Prime Minister Vladimir Putin warns against falling for Western pessimism
Maxim Tovkailo
The Government is continuing to implement its anti-crisis programme. Yet financial aid to banks and businesses is not bringing marked improvement to the economy. Yesterday Putin said that the Russian market was too dependent on pessimistic sentiments prevailing on foreign stock markets, and the decisions on which securities to buy or sell are made mainly outside Russia according to rules that have little relevance to the Russian economy and businesses.
"The result is that shares of our companies trade at prices below their value. Cases are on record of companies estimated at less than the assets in their accounts. This is something abnormal and absolutely unfair," Putin said at a Cabinet meeting.
Economic diversification and a regional financial centre in Moscow can remedy the situation.
The concept for the centre will be considered by the Government before the end of the year. This approach will share a good deal with a strategy for the development of Russia's financial markets through 2020, which the Cabinet approved yesterday.
Russia plans to attract investors with tax breaks and by "improving the infrastructure of the financial markets." Measures planned include lowering administrative barriers, simplifying registration of issued securities, creating an effective information system, and developing clearing and securitisation.
Another step to make the Russian market more attractive to foreign capital will be a law on the abuse of insider information, the Government believes. The bill, which was approved by the Cabinet yesterday, will be followed by amendments to the Criminal Code.
Yet, Vladimir Milovidov, the head of the Federal Financial Markets Service (FFMS), did not say yesterday what sentence awaits abusive insiders. But he warned that there would be material, as well as criminal, responsibility. Appropriate amendments to the Code of Administrative Violations are already in the State Duma.
"We must ruthlessly cut short any attempts at abusing insider information and manipulating the market," Putin said.
The targets the FFMS set in its development strategy show that the financial authorities hope the Russian economy will soon pull out of its nosedive. They expect the volume of stock traded in Russia to reach 240 trillion roubles by 2020, against the 31.4 trillion early in 2008. The Government hopes to reach this level by involving both big and small investors.
The strategy provides for greater financial literacy and involvement of the general population in playing the stock exchange. The state is also ready to compensate small investors for some of their losses. True, compensations will concern only losses from dishonest practices of other market participants. If a person has invested in assets that go down in price for natural reasons, no money will be refunded.
However, the Russian stock indices, despite the adoption of the development strategy and the Prime Minister's pleas to Russian businessmen not to look over their shoulders at foreign trading floors, closed down yesterday. The RTS index lost 4% and closed at 631 points, while the MICEX index was down 7.21% closing at 567 points (for details see page 14).
It should be said that trading in Asia also closed in the negative yesterday, with American floors starting trade with a drop. In the opinion of analysts, investors cannot ignore other exchanges because they often invest on several. As a result, a declining trend set by the Asian markets often filters down to European and American investors. In addition, the Russian economy is still dependent on oil prices. The World Bank makes a special point of this in its latest report on Russian economic prospects. The curve describing the fall of the RTS index since the summer follows closely the graph showing declining oil prices. Lastly, the Russian economy is smaller in volume than the American and the Japanese, so Russian floors are unlikely to avoid the effects of US and Japanese markets in the near future.
