with people’s willingness to invest. There is an actual risk that individuals will gradually cool down towards the Russian stock market.

— Between April and June, the MOEX index dropped almost 20% and in mid-July, it began to go back up to early February. In your opinion, how will it change towards the end of the year? Will we see 1900 points or maybe even 2600? Will it be less or more?  

— I think that the MOEX is currently behaving in a similar way to what was happening post-2008. You can certainly watch if it is 1900 or 1600 points but in general, I believe that the index will plateau in the mid-term.

There will be a slight growth and a slight drop but there will be no steady rise. By the way, the current MOEX index is around the level of February 2022.

Index volatility is not the main problem. Especially because there are chances of growth. At a market with low liquidity, it is relatively easy for both issuers and major investors to push the index up. But it will never be a steady rise.

The main problem of our stock market today is that it has no ideas for growth and most likely, it will stay within 2000–2200 for quite some time.

— Is it the right time to buy or sell, or to lay low?

— I think it is time to rethink it, especially if you consider yourself a short-term or mid-term venturer. The investment horizon today is small, only a few months. You should remember that when asking this question.

But in the long term, it is important to understand that there will be no big growth and you will not make a big profit. The market will stagnate.

Isn’t it good for hasteless investors? There is no high risk to lose invested money?

— Of course. But there is a certain long-term risk because prospects of the conflict settlement may emerge. In this situation, many issuers will have to reorganize, to vindicate themselves in a new reality. We may see the return of the phenomenon we saw when the Russian banking system was recovering from the 1998 crisis. At that time too, we saw major violations of minority shareholders’ rights. There is an extremely high chance that the same will happen again.

— Is it even feasible to start investing today? And if yes, then how?

— Absolutely. But only if you want to make short-term profits. It is also helpful to understand the statistics. In 90% cases, results will not be above the market rates and only 10% will be make a lucky guess about trends and make a profit.

— For the majority of our population, the stock market with its shares, bonds and blue chips stands apart from their own welfare. Is it true or is there still a link between the two?

— There is a link, if very unstable. There have been few periods in Russia’s history when people had reasons to believe that stocks will improve their wealth. They could never rely on this instrument in the long term.

Here is a telling example. Did stocks improve the profitability of pension savings in non-government pension funds? It has been almost 18 years and to what effect? In my opinion, the result is nil. Stocks have not brought much yield over this term compared to bonds and government stocks.

You can always assume that the next period will be all different. But based on experience, stocks in Russia are not a reliable instrument for improving the wealth of a regular person who considers the stock market as an instrument complementing deposits.

Previous ArticleNext Article