Russian capital markets: What’s driving change?

Laurence Neville
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The Russian government’s desire to build an international financial centre in Moscow is genuine. However, the government’s market infrastructure reforms are also driven by other short-term and long-term motivations. Short-term concerns centre on a reluctance to lose out to rival markets in central and eastern Europe. “Other CEE countries are competing hard for foreign investment and investors,” says Alex Krunic, head of product sales for direct custody and clearing at JPMorgan. “Poland clearly has positive momentum: it is number one for IPOs in Europe in 2012, number four by value of IPOs and number nine by cash equity value.”

Moreover, Poland has a diverse investor base – it has big institutions that have a high allocation to domestic equities and a large retail investor base. Pension funds in Poland have an average 32% allocation to Polish equities compared with less than 1% to foreign equities, notes Krunic. Poland also has some post-trade advantages over Russia because its central securities depository acts as a single source of information about corporate actions.

Meanwhile, the $2.5 billion secondary public offering of Halkbank in November indicates the potential of the Turkish market. Turkey has also announced new regulations that will boost TurkDex and there is an expectation that the Istanbul stock exchange will merge...