What have been the main developments in the capital markets of Azerbaijan over the past year?
The capital market situation in Azerbaijan underwent substantial changes. There has been pressure generated by the state of the commodities market, which naturally led to the decrease of traded value on the BSE. There has been a substantial capitalization of existing players, coming partially from the state and partially from commercial enterprises taking out loans at the BSE, as well as companies simply expanding their businesses. The state continues to play the role of the main investor. It is clear that the companies are unable to play this role at the moment; the state invested its fixed assets in the economy, particularly in the country's infrastructure, and this financial redistribution transpired through the tools of the capital market. The decrease in state profits lead to fiscal consolidation and a decrease in state expenditures, putting pressure on the national currency. Adding to this is militarization and unrest in the region. All of these factors lead to cautious behavior from internal and external players. Nevertheless, our year-end report shows the traded volume on the BSE decreased only by 10-12%, a result of a replacement in the product structure. Along with the traditional instruments, such as stocks and bonds, investors redirected their attention toward hedging their risks with currency tools. The currency tools began to play a larger role in the BSE product structure and comprise around 70% of the total traded volume at present. In 2015, 2016, and partially into 2017, we are going to pay close attention to infrastructure projects that have to do with the market, the institutions, and the tools of the capital market.
In May 2015, the President signed a law calling for reconstruction of the stock market. In what ways will this new law affect the BSE?
The law “On the Securities Market Law” was enacted this summer. It is a central part of what we at the BSE call a three-step normative reform. The first step is the legislative act itself, which includes provisions for almost all aspects of the capital market development. The second step is about 30 regulatory acts that cover the professional activities of all the participants in the capital market. The licensing in the securities market is becoming much more transparent. The key points of this legal reform also include the protection of the investor's rights through special funds and more disclosure of information. The third step is the operating rules for the BSE and the National Depositary Center, the two central institutions. The process of subscription and placement, including IPO, is being aligned with international standards following the law's pragmatic approach. The law cements new listing rules and requirements for the BSE and creates conditions for developing new markets and tools within all three markets: the specially regulated government security market, the corporate instruments market, and the derivatives market. This strengthens the trade, post-trade, and intermediary infrastructure.
How can the capital markets become more appealing to the companies in Azerbaijan?
Over the next decade, the capital market will somewhat change its main function. The previous 10 years saw the intensive growth of state and corporate revenues made during an era of booming commodities prices and the capital market had the function of offering a fair redistribution of revenues and channeling them into the economy. Now, the capital market and all its institutions will have a new function. The key mission for the next decade will be boosting growth in the non-oil sector, attracting more savings of companies and households, and transforming them into investments on the BSE. For the last three consecutive years, the non-oil GDP of the country has been growing two times as fast as the oil sector, and we see it as having big potential for the capital market institutions.