At the same time, the activation of private investors during the period of market turbulence was almost not accompanied by panic throws, but was often associated with an attempt to use a convenient moment to maximize potential profitability. “We observed deliberate, prudent actions by clients to rebalance their portfolios,” describes VTB Capital Investments Chief Executive Officer, Senior Vice President, Head of VTB Brokerage Services Vladimir Potapov. “Customers behaved quite calmly during the collapse of the market as a whole. We believe that many investors have learned the lessons of previous crises and learned not to go into a state of panic with strong movements in the market. Moreover, we noticed an influx of new customers who came to the market to take advantage of the current low prices for the purchase of assets, ”Aisha Kubezova shares observations.
“In general, customers reacted very correctly,” agrees Vsevolod Lobov, Investment Director of UK Dokhod. “Closing portfolios is usually a consequence of the insufficiency or absence of an airbag.”
Escaping Profitability
The influx of private investors into the stock market as a result of the search for alternative bank deposits options for investing took shape in the trend at the turn of 2017-2018. By that time, the Russian Central Bank had achieved obvious successes in the field of inflation targeting, which led to a stable decrease in interest rates. The inflation target declared by the Central Bank is 4%. According to official figures, at the end of 2019, this figure dropped to about 3%, although this year, for obvious reasons, the price increase may accelerate. However, the final indicator, according to analysts of the Central Bank, will not deviate significantly from the given reference point. In this case, bank deposit rates are unlikely to exceed 6% per annum.
This level is unattractive for customers of Russian banks who are accustomed to saving funds at a double-digit or almost double-digit percentage. The search for alternative investment options is a natural reaction in this case. Moreover, we are talking mainly about clients who, until recently, were not even interested in investment instruments.
The influx of private investors into the stock market as a result of the search for alternative bank deposits options for investing took shape in the trend at the turn of 2017-2018.
“The yield of the deposit at the level of 5-6% per annum ceases to be attractive to individual customers. Therefore, we expect that the demand for investment instruments will increase, ”said Darina Khokhlushina, Deputy Director of Raiffeisenbank’s North-West Retail Center for Retail Business.
“It must be understood that rates in dollars and euros will be pushed to zero for a very long time, and rates in rubles will not repeat the history of 2014-2015,” says Alexey Teploukhov, vice president of Bank Saint Petersburg. “As a result, the attractiveness of financial market instruments can significantly increase, taking into account the returns that we see now.”
An additional stimulating factor in the growth of private investment in the stock market, according to Darina Khokhlushina, was a low threshold for entry and universal digitalization, which facilitated the opening of accounts and transactions. “In the structure of demand, 60% falls on investments in mutual investment funds (UIFs), 20% each on opening a brokerage account and trust management together with an individual investment account (IIA),” Darina Khokhlushina, statistics of Raiffeisenbank, cites.
“Over the past 3 years, the trust market has been growing at a record pace. And this growth is provided precisely by private investors, who, during the period of lowering deposit rates, are looking for alternative and more profitable options for their investments. Both the number of customers and the volume of their assets in recent years have grown several times, ”says Andrei Makarov, head of the Sberbank Asset Management sales department.
Market participants believe that market instability will not stop the continued influx of private investors into the stock market. “2020 as a whole will be very successful for investment products,” predicts Vsevolod Lobov. “This, among other things, will be facilitated by the upcoming increase in taxes on deposits.” Aisha Kubezova claims that some clients are already transferring their assets to the stock market in order to obtain increased returns against the backdrop of the introduction of a tax on deposits. Andrei Makarov, in turn, believes that a tax on deposits will make investments of a term of three years or more more interesting due to the privilege on long-term ownership of Russian securities, in which income up to 3 million rubles per year is not subject to personal income tax.
Attach and expand
The development of an investment culture also implies a change in the attitude of the mass investor to various instruments offered by market participants. “At the first stage, in 2017–2018, customers actively invested in instruments investing in bonds. They regarded them as the most close to deposits instruments in the stock market. Bonds are a conservative tool, their price fluctuations are much lower than in stocks, issuers commit themselves to return 100% of the cost and pay interest, ”Andrei Makarov shares his observations.
The development of an investment culture also implies a change in the attitude of the mass investor to various instruments offered by market participants.
