Severstal's Vladimir Zaluzhsky on how to turn a crisis into an opportunity
A combination of political tensions with the western world and a nationwide economic recession has blown away almost all active foreign investing from the Russian stock market. The local investment community is relatively small, mostly represented by pension money managers with low portfolio turnovers. Retail investors have historically favored bank deposits offering secure, high interest rates for their savings, despite the fact that some listed companies offer a dividend yield of up to 15 percent.
Alpha seekers are rare and random stock appreciations come mostly from the index investing of global funds. The shrunken average daily trading volume has resulted in a daily volatility of seven percent to 10 percent even for well-known, large-cap stocks. What might be a paradise for volatility traders is therefore proving a substantial issue for conservative investors and IROs. Despite the aforementioned inefficiencies and risks, however, the low valuations of Russian companies and perception of a limited upside in other markets are still attracting investors. Value investors in particular have been looking at Russian firms and keeping local IROs busy ‒ albeit to a lesser extent than in the past.
As the prevalence of index investing has reduced the demand for equity salespeople and sell-side analysts, the latter have been seeking to join the IR profession, replacing existing IROs or sometimes becoming their manager in the newly created position of ‘head of capital markets’. Even though the newcomers have to master how to co-operate with related functions such as PR, marketing, HR and the corporate secretary’s office, the evident growth in professionalism of IROs in Russia coming from fresh blood is notable.
To hold on to their jobs, smart IROs with many years in the industry have started stepping out of their comfort zone to develop new skills. The CFA and ACCA examinations, the new TED and Coursera education courses, asset management, a deeper understanding of the Bloomberg terminal, IR for start-ups, advanced programs on media relations and reputation building: these are currently among the most frequently discussed topics in the local IR community. Smart employers can reap benefits from this trend. Mature, diplomatic and well-connected IROs are encouraged to work more closely with top management and the board, and to promote corporate reputation in multiple ways:
- For company executives: Arranging meetings with international top-rated industry analysts and banking economists for company executives. Helping to build the professional reputation of top managers: recommending the right banking events to visit. Introducing them to top-level banking and investor contacts
- For the board: Providing in-house analytical updates on the industry. Taking board members on governance non-deal roadshows. Finding potential board candidates among investors
- For PR and government relations: Speaking at professional association conferences, adding value by bringing a financial and investment perspective and raising the status of the topics discussed. Promoting the company via social media
- For CSR: Finding external opinion leaders to promote the company. Structuring CSR communications in a more efficient way
- For HR: Speaking at internal introductory seminars for new staff and at university events to attract new talent. Participating in setting up corporate HR promotional video and website
The combination of a possible resurgence in commodity prices and a new wave of expansion in Russia should no doubt make the country a popular destination for international investing in the future. By then, hopefully, investors will be impressed with the improved quality of local IROs.
Vladimir Zaluzhsky is head of IR at Severstal
