Potapov: Individuals Drive World Stock Market

Mass investors are becoming an integral part of the stock market operations. Today they comprise the category, which acts as a source of “long money”, and it makes companies open new areas of their activity in order to attract retail investors, says the Head of VTB Capital Investments Vladimir Potapov.

In an interview with TASS the top manager spoke about the prospects of the Russian investment market and said, what instruments will be most popular in 2022.

- Mr.Potapov, 2021 is nearly over. What changes has the retail investment market undergone so far and what trends do you expect to see in 2022?

- Over the past year the number of retail clients of VTB Capital Investments has doubled and exceeded two million. Next year we expect at least another million of clients. Speaking about the Russian market as a whole, in 2-3 years the total number of investors may double.

- Do you expect the number of funded accounts to grow?

- Now funded accounts amount to 55-60% of the whole client accounts of VTB Capital Investments. It’s higher than the market average. Next year, I believe, people will use the services that brokers offer, more, and the number of clients with funded accounts will increase. Today the amount of funds Russians have on their investment accounts is about 9 trillion rubles. I think, next year this figure will increase by 30%.

- Does the average age of people, willing to invest, change?

- Earlier investing in Russia was in demand among people around 35 and more. But now we are witnessing our investors gradually become younger. However, I believe, we’ll see growth in all age groups. The only difference will be the products that they purchase. Now even the smallest age group in the market (55 years and older) is gradually increasing. They will be inclined to choose trust management and mutual funds.

- What is the share of retail investors in the Russian and the world stock market operations? How has this figure changed since 2020?

- As for the USA, for example, the turnover of retail clients alone there is more than the one from hedge, open-end and mutual funds combined. In Russia, individuals already account for about 42% of operations with equities, as of October.

- How does it influence the market players?

- Earlier only professional investors we considered to be sources of “long money” by companies. Now they open new areas of their activity in order to attract financing from retail investors. IPOs (Initial public offerings of companies’ shares – TASS) are now conducted with the significant participation of individuals. The example of SPB Exchange’s IPO, dominated by retailers, was very telling. And after the start of trading, the price for the company’s stocks started to grow.

- Do you think investment democratization can solve the problem of social inequality?

- Investments are sure to help people save their money more efficiently. It is also important that invested money is mentally harder to spend – it’s not the same as money on your bank card. Moreover, investment instruments are a way to save your money from inflation in a world of ever-growing money supply. From this perspective, investment democratization has been very useful for people. The U.S. residents now have a greater part of their savings in investment products, while in Russia, investments account for about 20% of the total savings of the citizens. So, we still have room for improvement.

- What investment strategies, do you think, will be the most relevant in 2022? Taking a one-year-long view, what is the best option to invest in?

- 2021 saw inflow of Russian investors into foreign equities and an outflow from bonds. This year, against the backdrop of rising interest rates, I expect interest in bond instruments to recover. The yield on OFZ (Federal Loan Obligations – translator’s note) at the moment is standing almost at 9%, so clients are most likely to take advantage of that.

However, in my opinion, the share of savings in equities will also grow because of the low base. Today, equities account for about 7% of savings, which is a relatively low figure. In addition, there are no so many asset classes, which may serve as a means of saving money. For sure, volatility in these securities in 2022 is possible, but every more or less significant drawdown will highly likely be used as a right time to buy securities following the example of March 2020.

Investors are also to be increasingly interested in defensive assets. Based on the current inflation rates, I expect gold to grow in price, despite its recent volatility. Against the backdrop of deeply negative interest rates, I’m quite surprised by this asset’s dynamics. If gold prices were over $2,000 now, we might be more cautious about it. But now its price is below $1,800, so there is a potential for revaluation in 2022.

- Russians are interested mostly in crypto-assets. What can you say about this market and do you consider projects in this area?

- Obviously, the crypto-market has some Russian money. However, right now in our country it represents the informal economy and implies huge risks for investors. I think, following the adoption of the law on digital financial assets at the beginning of 2021, it is possible and it is necessary to develop the organized Russian market of digital assets.

- How can it be implemented?

- The digital asset now has a shadow side, which is uncontrollable. I mean its use as an instrument of payment. But there is another one, which is crystal clear – a way to diversify the savings portfolio. In the Russian realities, the first problem can be solved by means of non-deliverable derivative instruments on digital assets, as it’s done in goods markets. For example, some tokens, which could be issued by Russian operators. On the one hand, this would allow for accounting of all Russian transactions of crypto-assets and taking a part of the market out of the shadow. On the other hand, it would remove individuals’ tax risks and increase budget revenues. However, I believe, 90% of all cryptocurrencies are sure to collapse, so you should be very careful in operations with them. But the digital world will obviously develop, that’s a fact.

- What about the promotion of VTB Capital Investments on the European markets?

- We’ve launched a roboadvisor in Germany. German citizens have already invested about $50 mln in it. The average check there is about €15,000. We are also to launch VTB My Investments application in Germany in 2022. Decisions about entering other European markets are to be taken after further analysis.

Interview by Alisa Stolyarova.