It Is Worth Investing into Russian Railways If Bonds Are in Demand

In 2013, the Government of Russia will allocate 200-300 bln rubles from pension accruals to infrastructure bonds. This refers to investments into the projects of a particular company - Russian Railways (RZhD). This was reported by the Minister of Finance, Anton Siluanov, on November 26.


There is nothing bad in the idea to invest pension accruals into the infrastructure projects. But these projects should be in demand in the market, i.e. RZhD or another corporation should issue the marketable bonds. If finally RZhD bonds are in demand solely by VEB (Vnesheconombank) and by pension funds, there will be no effect. These structures cannot be the only buyers or even the key buyers. The effect will be seen only if they are in demand and the market trusts in these securities. Or, to be more precise, it is worth investing the pension accruals into the particular bonds if there is a market demand factor.

There is another problem. As a rule, infrastructure bonds are reliable but low-yield securities. So investing into them is practical for those citizens who are already going to retire. Such investments are not profitable for young people, they had better invest into the risky assets which in the long-term perspective are sure to become high-yield ones.

It should be noted that today's low yield of non-state pension funds (NSPF) is caused by the conservative character of their investment portfolio, imposed on them by the state. The reason for such a situation is the requirement to NSPF to keep the positive nominal yield of pension accruals, which in fact means the prohibition of investment into shares, because at the 1-year investment horizon the yield from investment into the shares is unpredictable. Along with that, only investments into shares bring stably high positive yield in the long-term. Now the investments into the shares are only 10% of the total amount. If the requirement regarding the nominal positive yield within one year is not insisted on, NSPFs will invest into the higher-yield securities.

V.S. Nazarov – Candidate of Science, Economics, Head of the Budget Federalism Department