vlad.tribnet.com / Issue #154 / Business / Reading article...

Andrei Malyutin isn’t doing much these days. As president of the Vladivostok Stock Exchange, he hasn’t seen a transaction in more than four weeks.

Vladivostok’s stock exchange was founded in 1992, when many government enterprises were ready to go private. Part of the transition included openly selling company shares to buyers. The stock market facilitated these deals, and all one needed was a little cash to become a shareholder.

But now that many companies have all finished the process of going private and are no longer releasing stocks to the general public, the stock exchange is left without shares to trade. It’s caught in the middle of Russia’s move to capitalism: no longer needed by many, and here before its time for others.

“In Russia right now, a proper securities market simply does not exist,” Malyutin says.

Malyutin is referring to the fact that in Russia’s present climate, a company usually trades no more than 10 percent of its stocks publicly. The rest is traded privately in arrangements made between individual firms and investors they contact or find through investment brokers.

So if investors, foreign or otherwise, want to play the stock market game in Russia, they are immediately slowed by the fact that shares are often not available. And because shares are so hard to come by, they’re extremely expensive. As a result, investors can expect to spend a lot of time gathering information and spending money for very few shares, Malyutin says.

Vladivostok’s stock market also suffers from the standard gamut of regional problems. Many Russians simply haven’t adopted an outlook that would help a stock market thrive here, Malyutin believes.

“People build their image of the stock exchange on unfounded commercial ideas – they think it’s filled with speculators trying to sell the motherland,” he explains.

“They don’t understand that no one cares about their homeland.”

In addition, the political battle between Mayor Victor Cherepkov, who announced his resignation Nov. 11, and Gov. Yevgeny Nazdratenko keeps potential investors wary, he says.

But more important that local squabbles, Malyutin says that western Russia, particularly Moscow, is much more appealing to investors. “Everything is normal in Moscow, while here it’s obviously very risky,” he says.

Malyutin’s approach to combating Moscow’s dominance follows a standard Vladivostok pattern: he’s working to link the stock exchange with the Pacific Rim. The exchange has an office in Hong Kong, and is hyping its image as a gateway to Asian markets.

“We have the potential to play a great role in the Pacific Rim,” he says. “I think that sooner or later this region will begin to develop rapidly.”

Also, there has been a change of mind among foreign investors that leaves Malyutin hopeful. “The question is no longer ‘Should we invest in Russia?’ but ‘How do we invest in Russia?’” he says.

And with the image of chaos in Vladivostok so feverishly bandied about by the foreign press, Malyutin believes that the stock market provides a sensible, secure method of investment that avoids hurdles like obtuse customs laws and poor infrastructure.

“Of course it’s hard to say the New York and Vladivostok stock exchanges are very similar. But we work using the same principles,” he says.

For now, though, the exchange’s biggest problem is that there’s not enough action on its trading floor, even enough to pay for rent. (Although the Vladivostok Trade Port is releasing $9.8 million in new shares, they are going through a private brokerage, not the exchange.)

“We’ve got a weak structure and we don’t have political strength or money,” Malyutin says as he looks out his window at the looming krai administration building.

“But they just don’t have any idea how much money we will make when the time comes.”