President of Russia Dmitry Medvedev: These are not the easiest times for the stock market. Unfortunately, there are objective reasons for this situation that lie beyond the power of our financial authorities and are not related to economic factors in our own country. Essentially, all of the financial markets and the international financial markets are going through difficult times. At the same time we also have problems of our own.
Trends on the stock market have been quite complex of late. But we do not think they are indicative of long-term problems. This is more likely the market’s reaction to a number of unfavourable circumstances, a number of difficulties at the international level and in our own economy. I would like to hear your assessment of the situation and your proposals for a package of measures to stabilise the situation on the Russian stock market. Tomorrow we will hold a meeting on the international financial centre and we will continue this discussion with other colleagues.
Please, go ahead.
Director of the Federal Service For Financial Markets Vladimir Milovidov: You are absolutely right: the situation on the Russian financial market today is more a reflection of the complex trends underway in the world at the moment and the crisis processes taking place above all in developed economies such as the United States of America and partly in Europe too. But we are keeping close watch nonetheless on events here in Russia.
Following our market day to day we do indeed see that falls are quite frequent, but at the same time we realise that there are no fundamental causes for this drop. This is confirmed by the fact that today trading on the Russian financial market is growing and transactions are taking place. We also see that deeper changes are taking place on Western markets that could indeed lead to a crisis situation.
Regarding the situation on the Russian market, I think it can be set right and is not dramatic. The Russian market has been a leader in growth over the last 2–2.5 years. What we are seeing today probably reflects a downward correction to this dynamic growth. Set against the almost three-fold increase on our market over the last 2.5–3 years, the drop of around 40 percent we have seen over these last days and months does not look dramatic. In today’s situation, short-term or emergency measures are not so relevant. The Russian market has sufficient internal potential to make emergency measures unnecessary. What we do need right now are long-term measures that will help us to build up the market’s existing potential. This means above all increasing the Russian financial market’s capacity by attracting domestic investors, above all retail investors, and by developing possibilities for our companies to expand on the Russian market and work with new types of financial instruments.
We propose a whole series of measures to address these objectives. In particular, we think it essential to make substantial changes to regulations on issuing securities, remove additional administrative barriers so as to enable not just large companies to use the financial markets to raise capital, but also create the conditions for innovative companies, new companies, to enter the Russian market without having to cross so many administrative hurdles. The law makes this possible in that it provides for the institution of qualified investors, for whom we could expand the range of fairly risky but at the same time attractive instruments and remove additional barriers in the way of issuing such securities on the market.
The same goes for developing the derivatives market. This market represented around 7 trillion roubles at the end of last year, and over the first eight months of this year has now come close to 10 trillion roubles. In other words this market is developing. Of course, this market is not without risks, but we are keeping watch on it. This is a sign that the market players are interested in insuring against risks and monitoring the processes on the financial market, and these instruments are being used to insure against risks.
Regarding other areas, we think the time is right to look at reinforcing and capitalising our infrastructure, our settlements institutions and clearing houses on the financial market, which handle the totality of transactions. Carrying out these measures would help to strengthen our financial market and make it more competitive in the medium term.
Dmitry Medvedev: You are right. We cannot change the situation on say, the American market. The Americans will have to sort out their mortgage system and other financial instruments themselves, though, to put things plainly, they have let almost all of us down. But there are two issues we clearly need to think about.
First, despite the various difficulties, Russian companies’ assets are still undervalued in many cases, and this creates potential for growth.
Second, given that our market is still growing, volatility is an inherent trait and this means that there can be quite serious fluctuations in evaluations, and this has both advantages and disadvantages. I think that, ultimately, the changes you speak about, which are not dramatic, will lead eventually to stabilisation. If the decisions you have listed are taken, the situation will come right and the market will return to practically the same indicators we had at the beginning of the year. In any case, I think this is all within the Government’s power. Tomorrow we will continue this discussion in broader format when we meet to talk about the international financial centre.