Why Foreigners Love Vladimir Putin’s Bond Market

Russian elections highlight the strange economic attraction investors have shown for the country’s financial markets

Nonresidents now hold one-third of domestic government bonds, compared with barely any six years ago.

.. And Russian bonds still look attractive, with a 10-year yield of just under 7%, while inflation has fallen well below the central bank’s 4% target. Conservative economic policy was part of the reason for Standard & Poor’s to upgrade Russia to investment-grade status in February.

But Russia needs change too. And here, continuity in leadership is part of the problem. The economy has emerged from recession and grew 1.5% in 2017, but much faster growth may be tricky: The central bank itself says structural reform is needed to boost growth beyond 1.5% to 2%. Russia’s population is shrinking and aging. Productivity is poor and state involvement in the economy is high.

One Cause of Market Turbulence: Computer-Driven Index Funds

In many ways, this stampede toward passive investing — in which people put their money into funds that track indexes and broader market themes as opposed to relying on human stock pickers — is uncharted territory.

.. the key question is how this transformed market holds up during a financial storm that lasts more than a few days.

.. Cheaply priced exchange-traded and index funds .. They now own close to 40 percent of stocks in the United States

.. BlackRock..  is the leading issuer of exchange-traded funds, with $1.3 trillion under management

.. The popularity of E.T.F.s has concentrated unparalleled financial power in BlackRock and Vanguard, the two biggest providers of index funds and E.T.F.s. Together, they sit on $10.5 trillion in assets and control 65 percent of the 1,700 exchange-traded funds that exist.

.. As the flows have grown in volume, much of these funds have gone toward index heavyweights like Amazon, Apple and Facebook, pushing their valuations ever higher.

.. Active fund managers — human stock pickers  .. because they are the ones who buy when others sell.

Silicon Valley Vs. Wall Street: Can the New Long-Term Stock Exchange Disrupt Capitalism?

Tech luminaries back new exchange that rewards shares with more voting power the longer investors own them

..  the voting power of shares increases the longer investors own them. Firms listed on the exchange would need to use such a structure, often called “tenure voting,” while abiding by numerous other rules, such as a ban on tying executive pay to the company’s short-term financial performance.
.. skeptics wonder whether the LTSE is just another way for tech founders and elite Silicon Valley investors to maintain control at the expense of other shareholders. One leading New York hedge-fund manager who asked not to be named called tenure voting “disgusting” and said it would enable managers to duck accountability.
.. The LTSE is funded by a range of venture-capital firms, led by Peter Thiel’s Founders Fund, Andreessen Horowitz, SV Angel and Greylock Partners, and individual investors including former Twitter Inc. CEO Dick Costolo, AOL co-founder Steve Case and Groupon Inc. founder Andrew Mason. The firm says it has raised $19 million from around 70 investors in all.
.. SEC Chairman Jay Clayton .. has voiced concerns about the nearly 50% drop in the number of U.S. public companies over the past two decades—a trend that is partly due to companies choosing to stay private for longer.
.. executives’ bonuses couldn’t be tied to financial-performance targets over periods of less than one year. If the executives are paid in company stock, the shares couldn’t fully vest for at least five years.
.. they would be barred from releasing quarterly earnings guidance
.. the voting power of his or her shares would grow over time, capped at 10 times the power of ordinary common stock after a decade.
.. The voting structure will depress the share price of any company listed on the LTSE, said Neal Wolkoff, former CEO of the American Stock Exchange. “Fewer people will want to buy into a company where there’s entrenched management,” he said.
..  In his view, tenure voting is better than the solution favored by some Silicon Valley firms: severely limiting the voting power of ordinary shareholders through two or more share classes.

Snap Inc., for instance, has a controversial multiple-class share structure in which shareholders who buy the company’s common stock listed on the New York Stock Exchange don’t get voting rights at all.