We just spoke about
how the Russian stock market has bucked global trends
over the past few months. What is the current situation
on the Russian stock market? Is it holding up or
will it follow Wall Street and the main European
markets?
I would say that the Russian securities market has
moved very rapidly. It grew dramatically, despite
all the problems of the global securities market,
from 22 billion dollars last year to 135 billion
dollars ?as a result of increased market capitalisation.
It is still the international market that influences
the Russian market. Recently, a couple of days after
the largest fall on the NYSE, the Russian securities
market fell as well.
Alongside the growth of the Russian economy as a
whole, we see clear growth in industrial production.
This gives grounds for optimism about increased
investment in Russian companies.
Another positive development we have been seeing
in companies is that many during their AGMs have
taken another step forward to improve corporate
governance, which has been a really major issue
in Russia for the last two years. The Commission
was the leading body in charge of this question
and we have seen that Russian companies, for the
first time since the start of the Russian securities
market, have created real due diligence with regard
to shares. Generally, I think that these are very
important positive moves on the Russian securities
market but, unfortunately, the global situation
keeps bringing it down. I believe that, with the
American market emerging from this negative situation,
we will see real growth of the Russian securities
market.
Speaking about corporate governance changes,
one of the major activities of the Commission was
to draw up and introduce the new corporate governance
code. How do you believe this will impact companies
and the stock market. ?
First of all, it has already had a very strong impact
on the activities of Russian companies in the domestic
market. The Code was drafted by professionals with
active involvement of the Russian business community.
We had representatives of more than 2000??? companies
working on this and they have started improving
their corporate governance practices and have also
increased broader awareness about the corporate
governance in Russia. Talk with foreign investors
who are in Russia, they will tell you that, over
the last two years, there have been huge improvements
in corporate governance in Russian companies, and
we at the Securities Commission are proud to be
playing a leading role in this process. We have
not finished yet; we are continuing to work on corporate
governance issues, companies have already become
much more transparent and they have independent
auditors. We see the direction we have to take and
we think that for Russian companies, many of the
recent problems in the US are not relevant to our
stage of development. But, at the same time, we
have to deal with these problems and we have to
use the West 's experience. I would say that only
fools learn from their mistakes; clever people learn
from other people's mistakes. That is what we try
to do.
Have you developed the corporate governance in
collaboration with other government bodies like
the Central Bank?
We are the key agency dealing with corporate governance
here in Russia. We work with the Ministry of Economic
Development, the Ministry of Finance, the Central
Bank and other government agencies. We have been
mandated by the Government to do this. We deal with
large parts of the business community, with the
Duma, with investors and others in an effort to
co-ordinate and move forward on these issues in
the proper way.
Now, corporate governance is probably the main
activity of the Commission. Do you see any other
major issues that you need to deal with?
There are lots of things: the Code is obviously
one of the most important and we try to advance
the cause of corporate governance with the business
community as much as possible. Many people in the
business community talk about our public communications
efforts that have produced very positive results.
Over the last two years, we have completely reformed
the Russian securities market and the fund management
industry in Russia. Together with the Corporate
Governance Code, we have drafted a Corporate Law
as well.
More and more investors are coming to Russia.
Do you see the same thing happening on the stock
market? Are big investment houses coming from US
and Western Europe or is it still Russian companies
that dominate the market?
There has been an international presence in the
Russian market from the outset, including some well-known
institutions. They have been in and out of the market
over a long period, but I would not diminish the
role that Russian institutions are playing in this
market and I hope they will continue to play this
important role.
Could we really see more investors in Russia, people
seeing that there is no money to be made on Wall
Street or in Paris and Frankfurt and wanting to
come to Moscow?
Yes and no. I think that, for Russia and the global
securities market, it is a problem in itself because
investors have generally just withdrawn from the
securities market. On the other hand, as investors
have withdrawn from the global securities markets,
some have committed funds to the strongly performing
Russian market. But at the same time, Russia represents
2% of the global market so it experiences all the
negative reaction that investors bring from the
US and Western Europe. We have talked to a number
of major investors who are looking to come back
to Russia despite everything that is happening in
the US and Europe. Many of them think that Russia
is not only a new opportunity for investment but
also possibly a new, safe haven from the turbulent
securities markets. We will see but I would like
to say that, until there is more stability on global
markets, I do not believe that it will happen. It
will not happen tomorrow but in the mid- and longer
term.
