For Russians seeking returns for their cash, the stock market has seldom been front of mind. Why risk it when money in a bank account could earn as much as 10% a year essentially risk-free as deposits are insured by the government.
But recently things have changed. The number of Russians holding brokerage accounts has surged fivefold over the last two years to 12.7 million, according to the latest data from Russia’s central bank. And 15% of the Russian population, excluding children and pensioners, are trading stocks and bonds online.
This trend has been driven by several factors. First, interest rates on deposits have declined after the Bank of Russia got the rate of inflation down from its 2015 peak. Second, mobile apps from the likes of Tinkoff Bank and BCS have made equity trading simple and easily accessible for ordinary people. Third, the Covid-19 lockdown has meant Russians with more spare time are increasingly turning to online services, including financial apps.
These new retail investors have also been attracted by rising markets. The Moscow Exchange Index rose 8% last year despite the pandemic and surged ahead 17% in the first half of 2021. Retail investors already account for more than a third of trading volumes, according to the bourse. But it is not just domestic shares which are attracting investor interest, Russian retail investors are also buying global stocks and exchange traded funds via local providers.
Retail investors are attracted to new investment stories so no surprise that Russian investors have started to put money into initial public offerings, previously considered the domain of big institutional funds. In Russia’s recent large IPOs – e-commerce platform Ozon and discount retailer Fix Price, which raised more than $1 billion each – retail investors played a meaningful role. When energy-shipping company Sovcomflot sold shares last autumn, Russian retail investors comprised a record 15% of the IPO volumes.
With as many as ten further IPOs expected on the Moscow Exchange in the near future, the inflow of retail investors into Russian IPOs is set to continue.
The clout of Russian retail investors does not yet compare with the powerful retail investor community in the US, which earlier this year managed to coordinate in Reddit forums and outfox powerful hedge funds in trading Gamestop shares. However, Russian retail investors are already able to cause sharp moves in small cap stocks like vodka maker Beluga, which surged 200% in February and plunged soon afterwards.
This growing band of new retail investors can provide much needed liquidity to listed companies and help drive the share prices of companies they favour. But Russia also has its bears and retail investors with a negative view of companies – and social media platforms to promote those views – can be a danger.
Corporate communications and IR departments need to think carefully about how they position their investment story to rookie retail investor and evaluate the potential risks associated with larger retail holdings.
Strategies need to take into consideration close engagement with retail brokerages and proactive campaigning on social media – both of these are key sources of information for the retail investor audience. Instead of Reddit, Russia has a wide number of channels in Telegram messenger, where participants can spot emerging investment opportunities. Companies need to work just as diligently with these important influencers as they do with investment analysts. Companies will need to simplify their stories and produce information in accessible formats. The reports and presentations suitable for professional fund managers may not cut it. To resonate with their retail investors, they may need to be more concise, more compelling and more creative.
Written by Ilya Khrennikov