Russian Investor Statistics - Record Net Purchases for Equities Imply Culture Shift

Moscow Exchange has released retail investor statistics for October. Retail account holders bought R80 bln ($1.1 bln) in October, breaking out of the steady R30-40 bln range seen monthly for most of the year and setting a new record since the regular data releases premiered. A pickup in inflows and account openings offers a promising signal for retail interest in equities looking forward, while we will continue looking for any plateau in a higher rate environment.Inflows to equities via mutual funds also picked up, reaching circa R21 bln ($257 mln) on our estimates. This is a near record and coincides with the strong acceleration of inflows from the direct retail investment side. Also supportive was that nearly R15 bln went directly into equity-only funds out of R25 bln brought into total mutual funds this month, a larger proportion than in recent months. The pickup across all these lines implies that Russian retail investors are continuing to expand stock allocations even as deposit and bond rates have risen rapidly, the 10y OFZ yield for instance now around 8.0% versus an 8.5% consensus forward 12-month dividend yield for the RTS. If this trend in inflows continues, it could support a view that Russians' expanded allocations to stocks are less about yield alone than also about willingness to diversify their savings across less conservative instruments and with increasingly accessible brokerage platforms. This in turn would be a promising sign for the stock market's support from retail investors looking forward. The results of our last two Ivanov surveys also support the thesis that what the market is seeing is more a cultural shift in views toward stocks than a mechanical reaction to yields alone.On the other hand, while bond yields were rising throughout the month, it could be a sign of some decline in interest for equities that the last week of the month saw the most sluggish flows (circa R10-15 bln), following the CBR's rate hike. Hence, we continue to watch for any plateau in inflows as the market continues into a higher rate environment. November's flow data will be of particular interest.Given that some $751 mln was placed in shares of two companies over October, the total retail flow numbers imply that nonresident investors withdrew as much as $708 mln from Moscow listings. However, we would be hesitant to read too much into these numbers, given in particular that PIK Group's circa $498 mln placement came right at the beginning of the month, and related flows may have been accounted for in either September or October. Nonresident investors may also have been trimming overweight positions as the market continued to outperform, the RTS for instance delivering a total return of 5.8% over the month versus 1.5% for the MSCI EM.Like equity inflows, unique account openings also reached a new record, at 982k. This third consecutive month with a rising growth rate also saw total unique accounts reach 15.5 mln. Meanwhile, active accounts (i.e. those making at least one trade monthly) were steady at 16%.Moscow Exchange also reports the top 10 stocks in the average retail portfolio every month, and their relative weight among that top 10. This month saw Gazprom expand to yet another record high, from 30.6% to 31.9%. Sber also expanded, while the Sber pref, Nornickel and Aeroflot contracted. Severstal remained steady. However, the rest of the basket changed, with MMK, MTS, Lukoil and Surgutneftegaz prefs departing, while Magnit, Polymetal, NLMK and VTB entered. The departing stocks had also underperformed in the month, while those entering the top 10 outperformed. The data alone cannot answer whether retail flows drove the performances, or whether performances moved the rankings in the retail portfolio.