There is a process of banking reform taking place
here and the Central Bank expects many people to
gain trust in the system. Money that is now under
the mattresses will come back into the banks.
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Could this bring more liquidity to the market?
I would say that Russians are taking part in the
securities market already and, when we talk about
money in people's hands, what we learned from last
year was that the main driving force in the market
was Russian rather than international investors.
From May until October last year, it was purely
Russian investors driving the process.
I would say that fund management, mutual funds and
other types of private investments are already bringing
new money to the securities markets and creating
more liquidity. I think that banking reform is a
much more difficult issue; it is a problem for us
as well because we have seen banking intermediation
of middle sized companies which will bring new issues
to the securities market, but I do not see rapid
change in the situation. Russians will invest in
the securities market through mutual funds, not
directly through the banking system; they will grow
quite gradually from different sources in the market.
Stock markets are coming closer and closer together
in Europe. Last year, you went to Frankfurt to establish
closer cooperation with the Frankfurt Stock Exchange.
What is the FCSM's strategy for bringing the Russian
market closer to the world market?
I would say that now we are talking more about the
global securities market, we do not talk about Russian
or US securities markets. Neither would exist without
the other. You have to make them more efficient,
of course, you have to cooperate more with world
regulators and bring your standards up to international
levels. This is what we are trying to do.
We try to cooperate more with our colleagues in
CSSE, in Germany, with the French, and with Italian
regulators; we work with Larry Oscar, with colleagues
in Cyprus and, with regulators from CIS countries
with whom we have twice yearly meetings. We discuss
all the current market issues. I think it is very
important to try and deal with the global securities
market, to get from it what we want to have and
try to avoid what we do not want.
When you look into the near future, how do you
see the stock market developing?
Corporate reform, corporate governance, investment
funds, securities markets reforms and corporate
law reforms are all areas we are working on. We
have lately been talking to a large number of international
investors. We are talking to local investors to
try and bring ordinary babushka from the street
into the securities market. I think that the Russian
securities market is on the road to becoming a real
source of capital growth and a catalyst for developing
national wealth.
You have broad experience in the private investments
world. How is it helping you to face today's challenges?
Very much, not only in our country but in other
countries, as well. When rules are made by someone
who has never been in this business, it creates
real problems. Usually, you need experience that
will help you understand the market processes and
what should be done to make things more transparent,
credible and efficient.
Another issue is that it is very difficult to explain
to people that a businessman or entrepreneur in
the market is an investor, not a broker, a dealer
or a manager. The investor is the person who brings
money to the market, the investor creates new opportunities
for getting other people into the market, and the
investor brings money for funds to develop. The
investor is the key entrepreneur in the securities
market.
We have to make the investor feel secure, we must
have an infrastructure that is efficiently managed
for him to be absolutely sure that his money will
not disappear. He needs to be secure in the knowledge
that his funds will play the role he wants them
to play in this market.
Do you also manage to give to an investor as
much liberty as possible?
To a certain degree because he has to play by general
rules, it is not a wild market. The freedom should
be there but within the framework of the rules.
When you look back at everything that is changing
here, what do you see as your biggest achievements?
I think we have accomplished a lot. We have advanced
corporate governance, corporate reform, taxation
in the securities market, and securities market
reform. We have taken serious steps to improve fund
management in Russia. When we started this three
years ago after I was appointed, the market was
effectively monopolised as the result of privatisation
and was orientated towards political goals. We had
to change it and we have been successful.
What will be your biggest challenge in the coming
years?
First of all, corporate governance issues. Improved
corporate governance will help us to bring Russian
investors into the market, We're just at the beginning
but we have to go down that road.
Now, I have taken my eggs from the Western stock
markets in Paris and London. If I am here for a
while and looking at Russian markets, where I can
put these eggs?
I would say it is not for the regulator to give
you any advice. But my view is the following, if
you look at the medium term or if you have a long-term
jump in the market, you will have the opportunity
to invest in Russian mutual funds that track the
Russian market, and the Russian market has huge
long-term growth potential.
What is your final message to potential investors?
The Russian market is still very much undervalued.
Russian companies have quickly become very efficient
from a corporate governance point of view and transparency
is up to world levels. I will not deny that we do
have some problems that need to be overcome but
what Russian markets definitely show is the potential
for sustainable growth based on solid economic growth.
I am sure that the growth achieved over the last
two years, after all that happened in the securities
markets in the West, will continue. I have no doubts
about this.
Note: WINNE cannot be held responsible for the
content of unedited transcriptions.
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