THE CURRENCY OF TRADING

Kazakhstan 2015 | FINANCE | REVIEW: CAPITAL MARKETS

Despite the “People's IPO" program, a culture of IPOs will need to be inculcated for the KASE to contribute notably to the private sector.

The Kazakhstan Stock Exchange (KASE) was established on November 17, 1993 as the Kazakh Inter-bank Currency Exchange. The event followed two days after the tenge became the new currency, and in fact, currency trading—a giant component of KASE transactions—accounted for 72.3% of the $260.4 billion transaction volume of 2014 (2013: $210 billion). The exchange is a universal floor for trading in the repo market instruments, foreign currencies, government and corporate securities of both Kazakhstani and foreign issuers and derivatives.

In terms of value traded as a percentage of GDP, the figure as at January 1st, 2015 was 188%, up from the 2013 print of 145%, then the highest recorded since the global financial crisis. In 2013, the KASE became a full member of the World Federation of Exchanges, and now, not content with being the largest and most sophisticated exchange in Central Asia, it aims to rank among the top-15 exchanges in Asia overall. Yet while meeting the demands of the primary and secondary government and corporate bond market, the KASE has yet to improve its equity game, thereby contributing more to the private sector through capital market funding. According to its January 1st, 2015 presentation, the KASE has 58 trading members with 34 eligible to trade in the currency category, 51 in the stock category, and 17 eligible for the derivatives category.

Economic woes in Moscow continue to resonate regionally, and as Gabiden Balginbekov, Chairman of the Management Board for Asyl-Invest flatly put it to TBY that, “Foreign investors are closing some business lines in Russia, which affects Kazakhstan. We presume that this negative trend will continue for at least another year. Thus, 2015 may be even harder." And while Kazakhstan's devaluation in February 2014 also bruised investor sentiment, “Another significant factor [was] the Russian ruble, which was devalued by 40% over the past couple of months. It also hits us because trading on the local stock exchange has dropped significantly. We expect this trend to continue for another couple of years."

POWER TO THE PEOPLE

In 2011 Kazakhstan adopted its People's IPO program to offer ordinary citizens the opportunity of participation in financial instruments by purchasing shares in the nation's key enterprises. Among the objectives was the fostering of alternative saving mechanisms, thereby channeling greater liquidity to the KASE, and by extension providing listed companies with additional investment funding needed to spur growth. Underlying the scheme is financial education of the general public of the type provided by the Asyl-Invest learning center. Many individuals with the personal resources to invest, “…have limited or no knowledge about the stock exchange, asset management, and so forth. About 70-80% of people who come to our learning center become our clients. That's why we keep it free, " Gabiden Balginbekov explained in a TBY interview.

The recent listing of Kazakhstan Electricity Grid Operating Company (KEGOC) reanimated of the People's IPO scheme. Duly, company shares became available by application to Kazakhstani citizens between November 5th and December 3rd, 2014, and to foreign investors upon being publicly traded on December 19th. KEGOC's sole shareholder, the Samruk Kazyna Sovereign Wealth Fund, offered 10% minus one share of its stock in KEGOC, amounting to 25,999,999 shares at a price of KZT505 tenge ($2.79 at time of issue) per share, and 14,000 set aside for individual investors. According to The Astana Times, the sale sparked greater interest (1,156 applications for more than 1,150,000 shares of KEGOC stock) than KazTransOil's IPO of 2012 offering (947 applications). When KazTransOil floated 38 million shares on December 25, 2012, around 34,000 Kazakhstanis became company shareholders. The office of the People's IPO program reports further IPOs on the horizon, including Samruk-Energo in 2015, with national railway company Kazakhstan Temir Zholy and national atomic company KazAtomProm following in 2016.

TRADING NUMBERS

In a breakdown of 2013 market activity, currency was by far the largest instrument, accounting for 72.3% of total volume traded. Currency trading may be conducted in tenge, US dollars, euros, and Russian rubles. An undisputed factor in higher currency activity was the February 11, 2014 government devaluing of the tenge by around 18.9%. Yet while the move negatively impacted the level of returns in US dollars on local securities quoted in tenge, it was kind to local economic growth, particularly the natural resources sector. Following currency trading, other instruments accounted for the following ratios: shares, a minuscule 0.4% (over 70 issuers, with market capitalization of around $30 billion, and predominantly companies from mining, energy and financial sectors), corporate bonds (1%), government securities (2.2%), international financial organization (IFO) bonds (0.1%), repo in corporate securities (0.5%), and repo on government securities (24.1%).

STOCK DATA

Altogether, a total of 130 listed companies trade at the KASE. The average daily traded value at the KASE in 2014 was a meager $1.0 million in equities, and $9.2 million in corporate bonds. Total traded value for 2014 was $961 million in shares, and $2.5 billion in corporate bonds. In terms of the non-government market, 78 companies were listed on the KASE as of January 1st, 2015, and a further 72 corporate bonds. The total market cap of the 78 stocks was at $25.2 billion on the same date, while the market cap for corporate bonds was at $36.6 billion. The energy sector represented 35.5% of total market cap on the equities side, and 36.4% in terms of bonds, with financials coming in second at 26.6% and a more significant 50.5%, respectively. Telecoms was the next largest in terms of its share on the equity market, at 15.1%, while representing just 0.3% of corporate bonds. The equity market is divided into three parts, with the “first category" composed of eight issuers, nine “second category" issuers, and the more populous “third category," with 64 representative companies. Official data as of January 1st, 2015 indicates that the eight constituent stocks that made up the KTZ Local Index had a total market cap $24.9 billion. The previous 52-week KASE index high was 1,314.82, with a low of 819.79. KazMunaiGas leads the KASE Index with a total market cap of $5.8 billion, reflecting its heavy weight in the Kazakh economy.

DUAL LISTINGS

In pursuit of foreign liquidity and FDI, over 40 companies listed on the KASE have launched secondary listings, corporate bonds, and global depositary receipts (GDRs) on foreign exchanges. The most popular are the London Stock Exchange (LSE), New York Stock Exchange (NYSE), and Toronto Stock Exchange (TSX), the latter being a notable address for more resource-oriented companies.

NEW WALTZ PARTNER

In January of 2014 the stock exchanges of Vienna (Wiener Börse AG) and Kazakhstan Stock Exchange (KASE) extended earlier cooperation with an agreement on joint data vending. The Vienna Stock Exchange has for some years now positioned itself as the Central and Eastern Europe (CEE) data hub, encompassing Budapest, Ljubljana, Prague, Bucharest, Banja Luka, Belgrade, Macedonia, and Montenegro. The Kazakh deal, however, marked a new departure in being its first Asian partnership. The move was a coup for the KASE in terms of expanding its international exposure and cementing operational excellence.

Gabiden Balginbekov
GABIDEN BALGINBEKOV
Chairman of the Management Board, Asyl-Invest
A significant factor in the investment climate has been the Russian ruble, which was recently devalued by 40%. It affects us because trading on the local stock exchange has dropped significantly. Our investors don’t have trust in the local currency, so they prefer dollars and keep their funds in cash. If you look at the real estate sector, the level of business activity has gone down. We expect this trend to continue for another couple of years.