Crisis is a time when people begin to think especially actively about the right investment decisions regardless of the amounts available. And if first there is a slowdown in investment activity, what we faced in 2020, then after you get the effect of deferred demand. Forecasts predict Russia will have 30% growth in investment in commercial real estate (up to 3.5 billion euros), and interest in Mosbirzha does not subside — over 10 millions of private investors are already registered there: it’s a new historical record. This is partly due to a decrease in the deposit rate from 5.15% to 4.53%.
People in search of an effective alternative are growing stronger interested in securities. What actions and tools should be invested, how much attractive domestic assets are (for foreign investors as well) and when cryptocurrency trade will be legal, — all these issues were discussed with Artem Lutik, managing director of the investment company Univer Capital.
Impact of the pandemic and sanctions on investment
— How do you assess the prospects of Russian investment companies against the background of America’s increasing sanctions restrictions?
— The infrastructure of the global financial market allows to trade assets all over the world from Russia. This gives our customers the opportunity not to close inside the Russian stock market, and to choose the best investment instruments that the global market provides.
But if sanctions pressure increases, Russian investors and investment companies will be forced to focus on countries that are happy to see Russian money — first of all, these are the EAEU countries. Mutual economic integration of the EAEU countries is already underway; on the Moscow Exchange both government and corporate bonds of the countries of the union are traded.
— Do you agree with the statement that the attractiveness of the Russian securities market for foreign investors fall amid capital outflows from the country over the past year by more than $47 billion (according to the Central Bank of the Russian Federation)? If yes, what measures should be taken by the state to increase investments in Russian assets?
— Last year’s data cannot be considered indicative: investment activity in the whole world was reduced due to COVID-19. Many investment and venture capital deals were rescheduled to 2021; already based on the results of its first quarter we will be able to see opposite trend in long-term investment flows, especially in Russian Eurobonds.
In recent years, the RDIF (Russian Direct Investment Fund) became the most notable agent for attracting direct foreign investments in Russia. Against the background of COVID-19 its public activities shifted to the promotion of the Sputnik V vaccine, but in the long term, this activity will help attract direct investment in knowledge-intensive sectors of the domestic economy.
Russian securities are in steady demand by international investors; the situation will not change as long as the spread between the key rates of Russia and the United States remains, and there is also the possibility of receiving an increased income by international investors.
— How do you feel about the information that many investment companies in Russia are using the so-called speculative trading strategy on the stock market? Do such transactions strongly affect the real value of securities and other derivatives of financial instruments?
— Speculative trade, which is absolutely normal. Possibility of speculative trade in the Russian stock exchange is a great benefit for the entire economy of the Russian Federation. No EAEU country has such a wide stock market that can absorb the funds of 5 million new investors without growth hundreds of times in a year.
Such activity of citizens in the stock market allows Russian corporations to place bonds on the stock exchange not only at the expense of institutional investors, but also due to the market demand of individuals. This allowed in 2020 domestic companies to conduct several IPOs in the local market and attracted interest in secondary listing on the Moscow Exchange. In 2021, the trend will only intensify: observing a positive result, even more corporations will rush to the Russian exchange.
— Investment company “Univer Capital” had the volume of client operations at 9.3 trillion rubles in 2020. How was the company affected by capital outflows?
— It is worth talking not about capital outflow, but about redistribution of capital from speculative ruble assets into more conservative ones providing revenues in foreign currency. Devaluation of the ruble forces investors to look for protective and at the same time profitable assets for Investing money.
First of all, such an asset for our customers are Eurobonds. 9.3 trillion rubles is the volume of client operations of Univer Capital on Moscow Stock Exchange. We are among the top 10 in terms of client operations at the Moscow Exchange, but this is not the only market where our customers trade.
— What new products and solutions does the company offer to customers?
— From the second half of 2020, the capital market department appeared in Univer Capital, focused on working with issuers that have a BBB- or higher credit rating. As a result, over the past year, Univer Capital took part as an organizer and co-organizer in 11 bond issues with a reliability rating from A- to BBB-, including in three debut issues of issuers not previously represented on the stock market.
