KAZAKH STOCK MARKET DISAPPOINTS, BUT WILL BOND ISSUES CONTINUE TO BOOM?

In contrast to Russia, Kazakhstan’s market for securities–especially bonds–is developing nicely. Investors’ willingness to buy bonds has helped the NBK prevent the inflows of foreign exchange produced by the country’s oil exports from translating into inflationary growth in the domestic money supply. Total bond issues in Kazakhstan rose to 25.3 billion tenge (US$170 million) in 2000, up from only 3.3 billion tenge in 1999. This growth was driven by trading in corporate and municipal bonds, which were primarily purchased by pension funds and other institutional investors that are flush with cash. Pension fund assets are set to hit US$1 billion later this year (pension reform was launched in January 1998), and the funds now control over 60 percent of Kazakhstan’s bond market.

The appearance of private pension funds has helped spur the development of the corporate bond market, as well as secondary bond markets. Bonds last year accounted for 31 percent of all Kazakhstan Stock Exchange (KASE) trades in 2000, though the large bond issues began only around mid-year. Some 6 billion tenge (US$43 million) in corporate bonds were sold. Corporate bonds became popular as the yield on government securities fell and because they hedged foreign currency risk given that most of the bonds are denominated in dollars.

On the other hand, trade in equities on Almaty’s KASE, which opened in September 1997, remains disappointing. While the total volume of shares issued by joint stock companies at the end of 2000 was 546.8 billion tenge (US$3.8 billion), turnover on the equity market last year was only 11.8 billion tenge (US$83 million). The low turnover reflects that fact that trading continues to be limited to shares in larger, relatively liquid Kazakh companies. Potential investors remain concerned about violations of minority shareholder rights, opaque corporate governance, and monopolistic controls over broker and dealer services (Russian agencies, February 11).

Plans to sell significant equity shares in “blue chip” oil and metals companies to portfolio investors have not been revived following the Russian financial crisis. Privatization was particularly disappointing last year as well. Nevertheless, the government has stated that it is considering sales of big stakes in state-run monopolies Kazatomprom, the uranium producer, and KazTransOil, the pipeline company, to breathe some life into the stock market. That this will take place this year is far from certain (Reuters, February 20).

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