TBY talks to three finance industry leaders about Kazakhstan’s significance in the region and the development of its capital markets.
What is your assessment of Kazakhstan’s significance in the region?
TK We view Kazakhstan as a hub for our Central Asian franchise. It’s clearly the biggest economy in the region. It’s also by far the most liberalized in terms of its economic policies, its legislation, and its position in the global economy. Kazakhstan has strong potential for continued growth, underpinned by its large mineral and oil and gas endowment, educated population, and political stability.
AM It is very important. We are committed to Kazakhstan. We did not close our office during the crisis. We kept it in the same shape it was prior to the global downturn. One characteristic that makes Renaissance Capital special is that it is the first bank to focus on emerging markets, and provided Kazakhstan’s geographical location and resource base it becomes clearer how important this country is for Renaissance Capital. Kazakhstan can become the crossroads and center of economic trade between Russia and China. We are also seeing an increasing flow of business between Kazakhstan and Africa, and there is an increasing number of
Kazakhstani clients asking us to bring them opportunities in Africa.
EA The expertise here is growing on the lending side rather than on the securities side, whereas in Russia there is a lack of expertise on the lending side. This presents a big advantage, especially when coupled with Kazakhstan’s proactive regulatory regime. The market here is much healthier than it is in Russia. The problem is that we do not have the scale. That is the big challenge for Kazakhstan.
What are the main trends you’ve observed in investment banking in Kazakhstan?
TK Kazakhstan is a very attractive market for investment banking, and there are a number of big international names present. Several large Kazakhstani companies are listed in London, such as KazMunayGas, Kazakhmys, and ENRC. These companies focus largely on the mineral and oil and gas sectors, but once again we see promise for companies from other sectors. This creates a very positive backdrop for investment banking in the country. We believe we are well entrenched in the domestic marketplace, and our value-added is well known to local corporate and quasi-sovereign institutions. This awareness has developed over the years, and the market has matured in terms of its understanding.
AM The crisis had a strong impact on Kazakhstan, especially on investment banking. During the crisis it was quite difficult to attract investors to Kazakhstani companies. Now we are seeing a tremendous change. We are going back to an environment where Kazakhstan is seen as a very interesting market. There is the interest and appetite to access international markets. The only thing missing is a liquid, efficient, and active stock market. There is a large pension system that is investing in government bonds. This needs to move to investments in the corporate sector. In Poland, for instance, the pension funds were allowed to invest in the stock exchange, and this helped create one of the best capital markets in Central Europe. This might set an example for Kazakhstan. That is what should be the next step.
EA The Kazakhstani equity strategy is not really popular because the market is very illiquid. If you look at the market, even foreign majors are privately owned companies, not public companies. In this regard, our exposure is primarily to the debt of the top Kazakhstani banks. At present we consider this a good strategy for comparative reasons, and we are very comfortable with credit. Around 90% of our exposure is in fixed income securities.
What is your outlook for the coming years?
TK Reasonably favorable. Throughout the crisis we have remained positive on Kazakhstan because we believe the fundamental aspects of a strong economy are already in place. Kazakhstan has a low level of public debt, along with strong reserves and moderate inflation, with a good outlook for the currency. So overall, we’re optimistic about Kazakhstan’s economy, and J.P. Morgan wouldn’t be here if it wasn’t. We were the only investment bank to set up a local office at the height of the global financial crisis. We didn’t just want to come here for a year, we wanted to be here for the long term, and we’re ready to continue supporting the Kazakhstani market in the future.
AM From an investment banking point of view, compared to 2010, things look better. In Kazakhstan, like any other country, we are exposed to external shocks. For this reason Kazakhstan itself is doing very well. I see a sound and healthy business environment. This, however, does not necessarily mean that this will translate into a prosperous investment-banking environment. We had a good start in 2011. Kazakhstan will naturally be perceived as a commodities country. In 20 years this might change, but for investor circles that is the bottom line.
EA The buyers of the future will be coming to the commodities market. It is what we call “junior companies” that we are trying to focus on, and that is our specialization. On the private equity side we are focusing on the emerging middle class. In general we see that the extractive industries will continue to make Kazakhstanis consumers rather than producers. From that point of view, our focus is primarily on consumption. Also, we are looking for different ancillary services for the insurance market to meet the demand coming from the medical sector. This will be one of our focus areas going forward.
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