Russian Financial Management Firms Enter China and India Markets
Russian financial services companies and professionals are gradually entering the financial services markets in Asia. At the beginning of March, Ingosstrakh-Investments Management Company received a license from China’s financial services regulator for operations with financial instruments on the Chinese stock exchanges.
Alfa Capital has received a similar license in India. This status expands the opportunities for these companies and their clients to trade securities in friendly jurisdictions. However, the risks of trade restrictions will increase in case of pressure from the US and the EU.
According to a statement from the Ingosstrakh-Investments Management Company, it received a license from the Chinese Securities Regulatory Commission for operations with securities and futures earlier this month. Previously, on February 16, the company received the status of a Qualified Foreign Institutional Investor (QFII). Obtaining a status and a license gives the company and its clients access to trading on the stock exchanges in mainland China.
Twelve months previously, Best Efforts Bank (now SPB Bank) also received QFII status in China and allowed the bank to start trading Hong Kong shares.
In early February this year, Alfa Capital was registered by the Securities and Exchange Board of India as a foreign portfolio investor. As part of the license, the company received the opportunity to make transactions with securities on the Bombay (BSE) and National (NSE) stock exchanges.
Gaining access to foreign sites is a slow process that requires a detailed study of the specifics of the functioning of the local market and infrastructure with the involvement of local consultants.
According to Artem Mayorov, a director of the asset management department at Ingosstrakh-Investments, it took about three months for the first stage, when negotiations were held with local players, and the same period to obtain the QFII status. The companies did not disclose the costs incurred. But market participants familiar with this issue estimated them at US$50,000 to US$200,000.
This is less expensive than the representative office route, where the costs can be many times higher, at about US$1 million, since it is then necessary to rent premises and hire staff.
These services are aimed at qualified investors. At Ingosstrakh Investments the minimum entry threshold is set at 3 million Rubles, while at Alfa Capital it is 1 million Rubles.
“In Q2 2023, we plan to offer qualifiers two strategies of trust management, for shares and bonds of Chinese companies,” said Alfa Capital’s Mayorov. In the future, it is planned to expand the number of strategies, and the creation of retail funds based on Chinese assets will also be worked out. Alfa Capital will also at the first stage offer its clients a remote-control strategy for shares of promising Indian issuers. “Direct access to the Indian trading floor is effective both in terms of reducing final costs for the client and in terms of controlling transactions,” notes Irina Krivosheeva, CEO of Alfa Capital.
A number of other Russian professional participants, including FG BCS and Finam, are also exploring the possibility of entering Asian markets.
“Asian markets are new for our investors, but Vietnam, Thailand, Malaysia are all quite promising,” said Dmitry Lesnov, Head of the Finam Customer Service Development Department. Other major professional participants spoke about plans to enter the Chinese stock market, but have not yet specified the timing.
However, not all market participants surveyed announced their intention to follow the path of the first companies. “Direct exit is justified for large players who have a large retail control customer base,” notes a source in a large management company. According to Dmitry Timofeev, General Director of TKB Investment Partners, when working on any new market, you need to have expertise and information services.
Companies adhere to a rather cautious approach, even in relation to work in friendly jurisdictions, Anastasia Kayukova, Senior Associate at the Vegas Lex law firm points out.
The reasons for this can be both sanctions risks and the complexity of working in the legal system of a particular country. “Another important nuance is that despite the friendliness of China, as a jurisdiction, towards Russia, most financial institutions stand apart and try to comply with sanctions against Russia,” notes Timofeev. Therefore, it is still difficult to predict how they will behave in the event of pressure from the US and the European Union, and whether there will be restrictions on the operations of Russian clients.
Source: Vitaly Gaidaev and Xenia Kulikova for Kommersant
Dezan Shira & Associates assist Russian companies into Asia and have offices throughout China, India and the ASEAN nations. Please visit www.dezshira.com or contact Maria Kotova at email@example.com for assistance.