Equity trading focus | DMA | Sergey Sinkevich & J.P. Natkin


is committed to underpinning these efforts to modernise the country. There is a common understanding that the requirement for pension funds not to have negative returns at year’s end might be removed. This could mean a major shift of liquidity towards financial markets as pension funds are legally restricted from investing in equity markets. It would be unrealistic to


expect an overnight shift in liquidity from London’s order book to Moscow, because investors, like everyone else, are creatures of habit. The ball is rolling and the Moscow Stock Exchange will continue in its drive towards the standardisation of Russia’s trading and settlement environment that will ensure it conforms to international standards. The reorganisation of


the indices on the Moscow Exchange is among the next steps, as well as the creation of a premium segment which should contribute to tackling the lasting problem of the perceived quality of issuers. Using qualification systems to access the premium segment and certain indices will create an additional filter that would help single out the most interesting companies that would commit to rigorous corporate governance standards. The Moscow Exchange is already working on these implementations, which are a priority in the medium term. In the secondary markets,


Best Execution | Summer 2013


the uncertainty of recovery in Europe, especially in the peripheral Eurozone countries, has levelled the playing field. Economic and political


risks are now a reality in both developing and developed markets. Especially in the developed countries, policy makers are struggling to cope with excessive debt levels, structural unemployment, sluggish growth or even recessions. Yet in Russia, low government debt, a growing middle class and an educated workforce far outweigh any potential political risks.


Better governance Of course, not all Russian companies are viewed with the same level of interest by global investors. Corporate governance issues and ownership opaqueness remain a concern for foreign investors, as demonstrated by the extremely low valuations of the companies in Russia’s Oil & Gas sector. Nevertheless, there is a


lot of excitement over the entrepreneurial companies operating in the consumer segment that benefit from growing household incomes. These companies are seen as a good way to gain exposure to Russia’s growth potential while maintaining high liquidity in a portfolio. Some investors are worried


about Russian macroeconomic data but in recent years, economies and stock markets have often been disconnected,


with markets doing well despite perceived economic weakness. For example, in the US the markets have performed strongly despite a weak economy with high unemployment and even a record number of people on food stamps. However, all things are relative – in the context of much of the world, Russia is still performing positively. Over the last decade Brazil


has demonstrated the wealth of opportunities that can be unlocked through targeted reforms and a positive attitude towards investments. The introduction of laws protecting minority shareholders’ rights, as well as a move to allow pension funds to place their money more freely were just a few among the many measures that helped Brazil become a success story. The combination of the


positive regulatory trends in Russia and shifts in global investment sentiment makes the Russian market an ever more attractive place. If previously the interest came mainly from dedicated emerging market funds, today we are experiencing demand from institutional investors from across the globe. Every country is different,


and these are early days, but Russia has embarked on a journey that will produce an investment success story to be remembered. n * Sergey Sinkevich is Head of


Global DMA, and J.P. Natkin is Head of Equity Sales at Otkritie Capital.


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