Soviets Can Now Play the U.S. Market : Stocks: Montgomery Securities has linked up with a fledgling Moscow brokerage to provide access to U.S. blue chip issues starting today.
The crumbling, cash-starved Soviet Union wouldn’t be on anyone’s short list of potential new sources for investment capital, but that hasn’t stopped Montgomery Securities from going ahead with the first effort to sell stock in American companies to Soviet citizens.
Through an arrangement with a fledgling Moscow brokerage that’s a member of the even-more-fledgling Moscow Central Securities Exchange, San Francisco-based Montgomery hopes to tap the hard currency reserves now stuffed in mattresses--somehow estimated to be worth $19 billion--and funnel it into shares of AT&T;, IBM and six other blue chip stocks.
Montgomery Managing Director Seth J. Gersch said he “likes the concept” of fomenting capitalism in the onetime heartland of communism, but he is realistic about the business potential. “It would be very difficult not to exceed my expectations,” he said.
Gersch won’t have to wait long to see how many Soviet residents and institutions have been pining away for access to U.S. securities markets. Beginning today, Montgomery will begin transmitting share prices over a special satellite communications link to its Moscow-based partner, Sovlex, which will in turn offer shares to the public.
Sovlex will then place orders with Montgomery, which will purchase the shares and hold them in custody on behalf of Sovlex. Montgomery will charge Sovlex its normal commission, and Sovlex will charge purchasers whatever it wants.
“There is a very large underground investment community that needs to be flushed above ground,” said Benjamin Lyon, a law professor who serves as vice president of the California-USSR Trade Assn. and played a key role in getting Montgomery and Sovlex together.
Although Soviet citizens and institutions with capital to invest can also put it into domestic companies that are beginning to offer shares on the Moscow Central Securities Exchange and dozens of other stock markets that have sprung up across the country during the past year, Lyon said many would prefer the stability of a U.S. company.
But Simon Johnson, an economics professor at Duke University’s Fuqua School of Business and a specialist in the privatization of business in Eastern Europe, noted that Soviets who had significant amounts of hard currency had two basic priorities: liquidity and security.
Before they invested in U.S. stocks, Johnson said, Soviets would need to be assured that they could sell the stock and get the hard currency back on short notice. And they would have to be persuaded that the people at Sovlex were trustworthy and that the government wouldn’t somehow get involved in the transaction.
“The basic product that they’re offering (U.S. securities) is a good idea, but a lot will depend on the kinds of services” that Sovlex can offer, Johnson said. Although he was not specifically familiar with Montgomery’s plan, Johnson said the firm was unlikely to do much business in the short term but would gain experience that could prove valuable in future Soviet ventures.
Gersch of Montgomery Securities noted that investing in U.S. stocks such as AT&T;, IBM, Intel, Apple Computer, Hewlett-Packard, Compaq Computer, Boeing and BankAmerica--the eight that will be offered initially--would provide Soviet citizens a much better rate of return than a mattress.
Yet with inflation running well into the triple figures and the buying power of dollars continuing to rise rapidly in the Soviet Union, stuffing hard currency into a mattress is actually a pretty good investment. “That’s what I’d do,” Johnson said.