Decrease of the key rate of the Central Bank of the Russian Federation in 2020 made bank deposits less attractive. And after adjusting tax legislation, almost all investment instruments began to be taxed at a single personal income tax rate. This created increased demand among private investors on corporate bonds of “investment grade.”
Promising assets and cryptocurrency trading
— In your opinion, what strategy of the investment portfolio is valid for novice investors from Russia? Tell us about your company’s experience with risk diversification?
— We take a conservative approach in investments and look for customers who are not chasing momentary profits and speculation. Conservative investments in bonds and investment-grade Eurobonds gradually make our customers richer, generating stable income above the key rate level.
Our customers are qualified investors, corporations and wealthy individuals for whom the number one task is not to lose money. Only in second place, they look for the profitability of investments. Proceeding from the client’s request, we form an investment portfolio with ratio parameters “risk/profitability” corresponding to the customer profile.
— How Univer Capital helps novice investors get on their feet in this area without serious mistakes?
— Univer Capital is focused on corporations and wealthy individuals. Such customers are basically intolerant of investment errors, as they increase all the time their financial literacy and look for professionals who can effectively provide the profitability they require without significant risks and with a service that exceeds expectations. It is such services that Univer Capital provides to customers.
— Many Asian countries allow cryptocurrency trading in their stock markets, for example, there is such experience in Japan and South Korea. What prevents the state from making trade in crypto assets in Russia legal?
— Most financial regulators in the world believe that cryptocurrency trading has speculative and pyramidal character. In this regard, its admission to the exchange and, accordingly, getting the opportunity to trade cryptocurrency for unskilled investors can lead them to loss of money.
Such excesses can once again make Russian investors disappointed in the stock market, which the state represented by the regulator tries to prevent.
Russian exchanges and everything around them
— At the moment, what are the most undervalued securities or currencies observed on the stock market in Russia? Which papers and tools you can start investing in from a point of view of growth prospects for the next 2–3 years?
— In our opinion, now it is worth paying attention to commodites (goods from the real sector, traded on the exchange) and issuers that will earn on the recovery of global demand after the COVID-19. First of all, we are talking about Russian metallurgical, mining and oil companies. From the point of view of conservative investments, a correctly made portfolio of Eurobonds and Russian corporate bonds, especially of investment grade and with long maturity, is able to bring the required return in two to three years in any market situation.
— What other measures besides tax deduction should the state take to increase financial literacy among the general population, in your opinion? In developed countries people often prefer to invest in securities rather than in bank deposits with a small yield.
— The state has already contributed to the fact that more than 10% of the working-age population of the Russian Federation opened a brokerage account on the stock exchange. And first of all they stimulated this not by tax incentives, but by a reduction in the key rate. Private investors, accustomed to receive double-digit yield in rubles on bank deposits, began to migrate to more than risky instruments that are in the same time more profitable. Mostly the flow of new investors was directed to real estate and conservative investments on the stock market.
In the hands of the state there is a tool that regulates the demand for products, alternative to bank deposits — that is the key rate. Its demotion now effectively displaces individuals from deposits.
— Is it possible in the future that the Moscow Stock Exchange will become the platform where issuers from EAEU countries will receive access? How will the financial flow of investment distribution change?
— Issuers from EAEU countries have already gained access to the Moscow Exchange, primarily they are interested in the debt market. Already at the auction you can see both government and corporate bonds of EAEU countries. The largest activity is shown by issuers from Kazakhstan and Belarus, there are issuers from Armenia too. Russian investors are ready to invest funds in papers of companies from EAEU countries, if they have credit ratings of investment level from international or Russian rating agencies. Most popular, of course, are state or quasi-state issuers, but also non-state corporations from the EAEU countries (such as Eurotorg LLC, the largest grocery retailer in Belarus) are successfully placed on the Moscow Exchange.
Interviewed by Kristina Firsova