New Spheres

What have been some of the recent highlights on the stock exchange?

KASE is the only stock exchange in Kazakhstan, providing a platform for trade in a variety of financial instruments including stocks, bonds, derivatives, and foreign currencies. We have become more internationally focused and oriented this year. We decided to be proactive in spheres like the international financial markets in order to prepare a framework for the International Financial Center Astana project. Along the way, we have been discussing our development with a number of other stock exchanges, such as London Stock Exchange, NASDAQ, Intercontinental Exchange, and other leading exchanges. We also explore opportunities for fostering renewable energy investments in Central Asia via participation with foreign partners. Our primary task is to increase the attractiveness of the capital markets in Kazakhstan. This will happen in part through a government privatization plan, which is currently under development by the government and the sovereign wealth fund. According to the plan, more than 35 companies are going to be transferred from the government to the private sector. KASE has already launched a new listing sector with specified listing requirements for high-tech companies and is going to set up special listing requirements for subsoil companies. All our projects respond to market demand and are moving in line with development trends in the country. KASE also attracts potential issuers within the framework of the Listing Partners Advisory Initiative (LPAI). As part of this, we collaborate with professional consulting companies, organizing consulting sessions concerning fundraising opportunities on stock markets for potential issuers in different regions of Kazakhstan, in cooperation with the local Akimats and the regional chambers of commerce. One of the most significant events this year for KASE is joining the Sustainable Stock Exchanges Initiative (SSE Initiative) organized under the auspices of the UN. Being a part of this outstanding project provides KASE access to the global experience in implementing best practices to improve the sustainability of the local capital markets. A total of 29 stock exchanges from different parts of the world are a part of this initiative.

In 2015, you allowed the first transaction in yuan. What was behind this move?

Investors can now trade with yuan, in addition to US dollars, ruble, and euros. As we are seeing a surge of trade between Kazakhstan and China, there was also a need for this currency exchange option. We organized yuan-tenge operations to be posted on the stock exchange. Compared to the Chinese market, the volume is tiny, but it is growing. These currency operations will increase in volume in the future because trade between Kazakhstan and China is growing. By means of launching the trade in Chinese yuan on KASE, a simplification in the mutual conversion is planned, which is an important factor to increase the trade between two countries. Recently, we held a China-Central Asia capital markets forum, during which KASE has signed an MoU with the Shanghai Stock Exchange.

What level of interest is KASE seeing from international investors?

We have met with several international stock exchanges and we are now trying to see how we can increase awareness among global investors. Another crucial aspect of our development is to increase our transparency in order to help international investors in obtaining all necessary information they need for the related investment decision. There are more than 130 companies listed on KASE, but very few of them are liquid. The KASE index consists of stocks of nine leading companies in Kazakhstan. We have an interactive and informative site that offers all necessary information about our stocks, and we are also working closely with Bloomberg and Reuters to increase our visibility. KASE has recently been classified as “Frontier” by MSCI and S&P Dow Jones, and working towards inclusion into the FTSE frontier market indexes.

How is the stock exchange overcoming the challenges of low oil prices and currency devaluation?

Although there are more than 100 companies listed on KASE with either shares or bonds, the market capitalization is only around 12% GDP of Kazakhstan, which is low in comparison with other domestic markets, where this indicator reaches 30-40% and 500-800% in international financial centers. Currently, there is a significant outflow of investors from emerging markets both here and elsewhere. The current exchange rate of the tenge is established by demand. After depreciation in the tenge the cost of investments for foreign companies working in Kazakhstan and using the tenge becomes beneficial when they export goods in dollars to other countries. It makes Kazakhstan a more attractive place for investment. The free-floating local currency by itself cannot attract foreign investors. That said, the cost of some assets decreased due to the devaluation, and theoretically investors should be keen on investing in such assets. In reality, we see that the key indicator for investors is trust in the local currency and predictability of its behavior, and that drives them to invest in assets nominated in it. On a separate note, share market trading volumes have shown a drastic increase of 774.5% due to the placement of KazMunayGas JSC shares, while market capitalization increased almost threefold, from $21 billion on August 5th 2015 to $61 billion on August 6th. This placement accounts for 85.8% of the trading volume in the first nine months of 2015. However, we need to improve market stability and reduce volatility. We expect that after big shocks and moves, there will be a period of stabilization, and later a period of growth.

What are your expectations for 2016?

Above all, we have plans for the development of the KASE within the International Financial Center Astana. It has the potential to become a major financial hub for the Central Asian region, with English as its official language and English law as a governing rule. It will be established based on the Dubai International Financial Center (DIFC) model, focusing on capital markets, asset management, private banking, and Islamic finance. It will provide its participants special tax exemptions and other benefits. In close cooperation with our colleagues from Dubai we aim to reach new heights for the subsequent sustainable development of KASE.