In the last few months, the stock market has been the focus of attention for many experts and analysts. Everyone is watching its ups and downs, as in essence the stock market indexes, in particular the RTS, have become practically the only working indicator of Russia’s economic situation. The moment authorities increase the pressure on business, start investigations, or arrest major entrepreneurs, the market plummets. RTS President Vladislav Streltsov talked about the current state and possible future of the Russian stock market in an exclusive interview with NG.

- Mr. Streltsov, in the last few months it has become obvious to what extent the market is dependent on the actions of the authorities. For example, the attacks on YUKOS caused a dramatic decline in the RTS. Will this dependency continue into the future? What are your predictions for the index?
- YUKOS’ share in the market’s capitalization is very large and for this reason, lower prices on its shares have an immediate impact on the RTS. A string of bad news for investors also played a role in the decline.
I hope that 500 points will become the minimum value for the RTS after this October. I believe that the long-term trend looks positive nonetheless and that the market will return to the index’s previous level. But it’s difficult to say when this will happen.
I would like to emphasize that balanced political and economic decisions and infrastructure development could reduce market instability in the not-so-distant future. It is a slow and difficult process, demanding that the problems that have accumulated be solved in a painstaking and consistent way.
- How would you evaluate the Russian stock market as a whole, independently of recent events?
- The main problem on our market is the small amount of free floating stocks and the small number of instruments. Though on the whole, those investors who understand that Russian companies are fundamentally undervalued are interested in the market.
Naturally, top-tier stocks are also traded in other countries and on local Russian exchanges, but the future of the Russian market will nonetheless be defined by how second-tier stocks, futures, and options develop, as well as whether the number IPOs increase.
I don’t see a substantial difference between the Russian market and those of developed countries. The models are approximately the same. In addition, our market has just recently begun to develop and we have adapted the best of Western practice. What they went through in ten years we have gone through in one.
- The Federal Treasury and the Ministry of Finance are now working on a new regulatory model for the stock market. What do you think, does the market need a “mega-regulator” and what would result from setting one up? Who should regulate the market in general?
- As the director of a commercial organization, I can’t say who should regulate. I can only note that as a market player it is much simpler to work with an institution that takes the market’s interests into account and helps new instruments develop. If this is possible within the framework of a mega-regulator, great. If it will merely be a bureaucratic structure, then of course it will slow down sector development. In any case, however, everything depends on the charter they approve and how the new agency will operate.
- Do you anticipate that pension fund money will enter the market soon?
- Pension money has great potential to expand the market, but I don’t think that it will come to us immediately because the money that will be invested in the first 2-3 years is insignificant compared to the size of the market. It will only expand the market by 6-8%. Only further down the road, if the right instruments are there and the pension system develops, could it influence the growth of trading volume on the stock market.
- How does the stock market need to develop?
- There are several models for financing the economy in the world today. One is via the stock market and the other via bank credit and loans. It’s still unclear which path we will take. Both models exist in Russia.
In my opinion, we first and foremost need to develop the futures and options market, which only makes up a small portion of the total market, 5-10%. In developed countries, the derivatives market makes up 50-60%. Moreover, there are too few stocks actually being traded in Russia. Trading is focused on the ten most liquid stocks. For this reason, I would once again like to stress that the Russian stock market will not be able to develop unless second-tier stocks develop.
- How hard is it for individual investors to enter the market?
- Individual investors are already trading on the market, internet trading has developed, and active investors are already working through brokers. There are not very many of them yet, but this sector is developing rapidly.
In order for this sector to develop further, the appropriate regulatory base needs to be established and insider trading issues need to be settled. Yet in principle, the stock market is ready to serve individual investors. However, here we again come up against the number of liquid instruments. What are these investors supposed to buy? Even existing instruments have limited liquidity. It’s not easy to start trading in stocks that aren’t very liquid.