However, he continues, after a brief but sharp decline in the debt market in 2018, many customers realized that it was necessary to diversify their investments: someone transferred part of the funds to equity funds, but most prefer mixed funds and strategies, that is, those that invest both in stocks and bonds.
“Now an individual investment account with a ready-made strategy is in active demand among customers. It does not require any special knowledge from a person – you just need to choose a strategy, then everything is done by professional financiers, ”notes Andrey Makarov.
Interestingly, the two-millionth IIS was opened literally in early April by a client of VTB Bank from the Sverdlovsk Region. A special case only emphasizes the general trend: according to VTB representatives, we are talking about a new participant in the financial market, who had never before tried his hand at investing. The growing popularity of individual investment accounts is due to tax deductions: the holder of the IIA is given the right to return 13% of the paid income tax from an annual contribution of up to 400 thousand rubles (that is, up to 52 thousand rubles per year) or to receive an exemption from taxation of the total amount of income earned on the IIA (when closing the account).
According to Aleksey Teploukhov, Bank Saint Petersburg clients were most often interested in ruble bond strategies (through mutual funds, trust management, IMS) with yield to maturity exceeding bank deposit rates by 2-3 percentage points, and also presented demand for portfolios of Eurobonds in dollars and euros with an expected return of 4-5%. “Structural notes in currencies with an expected return of 8-10% with conditional capital protection, withstanding a 50% drop in the stock market on the horizon for 5 years, were also of interest,” adds Alexey Teploukhov.
The events of March-April 2020 provided additional food for thought by private investors. “Obviously, stock portfolios have been hit hardest. A serious drop in prices is also observed, for example, in the segment of high-yield eurobonds (high-yield), for which there was a very high demand in 2019, ”says Alexey Teploukhov. Funds and management strategies that involve investments in euro-denominated Eurobonds, as well as funds investing in gold, are best shown. “Investors see gold as a protective asset, and in periods of fluctuation, demand for it increases sharply,” Andrei Makarov explains.
“Regardless of the type of product / asset, a conservative investment strategy (in bonds) implies a ruble yield of 7-8% per annum, a balanced strategy (70-80% of the portfolio in bonds, the rest in shares) – 10-12%, and aggressive strategy (100% in shares) – from 20% ”, – Darina Khokhlushina marks the benchmarks.
Play for long
As for the yield of foreign currency instruments, in conservative funds of Eurobonds the yield of securities to maturity is now at the level of 5-7% in US dollars. “Such a high level of yield to maturity for dollar bonds in foreign currency is associated with a significant reduction in their prices during March. On the horizon of three or more years, an investor should focus on a range of 3-5% per annum in dollars, ”explains Andrey Makarov. Products that exhibit higher levels of risk, such as stocks or exchange-traded funds (ETFs) for stock indices or high-yielding bonds, can achieve double-digit returns in foreign currency. “But you should always remember that the risks of reducing the value of the portfolio of such instruments are proportional,” warns Andrei Makarov. However, he is convinced that now on the market there really is a good opportunity to buy quality assets at good prices. Alexey Teploukhov agrees with this statement: “We do not know when the fall will end, but obviously the crisis is a unique chance for a significant increase in the potential return on our investments. Such a chance occurs every 5-10 years. ”
“However, one must be prepared that the period of fluctuations will continue for some time. Therefore, it is now better to enter the market in parts at regular intervals, thus averaging the price of entry (so as not to try to find the “bottom”, because this is impossible). And you also need to invest at least for a period of 1 year, and preferably 2-3 years, ”advises Andrei Makarov.
“Regardless of investment instruments, currency diversification is a traditional approach to preserving savings,” Darina Khokhlushina shares recommendations. – Under current conditions, assets in rubles bring profitability, and the currency part will help to keep them from impairment. If you earn in rubles and plan large purchases, then it makes sense to keep in the national currency 40-50% of the funds, 25-30% in dollars and euros. About 20% of the assets should be freely available in case of unforeseen expenses. This problem is solved by the savings account, the yield on which is 5-6% per annum, and withdrawals and replenishment are not limited. This is a simple tool for flexible savings management. ”
Repeat publication of 04/22/2020
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