Bankers: Markets Due for Big Boost

VIENNA -- Russia's fast-growing and chaotic stock markets are due for a major boost with the end of voucher privatization, but improvements must be made in the marketplace if Russia is to attract the huge amount of capital that will be needed to restructure its industry, Russian and Western bankers said.The bankers, gathered here this week for an Adam Smith Institute conference on Marketization of the Former Soviet Union, said that trading in Russian shares has been expanding rapidly in recent months. Gordon Muir-Carby, executive director of the British brokerage Smith New Court Europe, estimated that monthly trading turnover was in the region of $200 million, though other sources said that at least as much again is taking place between Russian brokers. Muir-Carby said that to date about 60 Russian shares are actively traded among foreign firms. But Jonathan Hay, director of the Harvard Institute for International Development in Moscow and an advisor to the Russian Securities and Exchange Commission, said that Russian markets are in a crisis situation that is scaring off a large share of potential investment.He said that the crisis lies in the opaqueness of trading, the lack of an established settlements system, the inability of the government to regulate the market and the inadequacy of financial information available to potential investors.President Boris Yeltsin recently issued two decrees designed to protect investors' rights and a number of Western-sponsored programs have been set up to bring some order to the market, but the effect of these measures has yet to be seen. Bella Zlatkis, head of public securities and financial markets at the Finance Ministry, warned that public dissatisfaction with voucher privatization could inhibit further development of the stock market. The market's reputation has been damaged by the well-publicized demise of several investment funds that offered improbably high returns on deposits then disappeared with thousands of vouchers and millions of dollars in Russians' savings."I expect many problems," Zlatkis said. "The population itself hasn't yet had any material gain from the voucher scheme, and this has turned popular sentiment against the scheme and might make it difficult for the market to develop."The chaotic status quo, however, can be an advantage to some.Mikhail Alexandrov, investment director of the Russian investment fund Alfa Kapital, said bluntly at the conference that the less efficient the market, the more money there was to be made.By all accounts, Russian shares tend to be considerably undervalued. Andrei Orekhov, general director of Russian brokerage Grant Financial Services, said his company estimated the average share price to be one-tenth of its real worth. Orekhov believes that as the market evolves, medium-sized companies will become a focus of investor interest as it is easier to identify their worth than it is with large, sprawling Soviet-style firms that often support entire cities. He and other speakers pointed out that even if foreign investors were wary, Russian investors would increasingly be drawn to the stock markets. Russian commercial banks, for example, have substantial capital at their disposal and can no longer make the big returns on currency speculation that were possible just six months ago.Most speakers were optimistic on the outlook for the markets because they have already come so far so fast. It is "tantamount to a miracle what has happened," said Klaus-Albert Bauer, a German lawyer working in the field in Moscow.Robert Towbin, a seasoned American banker and now chief executive of the Russian American Enterprise Fund, summed up the mood, saying that despite the difficulties of making investments in Russia, "I've never seen an opportunity to make so much money in my life."