Portfolio investment as a factor for the development of the Russian economy as one of the BRIC countries

Abstract

Portfolio investments have an impact on the development of financial markets around the world, especially in countries of growing importance for the global economy. Russia is one of the countries which are mainly linked to the energy and raw materials sector, so at a time of fluctuations on those markets, its economy is less predictible for international investors. The regulations for investors in this country (also non-residents) need to be improved to overcome the negative effects of world financial crisises and to rebuild financial markets. Russia is also an economy with large amounts of capital to invest, so it is interesting to observe its financial flows to other countries in the situation when existing regulations are stopping capital for domestic investment. The following article analyzes the flows of portfolio investment in Russia in the twenty-first century based on balance of payments data in conjunction with changes in the geopolitical situation and the investment attractiveness of the country. Capital invested in the form of portfolio investments is fragile and often short-term, and it is most vulnerable to periods of recession, causing rapid changes in the flow of this kind of capital. These relationships can be clearly observed in Russia. The strong interest of foreign investors in the Russian economy, in the form of direct and portfolio investments, started in 2000 and lasted until 2006. In the first half of 2008, decreases were slow compared to the record high of the previous year, but from September they accelerated to such an extent that by the end of the year they had reached almost 100%, depicting a sharp decline of foreign investors’ interest in the Russian securities market. This translated into a decline on the Russian stock market. The Russian economy since the beginning of the twenty-first century has experienced a significant influx of foreign capital, including in the form of portfolio investment. However, in comparison with the possibilities of the development of the economic potential of Russia, it is still a small amount.