Strip 074 Number No. 21 (325) dated 05/30/2001

Over the past year, private investors have been presented with a rich array of ways to invest their money. This applies to both technical investment opportunities (margin trading, online trading) and financial instruments (futures, corporate bonds). All that remains is to choose the right strategy so as not to lose your funds.
The year 2000 was a year of unfulfilled hopes. Its beginning was marked by a sharp increase in quotations, associated both with the election of a new Russian president and with the growth of the American stock market. However, in the second half of the year, quotes for most Russian stocks fell below the level at the beginning of the year. In 2001, hopes for recovery grew stronger again. High oil prices helped the Central Bank accumulate significant foreign exchange reserves, which also increased the attractiveness of the market in the eyes of investors. In addition, the stability in the foreign exchange market supported by the Central Bank forces its participants to switch to the stock market, and an increase in the share of domestic investors helps reduce dependence on the West.
The increase in the standard of living of the population was reflected in its investment activity. Not only conservative financial instruments (bank deposits), but also very risky ones (stocks, shares) began to be in demand. The most active investors also turned their attention to potentially more profitable investments. Margin trading has flourished. A margin loan, the so-called leverage, allows the client to receive funds from the investment company that are several times greater than his own. This was beneficial for the broker, because in any development of events he received a profit. Clients won only when the market rose. A year ago, margin loans were ten times the size of clients' own funds. By the way, one of the reasons for the catastrophic fall in Russian stocks in May last year was the large volume of margin loans issued. Only recently the FCSM adopted a resolution to regulate margin trading, but it has not yet come into force. Meanwhile, brokers are already moderating both their requests and the appetites of their clients, providing leverage only in the ratio of 2:1 or 3:1. And after the resolution comes into force, it will not exceed 0.7. In addition, the “leverage” will be allocated from the broker’s own funds, whereas previously the funds of other clients, who were not aware of it, were used for this. This state of affairs was facilitated by the lack of separation of client and brokerage accounts in investment companies. Since 2001, this division has been consolidated de jure and de facto: the FCSM and the Central Bank issued relevant instructions, and professional participants accepted them for execution. Thus, for private investors the risk of working in the market has decreased, although the possibility of using client funds by brokers still remains.
Last year was also marked by the development of online trading. The turning point was the opening in April of an Internet gateway at the MICEX stock section, through which professional participants and their clients could freely trade on the market. Currently, more than half of all transactions on the exchange are concluded through a gateway, and investment companies are increasingly including trading through the World Wide Web in their list of services. Moreover, brokers operating only via the Internet have appeared in Russia—Web-Invest.ru and NetTrader.ru. This organization of trade can significantly reduce the costs of those entering the market. In addition, supply exceeded demand - a real war for the client broke out, which led to a sharp reduction in prices. Just a year ago, the minimum amount with which investment companies agreed to work was $10-30 thousand, and often $100 thousand. Now it has decreased to $1-5 thousand, and some companies do not charge money at all for entering the market - they only work on commissions from transactions. Naturally, such activity pays off only at very high speeds. Only large operators - BC Otkritie, Finance-Analyst, Alor-Invest - remain profitable in this segment.
Another evidence of the development of the market is the emergence of high-tech fraud. Taking advantage of the opportunities of margin trading, Internet trading and, according to rumors, WAP mobile technology, the attackers made a number of transactions in Lenenergo shares at prices 300 times higher than market prices. As a result, the Metropol company almost suffered significant losses.
In general, the Russian stock market remains quite narrow and overly speculative. Securities of no more than ten issuers can be called liquid, and quotes jump like fleas. Naturally, this increases the risks of investors, especially if they are individuals. The FCSM believes that it is possible to develop the market to the proper extent by, among other things, organizing information support for investors. In this case, Russian issuers will be able to count on funds from Russian investors.
In the coming year, investors' opportunities have significantly increased due to the expansion of the list of financial instruments. High dividends paid by companies based on the results of 2000 increased the attractiveness of not only preferred but also ordinary shares. Now the list of securities is not limited to blue chips. After all, in anticipation of dividends, it is not at all necessary to monitor stock quotes daily, especially since issuers are gradually switching to more frequent (every six months, quarterly) payment of dividends. At the same time, the corporate bond market is actively developing. While its liquidity is not sufficient to play on quotes, however, the high coupon income and the possibility of early repayment increase their attractiveness relative to government bonds.
DMITRY LADIGIN

EXPERT REVIEW
Silence of investors
Should we expect private investors to become more active on the Russian stock market and what will contribute to this?
Denis Rodionov, co-director of Brunswick UBS Warburg:
— In the near future, most likely, it’s not worth it. Most of the population does not have the necessary funds and knowledge to invest. In addition, scams such as MMM and the 1998 default significantly undermined public confidence in financial instruments. In the future, money from private investors may come to the market, but most likely through mutual funds, pension funds and insurance companies.
Andrey Bespalov, chief analyst of IFC Metropol:
— One should not expect that Russian private investors will be more active in 2001. The formation of this category of investors is a complex and long-term process. It is necessary to create an appropriate legislative and infrastructural framework. In particular, it is necessary to develop insurance and pension funds, as well as remove too strict restrictions on investing in the stock market.
Victor Remsha, General Director of IC "Finance-Analyst":
— Now the influx of private investors into the stock market is small. After MMM, the default and the collapse of the banking system, there is a gradual restoration of confidence in the stock market. It should be taken into account that the Russian investor does not have a sufficient investment culture, and the Russian stock market has a short history. So in 2001 we should not expect significant activation of private investors.
Vladimir Sklyarevsky, development director at AVK Investment Company:
“Private investors will continue to invest most of their funds in the US currency, and this will continue for at least several more years. But if the growth of the Russian economy continues this year, then we can expect an influx of funds from Russian investors, although their volume will not be significant.
Alexander Korchagin, head of the analytical department of Prospekt Investment Company:
— Unfortunately, the presence of private Russian investors in the stock market is limited, which is due to its speculative nature. Rather, they may be interested in long-term investments, although the risks for long-term money remain too high, and the profitability of small-scale investments is extremely low. Therefore, I do not expect a massive influx of private investors into the stock market this year.

Companies and banks focused on private clients

Place Name Volume of investments of individual clients as of January 1, 2001 (million rubles)

1	"Finance Analyst"	202,626
2	Moscow Stock Exchange	188,868
	center
3	IC "Troika Dialog"	141,149
4	"Aton"	138,147
5	IC "IBD 'Finance and	137,682
	industry'"
6	Autobank	113,052
7	Guta Bank	112,699
8	"Centrocredit"	91,590
9	NIK "NIKoil"	87,793
10	"LUKoil-reserve-invest"	81,793
	(Moscow branch)
eleven	Vneshtorgbank	74,519
12	Rosbank	62,031
13	Alfa Bank	57.118
14	IC "Olma"	55,401
15	MBO "Orgbank"	46,554
16	Gazprombank	42,490
17	MDM Bank	42,383
18	JSCB "Avangard"	40,510
19	AB "Capital" (Moscow	37,512
	branch)
20	IBG "NIKoil"	37,494
*According to AK&M agency.*

Magazine "Kommersant Money" No. 21 dated May 30, 2001, p. 74

Authors:

Dmitry Ladygin

Market of unlimited possibilities