The Good, The Bad, And the Green: Review of MOEX Forum 2021

Photo by Omar Albeik on Unsplash

The 11th Moscow Exchange Forum 2021 was a worthy exercise on the topic of what is going on with the Russian capital market today.

Here I post some ideas I took notes of while attending the majority of the panel meetings online as a listener.

Bad Year

Well, everybody has bad times. The speakers noted that 2020 was a bad time for ones — but a good time for others.

Fair to say, the full range of consequences 2020 year leads to remains to be seen.

The speakers believe, an investor should —

before bad times — develop a strategy, diversify, and hedge
in bad times — keep a cool mind and employ risk-management tools, and
after bad times — learn the lesson and keep a long memory.

Newborns

One-bottomers (in Russian: однокнопочники) — a funny word some speakers used to describe millions of retail investors who poured into the Russian capital market in 2020.

A good portion of words was spent on describing what a fascinating scale effect new investors can create, what a strong impulse they can bring to the development of financial market instruments.

Arranging life-long investing, building the client’s happiness(!), making a good first impression, helping to earn first low-risk earning — this is an incomplete list of goals financial companies have in building relations with new-coming retail investors.

But — there is always but — another good portion of words was spent on why retail investors should not be left alone with the financial market.

Lack of financial knowledge, predisposition to “easy and fast” solutions, non-critical attitude to financial advices, ignorance of fundamentals — this is, again, an incomplete list of reasons why all the market participants stay alerted and concerned.

Build Borders

Certain speakers advocated for allowing retail investors to take decisions within an established framework shaped by testing, learning, investment consulting, and fight against dishonest practices. (In below, a few words about it.)

The proposed architecture is a bit paternalistic, but does not exclude the risk of that informed choices can be manipulated.

Ultimately, the very reason of such architecture — to ensure financial stability.

Filters

Testing investors before offering / selling them certain instruments is very likely to become a legal requirement. Some speakers reported the representativeness and effectiveness of testing probes. Let’s look for practice to show how it works.

In the meantime, any filtering may hinder access to the capital market, and may be subject to challenging from the perspective of human rights and perspectives. What’s more, humans may behave differently when passing a test and trading. Also humans can and do lie.

Passion For Learning

Almost all speakers highlighted their efforts on educating new investors — via courses, quizzes, alerts and the like — what the financial market is and how it works.

Why do they seek to educate their clients? Shouldn’t they assume the client is a capable person who knows what it is doing?

The speakers predominantly believe that solid and accurate knowledge helps build the investor’s trust and reliance on the financial market in general and its respective participants in particular. In the same time, trust is a ground for long-term investments (and brand loyalty, and regular fees).

Another aspect — educational content. To eliminate dissemination of illegitimate or incorrect information, some speakers call for establishing accreditation, certification or similar procedure each educational content should undergo before becoming available to investors.

Anyway, given that the financial market is not a field for humanism, the efforts of market participants to abstain from exploiting ill-informed public deserve recognition.

Wisemen

Retail investors need accessible, affordable, and professional investment consulting, some speakers argued.

If one has no investment plan, one proceeds with building an investment portfolio the same way one travels without a map and destination points.

Passive vs Active

The speakers noted the tendency of retail investors migrating from active trading to passive investment strategies, like ETFs and index funds.

There is an opinion that passive investments are cheaper, safer, and (in the long term) more profitable than active investments.

However, as one speaker argued, passive investments are not a harmless tool. For instance, passive investments wash smart money away and replace them by money management and rebalancing, thereby creating new structure of market liquidity. Also indexing business frequently lack transparency and suffer from poor disclosures.

Brute Force

Increasing number of retails investors transforms them into a market participant whom one needs to take account of, the speakers warned.

Failure to seek and find recognition among retail investors may undermine the success of future placements.

Echo of GameStop

(For details about GameStop case — read here or here.)

As I expected, the speakers could not refrain from discussing the impact of gamification and one-button decisions on the investment culture of retail investors.

Predictably, the speakers advocated against transforming investing into a game, against over-simplification of trading, and for full information disclosure enabling more responsible investment decisions.

Echo of Reddit

(For details about the role of Reddit in GameStop case — read here or here.)

Again, as I expected, the speakers did not ignore the question of whether censorship in the matters relating to the financial market is appropriate and required.

It was interesting to find out that some financial market participants are already successfully working to suppress misleading, incompetent or other unscrupulous user behaviour in the social networks they have created for investors. For instance, they moderate content, de-anonymize users, and transmit information about illegal practices to the compliance and the regulator.

Everybody Needs Cash

Raising number of transactions — including thanks to new retail investors — mainstreams the importance of managing the liquidity risk.

As a saying goes, the liquidity is present when nobody needs it.

Shells

The speakers were divided on the benefits of SPACs.

Some argued that SPACs expand access to capital.

Others asserted SPACs help avoid necessary corporate and valuation procedures, thereby creating excessive risks.

Green Is A New Black

Most publications emphasize the progressive and evolutionary role of green economy and green investments, but lack thorough study of any drawbacks and side effects.

Notably, some speakers took the lead and pointed out, for example, that the green agenda leads to transformation of non-financial risks (impact on environment) transform into financial risks (access to funds). This may change the global capital flows and even undermine the financial stability as we know it.

Others observed that instruments of the green economy (like carbon taxes) may serve a shield for anti-competitive practices.

Another hot topics — criteria of “green” and lack of statistically significant default series to properly assess whether lack of green investments lead to development lag and inefficiency in comparison with “green” competitors in the long term.

Also, despite of numerous regulatory initiatives, it remains to be seen how and in what context the banking regulation will consider ESG factors.

Originally published on https://dearall.medium.com/the-good-the-bad-and-the-green-review-of-moex-forum-2021-6f40eca3b4c9

Disclaimer: This is my personal blog. This is neither a legal opinion nor a piece of legal advice. The opinions I express in this blog are mine, and do not reflect opinions of any third party, including employers. My blog is not an investment advice. I do not intend to malign or discriminate anyone. I reserve the right to rethink and amend the blog at any time, for any or no reason, without notice.