How does the global stock market downturn affect Kazakhstan? | FinReview
6 October 2020

How does the global stock market downturn affect Kazakhstan?

In 2020, the global stock market experienced the largest decline since the 2008 crisis. The volatility index rose to 85.47 points, reaching a historic high over the past eleven years.

After the global financial crisis of 2008, the situation in financial markets as a whole remained fairly calm, although it was not without shocks. But recently, the number of “collapses” has become more frequent. Formally, the starting point can be considered the end of 2018, when the rate of falling quotations alerted even the Federal reserve system. To contain the fall, the financial regulator had to urgently make a decision to urgently stop the cycle of monetary policy tightening and switch to its easing.

The following year 2019 was also not calm, although there were no shocks of the same scale as at the end of the previous year. Markets started to fall at the end of the summer, which caused the fed to intervene again. However, this time funds were sent to the financial system through repo operations. The situation calmed down, but not for long.

As early as March 2020, markets faced a new challenge — the world was quarantined for the first time to contain the spread of COVID-19. Global markets were gripped by uncertainty, which caused traders to start an all-out sell-off, and even the emergency actions of the fed did not immediately stop the collapse.

What is happening with the stock market, whether it will come out of a prolonged crisis and what future awaits it in Kazakhstan, analysts analyzed

What is the reason for the fall in the global stock market?

First of all, the falls are caused by the evolution of the market. Thanks to technological progress, now specially developed algorithms or robots are increasingly engaged in trading stocks and other financial instruments. However, they operate within a certain scenario and are not able to respond to changing moods of traders. As a result, when the market collapses, the system signals the start of selling securities, and if there are a lot of such robots, the resulting huge pool of orders devalues the market more.

In other words, the bigger the drop, the more sellers there are.

Another feature that provokes a collapse is the high activity in the options market. According to Goldman Sachs, in September, the volume of trading in us stock options was 3 times higher than the average daily level of the past two years.

This excessive activity of option traders affects even the fall in stock prices of popular companies in the technology sector. For example, Facebook shares fell by 3.8%, and Apple – by 8%.

The stock market volatility index reached a historic high after the 2008 crisis

Global markets remain uncertain due to the coronavirus pandemic. The stock market volatility index (VIX) has risen to 85.47 points this year, which is the highest value since the 2008 crisis.

However, now world indices have begun to gradually recover. And the continuing negative risks of a repeat lockdown are holding back the recovery of markets.

Kazakhstan’s stock index has already recovered its fall

The recovery of quotations is also observed in the stock market of Kazakhstan. If in March 2020 the KASE index fell to 2027.9 points, then by September 23 it had grown to 2460.5 points. At the same time, in March, the decline in quotations led to an increase in trading volume, both in Kazakhstan and on world markets. For example, in January, the trading volume on KASE was 9.1 trillion tenge, in March it increased to 12.6 trillion tenge, and in July it returned to the previous level, reaching 8.6 trillion tenge. In General, for the seven months of 2020, the trading volume amounted to 70.1 trillion tenge.

One of the key conditions for effective and successful development of a liquid stock market is the active participation of retail investors. The coronavirus pandemic had a positive impact on this point — at the beginning of July 2020, 122.4 thousand individual accounts were registered in the Central securities Depository KASE, which is 4% more than at the beginning of the year (117.7 thousand accounts). The reasons for this were both a significant decline in market prices for shares, and the introduction of restrictive measures in the country, which prompted Kazakhstanis to look for alternative sources of income.

The stock market is also one of these sources of income. The impetus for this was the IPO of large quasi — state companies-KazTransOil, KEGOC and Kazatomprom.

In Addition to the growth in the number of individual accounts in the Central securities Depository KASE, there is an increased activity of individuals in participating in trading. In the first seven months of 2020, the share of individuals in the secondary stock market was 55.4%.

The creation of the AIX exchange gives a new impetus to the development of the Kazakhstan capital market

Today, the infrastructure of the securities market in Kazakhstan generally meets international requirements. This was made possible by the opening of the Astana International Exchange (AIX) on the site of the Astana International Financial Centre. AIX is now the first international exchange in Central Asia to provide global access to investors in the region.

For the successful operation of AIX, a modern infrastructure was created, a technology platform that is identical to the platforms successfully used on more than 60 exchanges around the world. The brokerage network consists of more than 20 brokers, including 8 foreign ones, including the world’s largest brokers such as CITIC, CICC, Shenwan Hongyuan (China), Renaissance Capital, Wood&Co, SOVA Capital, etc.
More than 60 securities of 40 different issuers have already been listed on the AIX exchange, and more than 92 thousand investor accounts have been opened in the AIX CSD Depository. AIX issuers raised more than 290 million US dollars in equity on the exchange.

At the moment, the total market capitalization of companies that have listed equity instruments on the AIFC exchange, including Kazatomprom, Polymetal, Halyk Bank of Kazakhstan, Ferro Alloy Resources Limited, Kcell exceeds 16.2 billion us dollars. This year, for the first time in Kazakhstan, bonds denominated in yuan were listed by the Astana branch of the construction Bank of China (CCB Astana Branch). The issue is denominated for a total amount of 1 billion yuan or about 63 billion tenge.

Also in early March this year, for the first time in the country, Islamic bonds issued by the International Islamic Bank of Qatar (Qatar International Islamic Bank) were placed.

In the coming years, the development of the capital market in the country will allow:

  • redirect the demand for capital from large Kazakh businesses from external stock exchanges to local ones;
  • continue to privatize the quasi-public sector;
  • preserve the capital of domestic private companies within the country;
  • increase the volume of shares in free circulation from 10% to 25%.

The implementation of these initiatives for private and public companies can increase the demand for capital by approximately 144 billion US dollars.