Kazakhstan 2016 | FINANCE | INTERVIEW

TBY talks to Yeszan Birtanov, Former CEO of the Kazakhstan Stock Exchange (KASE), on investor interest, transactions in yuan, and overcoming the challenges of low oil prices and currency devaluation.

Yeszan Birtanov
Yeszhan Birtanov has been the CEO of Kazakhstan Stock Exchange (KASE) since July 2015. Before his appointment as CEO, he held senior management positions at the National Bank of the Republic of Kazakhstan (NBRK) and actively participated in creating the National Fund of the Republic of Kazakhstan and credit risk management system. While working in the Department of Monetary Operations, he was responsible for gold reserves and National Fund assets management, with a total value of about $100 billion. He established the National Investment Corporation of NBRK in 2012. He holds a master’s in economics from Kazakh National University.

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

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.

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 5, 2015 to $61 billion on August 6. 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.