The Russian stock market is recovering from a serious illness. The Moscow Exchange index has stabilized above 3,100 points in the last month and is now approaching the 3,300 mark again. For the most part, the growth is taking place against the background of geopolitical news. Whether the boom in private investment in Russia will continue after last year's failure and how the current upswing will affect the initial public offerings (IPO) market is in the Izvestia article.
Exit from the den
The bear market of 2024 was not the largest, but it was one of the longest — it lasted about seven months. Compared to the local maximum reached in May, the Moscow Exchange index dropped by 1,050 points, or almost 30%, by mid-December. Basically, quotes fell for two interrelated reasons: the lack of hope for an early reduction in the key rate and record-breaking interest rates on bank deposits (including in real terms, minus inflation). There was a situation when there was too little liquidity for the stock market, and the funds of private investors went to banks.
On the contrary, growth since the beginning of the year has been taking place against a favorable geopolitical background. The news about the resumption of the negotiation process between Russia and the United States was already a sufficient factor for the quotes of the Russian stock market to go up. By the end of February, the Moscow Exchange index had broken through 3,300 points, which had not been observed since May 2024. In fact, in a little over two months, 90% of last year's decline was recouped.
However, Dmitry Alexandrov, Managing director of Renaissance Capital Management Company, believes that the Bank of Russia has also contributed to the growth of Russian securities.
— It cannot be said that the stock market is actively growing, rather it is sideways after a sharp revaluation. There were two factors of overestimation. Firstly, on December 20, the Central Bank fundamentally changed its rhetoric regarding the key rate, which raised hopes for a more rapid reversal of monetary policy. Secondly, there were positive expectations regarding geopolitics, and this gave further impetus," the expert explained.
Apparently, the index has now hit a certain ceiling, and now, in order for the market to continue to grow, facts must take the place of rumors.
— In my opinion, the growth will be at the actual start of the rate reduction cycle, as well as with material shifts in geopolitics, — said Dmitry Alexandrov.
According to Kirill Klimentiev, an analyst at Cifra Broker, the market looks fairly priced relative to all current introductory rates — the key rate of the Bank of Russia is still at a high level of 21%, and no specific measures have been taken yet from the point of view of the political situation.
Natalia Malykh, head of the Stock analysis Department at Finam, believes that without progress on the two issues mentioned, the market potential will remain limited, and moderate purchases will be mainly for dividends from companies with healthy profit dynamics. For a new wave of purchases, a rate cut is needed, as well as concrete progress on easing sanctions.
"It is difficult to count on the end of the conflict with the belligerent attitude of Europe, and if the United States supplies weapons not directly to Ukraine, but through the EU, this will not be much different," she said.
Self-fulfilling mechanism
In general, the domestic market has survived the crisis associated with the beginning of its economic growth quite well, and the decline against the background of a sharp increase in interest rates has become quite moderate. This is largely due to the fact that institutional investors and foreigners have been replaced by Russian private traders, who have poured into the stock exchange in record numbers.
Since 2020, the number of retail investors has grown almost exponentially. Last year, this number exceeded 30 million, accounting for about a third of the total economically active population of the country. This is one of the highest rates in the world. Interestingly, Russia has followed the path of Iran, where the stock market, under conditions of comparable severity of sanctions, survives mainly due to private investment.
However, will investors want to get involved with Russian securities again after such a long bear market, especially considering that deposit rates are still around 20%? Analysts' opinions are divided.
— Now we see the fear of being late, especially in bonds. Many investors are afraid of not having time and accelerate bond prices. This is less evident in stocks, but there is certainly interest. As the market grows, the fear of missing out on opportunities will only grow, there is a kind of self—fulfilling mechanism here," Dmitry Alexandrov notes.
Vasily Lavrov, the founder of the development company Tonnex Group, believes that there is "nothing on the market right now, or rather, there is no one to buy":
— At least a little more than 30 million people, private traders, entered the Moscow Stock Exchange. There are 4 million active of them who make transactions. But what do they sell? The stock exchange is a place where entrepreneurs come for money when they don't have enough. But here it's the other way around: those organizations come to the stock exchange that have everything in order with money, so trading is so-so. To actually trade something, you need to become a qualified investor. Now you need to have 12 million in your account. And in six months it will be 24 million. Why and why? The answer is concern. So that citizens' money does not suffer.
Fintech is leading the way
The resumption of growth may have a positive impact in another context — the IPO. After the mass entry of companies into the market in 2011 (35 issuers), the number of placements decreased sharply. By the end of the 2010s, at best 1-2 companies per year were listed on the stock exchange. Once again, the situation turned sharply in 2022-2023. And in 2024, the number of IPOs reached 14, a maximum in 13 years. This year, it is planned to place even more issuers — presumably 18.
The flip side of the coin is that investors are often disappointed: there is a rush of demand for securities that are clearly overvalued. As a result, enthusiasts lose up to several tens of percent on their investments. Whether there will be the same interest in placements after a series of failures as in the past is debatable.
According to Dmitry Alexandrov, we may indeed see the return of the IPO market in 2025, but it is important for valuations that the rate starts to decrease.
— In my opinion, a return of interest in the market can be expected in the second half of the year. Indeed, there is a problem with inflated valuations from a number of issuers, and given the asymmetry of information, this is a big challenge for the market. Retail investors are often misled about the future results of companies, and this leads to losses in transactions. The Bank of Russia and the Moscow Stock Exchange are working to improve the mechanism for bringing issuers to the market, but still, investors themselves must figure out where they want to invest and vote in rubles. This is the most effective mechanism," the source believes.
If 150-200 new companies enter the IPO every year, regulatory norms are adopted that do not hinder, but help individuals invest, then the appetite will awaken, Vasily Lavrov notes.
"Everything must be done to ensure that the market develops both in terms of support for issuers and in terms of simplifying access for private investors,— he stressed. — I would not limit them, but Western institutional investors, they are playing professionally and not for us.
According to Klimentiev, in the end, the IPO share price is determined by the investors themselves.
— In my opinion, it's cool that small issuers representing small sectors enter the stock exchange. As for the discount to a fair valuation, the IPO is conducted by the same main 4-5 organizing banks, and the valuation depends more on market sentiment," the source believes.
According to Finam analyst Leonid Delitsyn, the success of the first placement has a lot to do with it.:
— There have been no announcements about the start of the IPO on the Moscow Stock Exchange yet, and in St. Petersburg on March 12, the collection of applications for participation in the placement of the JetLend fintech company started. If it goes well, then the revival of the IPO market can be expected immediately. So far, there are no large public companies for which crowdlanding is the main business model, including abroad. It is not uncommon for IPOs to be the first to take risks from such organizations. For example, Delimobil became a pioneer last time, and there are no public companies specializing in carsharing on American exchanges either.
He added that companies that plan to enter the market in 2025 are at least as good as last year's issuers.
"In particular, we still do not have specialized cloud providers and online advertising operators on the stock market, and leading companies in these industries may list shares on the stock exchange in 2025," the speaker concluded.
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