Shares are increasingly in vogue also in Kazakhstan. This is shown by figures from the most important Kazakh stock exchange KASE (for Kazakhstan Stock Exchange) from mid-April. According to the report, in the first quarter of 2021, trading volume in the stock market increased by a whopping 83 percent compared to the same quarter last year. This was made possible in part by 17.000 new securities accounts opened by retail investors. And about the enormous rise of the leading index KASE the DAZ has already reported in the first part of its share series. Kazakh shares are not only in demand in Kazakhstan itself, but are also increasingly discussed in German and English-speaking forums. So this is a good opportunity to take a closer look at how investors can profit from the current upswing.
For Kazakhstanis with an affinity for shares, the way naturally leads to the country’s own stock exchanges. Unlike in the other Central Asian countries, here there are two at once, which more or less compete with each other. The KASE, as the older of the two, has been working in Almaty since 1993. The first IPO in the history of independent Kazakhstan took place here 15 years ago. It is also the origin of the KASE index, which tracks the country’s largest companies in terms of liquidity, i.e. the number of transactions carried out with these securities.
Kazakh stock difficult to obtain for foreigners
To attract more foreign capital, the AIX (Astana International Exchange) stock exchange was still established in Astana in 2017, which is affiliated with the Astana International Financial Centre. The most important difference compared to the KASE is that the AIX is regulated under English law, which should give foreign investors a greater sense of legal security. However, the AIX is not very liquid, and 90 percent of all investment operations in Kazakhstan are conducted through the KASE.
Steeply uphill: The figure shows the price development of the KASE index since 2016. Source: KASE stock exchange website.
In total, the shares of 140 Kazakh companies are tradable on the KASE. Anyone with resident status in Kazakhstan can simply open a securities account with a broker and trade any of these stocks. Shares of well-known international corporations such as Tesla, Apple, Microsoft and Coca Cola are also available there. For foreigners, on the other hand, it looks much more difficult. Because they can only trade Kazakh (and foreign) stocks if their broker is connected to, say, KASE via "remote membership". So far, however, only institutional investors from Russia have held such membership, not German banks or brokers – even though these are in principle able to conclude a contract with a broker in Kazakhstan and trade securities through it.
Kazakh shares listed as GDRs in London
Fortunately for German private investors with a soft spot for Kazakhstan shares, some of the country’s major companies have also placed their securities on the London Stock Exchange in the form of Global Depository Receipts (GDRs) via secondary listings. GDRs are depositary receipts that certify the right to a certain number of shares in a company – similar to the American Depositary Receipts (ADR) used by Chinese tech companies such as Alibaba and Tencent to list their shares on U.S. stock exchanges. The fact that the Kazakhs, unlike the Chinese, prefer the London Stock Exchange to the U.S. stock exchanges is due more to tradition and good experience than to technical or institutional reasons.
Of the eight companies in the KASE benchmark index, four are currently also listed on the London Stock Exchange. German retail investors can buy and sell GDRs of Kazatomprom, Halyk Bank, KAZ Minerals and KCell there. However, this will not apply to the latter two for much longer: KAZ Minerals and KCell have now decided to delist and will therefore soon disappear from the London Stock Exchange, as well as from the AIX in Nur-Sultan. Trading in shares and GDRs of KAZ Minerals is scheduled to start on the
11. May on all stock exchanges after the two main shareholders Vladimir Kim and Oleg Novachuk, through their consortium Nova Resources, increased their stake in the company to 96 percent. KCell takes its GDRs public on 7. July from the London and Nur-Sultan stock exchanges, but trading in simple shares is to remain possible at least on the KASE.
Pay attention to the spread when buying shares!
Meanwhile, Kaspi’s GDRs will continue to be traded in London.kz. The stock market newcomer made a record IPO last year and instantly became the most expensive company in Kazakhstan’s history. As a technology startup, the company stands out from the otherwise very old-economy-heavy Kazakh economy. With e-commerce and digital payments, it combines two absolute megatrends in its business model, which have been further fueled by Corona. No wonder, then, that the price has roughly doubled since the IPO in October. For those who want to be in metal miners with a Kazakhstan focus, given the ongoing commodity rally, there are still shares (not GDRs) of Central Asia Metals in London.
By the way, the mentioned GDRs of London-listed Kazakh companies can also be traded by private investors on German stock exchanges. However, there are a few things to consider. At first glance, domestic orders seem to be the more favorable option, as the fees are lower here. Comdirect, for example, charges a minimum fee of 12.90 euros per foreign order, compared with 9.90 euros for domestic orders. ING generally offers foreign orders only on exchanges in the U.S. and Canada.
However, the GDRs traded on the German exchanges are less liquid than in London or direct trading. This is reflected in the spread, i.e. the difference between the purchase and selling price. For example, anyone who wanted to buy GDRs of Kazatomprom on Monday had to pay a hefty premium on the Frankfurt Stock Exchange: With a purchase price of 71.50 euros and a selling price of 68.50 euros, the spread here was 4.2 percent. Simply put, investors would have been down that much percent had they put the GDRs in their portfolios at those conditions. By comparison, the spread on the London Stock Exchange at the same time was just 1.17 percent.
Kazakhstan certificates for risk takers
Those who shy away from the higher risk of investing in individual stocks can also find ways to invest in Kazakhstan in a more diversified way via ETFs or certificates. However, the selection is relatively manageable compared to other countries or regions. One possibility are thematic ETFs on industries in which Kazakh companies play a major role. For example, New York-based fund operator Global X has launched a Global X Uranium ETF in which Kazatomprom, the world’s largest uranium producer, is the largest position, with a weighting of around 23 percent. Over the year, the ETF has gained over 60 percent. In addition to the Kazakhs, North American exploration companies such as Cameco and Energy Fuels are also on board. ETFs on the leading index KASE are unfortunately only traded on KASE itself and on the Moscow Stock Exchange.
For more risk-averse contemporaries, derivatives based on the KTX index of the Vienna Stock Exchange offer an opportunity. The Austrians set up the (currently) extremely commodity- and finance-heavy index in 2007. The five positions it includes are currently Kazatomprom GDRs with a weighting of 25.4 percent, KAZ Minerals (25.3 percent), Kaspi.kz GDRs (24.9 percent), Halyk Bank GDRs (19.3 percent) and KCell GDRs
(4.9 percent).
The composition of the index is reviewed each year in March and September; with the upcoming elimination of KAZ Minerals’ and KCell’s GDRs, changes are likely to be forthcoming soon. If you are willing to accept the very low diversification of five stocks, you can add an open-end certificate from the Austrian Raiffeisen Centrobank or an open-end participation certificate from Goldman Sachs to your portfolio. However, in any case, you should keep in mind that derivatives are rather something for experienced investors.
Future privatizations as an opportunity
It will be interesting to see what opportunities emerge in the coming years in the course of the planned privatization of Kazakhstan state-owned enterprises. The Kazakh state, through its sovereign wealth fund Samruk-Kazyna, holds the majority of shares in some major companies that were supposed to be listed on the stock exchange by 2021. However, due to the economic challenges posed by the Corona pandemic, these IPOs have been postponed to a later date.
For example, the national airline Air Astana, 51 percent owned by Samruk-Kazyna and 49 percent owned by British aerospace and defense group BAE Systems, is scheduled to take off in 2022. Then the oil and gas company KazMunayGaz is also to go public. The privatization of the mining company Tau-Ken Samruk is also planned for 2022, and that of the national railroad company Kazakhstan Temir Scholy for 2023.