On the verge of capitulation: deposits overtake the stock market
The Russian stock market is going through one of the most difficult periods of all time. Since the start of the final quarter of this year, the MosBirch index has fallen almost 20% to its lowest level since March 2023. However, even more characteristic is the ratio of the total capitalization of shares traded on MosBirch to the volume of deposits, which has fallen below one - this has happened for the first time in history. Izvestia" investigated whether investors have lost all faith in the market growth and "capitulated", as well as whether the bottom has been found in the market decline.
Banks overtook the stock exchange
The decline on the Moscow Exchange in the second half of this year has become, if not the largest historically, then certainly one of the longest. Quotes have been falling from the local maximum for eight months. It was longer - 11 months - only in 2021-2022. But now the series can still continue.
But what has never happened is the lag between the market capitalization of the stock market and bank deposits. Trust in banks after the turbulent 1990s was restored in our country much faster than the realization of the benefits of the stock market, and in the late noughties people took their money to deposits en masse. The stock market experienced a comparable influx of investors only a decade later, in the late 2010s. Nevertheless, the capitalization of the stock market has always been much higher than the volume of people's deposits in banks - institutional investors have always been present on the stock exchange in sufficient numbers.
However, now the situation is fundamentally different. The factor that mixed all the cards was the key rate. In a year or so it has risen from 8 to 21%. In real terms, it is breaking records, exceeding 12%. Such a huge gap leads to two simultaneous effects. On the one hand, the prohibitive rate makes it impossible to invest actively on the stock market except with one's own funds - but this is by no means the majority of players. More importantly, the prospects of the issuers themselves, especially those with high debt loads, are becoming rather unclear. The onset of a bear market in conditions of high interest rates (and even more so in conditions of such high interest rates) becomes inevitable.
On the other hand, an increase in the key rate provokes a rise in deposit interest rates as well. Since the beginning of the year, the average maximum rate in the top 10 Russian banks has risen from 14.5% to 22%. Thus, the real yield even taking into account almost 10% inflation has reached 12%. There were no significant risks involved. On the stock market it is simply impossible to earn a guaranteed double-digit interest even taking into account inflation (even the tax refund for placing the amount on the IIS does not give anything like that). It is not surprising that people brought their money to banks en masse. By December, the volume of individual deposits exceeded Br53 trillion, and by the end of the year, according to VTB's forecast, it may reach Br56 trillion.
Expectedly, a significant part of this money was transferred from the stock exchanges. As of December 19, the capitalization of the Russian stock market amounted to about Br45.4 trillion. Thus, it amounts to less than 84% of the volume of individual deposits. At the same time, it was "physical persons" who have been the main drivers of growth of quotations on the Moscow Exchange over the past few years. The number of investors exceeded 30 million, or a good third of the economically active population of the country. Now that these individuals prefer a no-fee deposit, liquidity on the market is drying up. We have few foreign players, and domestic institutional investors alone cannot pull out the entire market.
The bottom cannot be found
It is logical that quotations continue to fall: the MosBirch index has already fallen below 2400 points. And this happened even before the key rate was raised following the results of the December meeting of the Central Bank. The situation looks like investors are desperate to earn something on the market and are simply holding on to their money until better times. This state of bear market is often called "capitulation", which, on the one hand, indicates an extremely depressed state, but on the other hand, may hint at an upcoming rebound. A stock exchange saying says that you should buy just when everyone has given up on growth.
Is it really so? According to Ivan Efanov, an analyst of the "Figures Broker", at the moment the overflow of liquidity into deposits and deposits continues. And the rate increase further discourages investors from buying on the stock market.
- It is not necessary to catch the "bottom", because it is impossible to predict exactly where the market will turn. But we can orient ourselves in space, understand what part of the cycle we are in, see how many such falls there have been in history, assess the risks and the intrinsic value of companies, and analyze what factors are holding back market growth.
He added that now in almost every sector you can find first-tier companies that continue to increase profits, pay dividends, and benefit from devaluation.
- But because of the high risk-free rate, they are valued very cheaply at historical multiples. It is time for long-term investors not only to look at buying shares, but to make them already," believes the interlocutor.
Natalia Malykh, the head of the department of analysis of shares of FG Finam, does not consider what is happening as "capitulation":
- In my opinion, this term is better suited to the situation when shares depreciate by 80%, as it happens during the crisis. Now the fall from the May peaks is about 30%. The market has already reflected the forecast of a rate hike. I don't see strong signals that the bottom has been reached, but on the other hand, the market will realize it when the shares grow upwards. For that to happen, we need some good news on the DKP and geopolitics. If you are forming a long-term portfolio, it doesn't make much difference if you buy now or some percent cheaper (although here too there are no guarantees that the market will give these prices), as the return will be significant. For example, if the MosBirch index grows to 3200-3300 next year, the return will be 31-35% from current levels.
"The scary stuff will be left behind."
In turn, stock market expert of "BKS World of Investments" Lyudmila Rokotianskaya notes that the current valuation of the stock market looks very attractive for increasing investments in this asset class.
- Recently the market is under pressure of expectations of key rate growth and is playing off this event in advance. At the same time, it can paradoxically move from the fact of the Central Bank meeting to growth, because the worst will be behind us in 2024.
Rokotianskaya noted that next year the market growth could be stimulated by news related to possible geopolitical de-escalation, dividend season and monetary policy easing.
- Have we reached the bottom? Hardly anyone can accurately answer that question. Predicting the bottom is difficult. However, buying stocks can and should be done in installments. The market rarely turns upward in one fell swoop - as a rule, prices draw reversal figures of double or even triple bottom. And in a positive scenario, quotations are likely to start forming a trend with long waves of growth and short pullbacks, which can also be used to replenish the portfolio, - concluded the interlocutor.
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