Kazakhstan stock market is highly concentrated, but at the same time poorly balanced. The vast majority of transactions are in currency and cash transactions. A new impulse for the development of the securities market was given in 2018 with the opening of the AIFC – AIX Exchange. During the year, the exchange listed securities of 24 organizations, including the IPO of Kazatomprom, Eurobonds of the Government of the Republic of Kazakhstan and stocks of a foreign issuer Polymetal.
In a market economy, the functioning of the Companies is ensured by the transactions of financial resources. The processes of formation and use of these resources are largely associated with the execution of active and passive operations in the securities market. In Kazakhstan, the main indicator of the state of the securities market since 1993 has been the stock exchange – Kazakhstan Stock Exchange JSC (KASE).
KASE mainly specializes in the foreign exchange and money markets. And the development of the stock market also implies the creation of attractive conditions for investing in securities, attracting international issuers and integrating the Kazakhstan exchange system with international capital markets.
In this regard, on July 5, 2018, the First President of Kazakhstan, N. Nazarbayev, officially launched the opening of the stock exchange of the Astana International Financial Center – Astana International Exchange (AIX). The exchange is equipped with the advanced technologies of the largest world exchanges and meets the established international standards. The stockholders are the world-famous financial and stock market companies – GoldmanSachs, the Shanghai Stock Exchange, the Silk Road Fund and the NASDAQ.
During the year of operation, 24 organizations of the state, quasi-state and private sectors registered and passed on the listing of the AIX.
In 2018, a significant event occurred for the stock market of Kazakhstan – the IPO of the largest uranium mining company in the world, NAC Kazatomprom JSC. As part of a comprehensive privatization plan for subsidiaries of the SWF Samruk-Kazyna JSC , by the end of 2020 it is planned to bring such companies as Air Astana, Kazaktelecom, KazMunayGas, Kazakhstan Temir Zholy, Kazpost to IPO/SPO .
On April 17, 2019, the first foreign issuer was listed on AIX – Polymetal International Plc., which is one of the leaders in the extraction of precious metals and owns assets in Russia and Kazakhstan. Stocks of Polymetal International Plc. are traded on the London and Moscow stock exchanges, and on April 24, 2019, the first trading took place on AIX. Demand for Polymetal common stocks exceeded expectations – investors purchased 1.69 million units for $ 17.19 million. At the same time, the total trading volume of the first trading day was $ 17.31 million. The month ended with a cumulative trading volume of $ 22.6 million.
Partial privatization of the largest national companies, as well as listing of international, regional and domestic private companies, will attract the necessary liquidity on AIX due to the interest of international and local investors. For issuers, listing on AIX provides opportunities for diversifying the existing investors list, as well as for developing new markets for attracting capital.
At the end of May 2019, the total trading volume for all securities on AIX amounted to $ 3.9 million (1.5 billion tenge), and the cumulative trading volume since the start of trading was $ 43.2 million. In particular, the turnover of ordinary stocks of NAC Kazatomprom JSC (ticker: KAP) with 473 transactions made amounted to 1.4 billion tenge. During the same period, 20 transactions with global depositary receipts (ticker: KAP.Y) of NAC Kazatomprom JSC in the amount of USD 289.5 thousand were made.
Kazakhstan stock market remains highly concentrated and poorly balanced. According to the results of 2018, the overwhelming trading volume of Kazakhstan Stock Exchange JSC (KASE) traditionally takes place in the money and foreign exchange markets: 85.7% (109.5 trillion tenge) and 10.5% (13.4 trillion tenge), respectively. REPO transactions concentrate more than half of the total trading volume (59.3%). In turn, the securities market forms the smallest trading volume in the structure of the exchange sectors – 3.8% (4.9 trillion tenge). At the end of 2018, the market capitalization of domestic companies in relation to GDP was 21.4% and showed a positive trend compared to 2015 – 18.9%.
The potential for activating the capital market by issuing and placing equity and debt securities of companies in the real and state sectors of the economy on the AIX exchange until 2025 is estimated at over $ 350 billion. At the same time, professional market participants estimate the potential of attracted capital in the real sector of the economy at the expense of capital markets at the level of $ 500 billion. Given the scale of Kazakhstan’s economy and the need for resources to maintain the current pace of development and investment, the role of capital markets for the implementation of growth objectives is difficult to overestimate.
The cumulative direct effect of the functioning of the local capital market on the economy of Kazakhstan in the period up to 2025 may amount to about $ 12 billion.
One of the possible measures for the full-scale development of the stock market and the capital market as a whole may be to provide local leaders and localized international asset management companies with the ability to manage funds held in public funds such as the National Fund and UAPF. This step would significantly increase liquidity in the market and attract the largest international management companies.
Insurance companies may also become an active source of supply in the Kazakhstan capital market if there is an active policy to develop the insurance sector, especially the areas of compulsory insurance and life insurance.
The regional partner countries of Kazakhstan have free liquid assets of more than $ 300 billion, a significant portion of which can be placed on the Kazakhstan capital market if there are interesting investment opportunities.
For example, the volume of trading on the Moscow Exchange MOEX for 2018 amounted to $ 13.5 trillion, on the Belarusian Currency and Stock Exchange – $ 14.5 billion, on the Kyrgyz Stock Exchange and the Armenia Securities Exchange 1.8 billion $ 198.1 million, respectively.
According to the Plan of joint actions of the Government and the National Bank of the Republic of Kazakhstan, it is proposed to carry out the development of capital market within the four main stages of the AIFC establishment.
In the framework of the first stage “Local Centre of Expertise”, the following are envisaged:
1) issue and ensure stable and predictable placement of government treasury bonds (according to the plan) during the year, that will allow to form a real risk-free yield curve;
2) define the list of the most attractive companies of SWF Samruk-Kazyna JSC for IPO of at least 25% of the outstanding stocks for a wide range of investors (domestic and international);
3) issue of corporate bonds by public and private companies;
4) development of the IT infrastructure of the Kazakhstan Stock Exchange.
In the framework of the second stage “Local Centre of Financial Intermediation”, it is necessary to consider the following opportunities:
1) conduct SPO of “blue chips” with an increase of the share of capital in free circulation at a level no lower than 25% of the placed stocks. In the case of direct sale of liquid companies at direct auctions, to oblige in the conditions of sale the mandatory withdrawal of part of the capital to the exchange within the next few years after the transaction;
2) conduct IPO on Kazakhstan Stock Exchange of companies of the quasi-public sector with at a level no lower than 25% of the total number of placed stocks on Kazakhstan Stock Exchange (including stocks that were placed during the IPO);
3) conduct IPO of private companies;
4) hold events to support Kazakhstan issuers and encouraging their return to attract funding through Kazakhstan Stock Exchange;
5) Introduce ETF Tools on the market.
In the framework of the third stage “Local financial centre”:
1) issue of debt and equity capital of private companies, as well as the activation of the site for small and medium capitalization companies;
2) launch of the cross-trading mechanism with other stock exchanges.
In the fourth stage, starting from 2025, Kazakhstan’s capital markets will start providing services at the international level (in other countries of Central Asia, the Caucasus, the EAEU, the countries of the Middle East and Europe).