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Central Asia: Is Now The Time To Invest In Kazakhstan?

06 Jan 2020 1:00 AM | Alexander Belyasov (Administrator)

© Article by Forbes Contributor – Rainer Michael Preiss

Global investors tend to group Kazakhstan along with Russia and the Commonwealth of Independent States (CIS), but its market fundamentals are markedly different and they appear to offer some interesting investment opportunities going into 2020.

First and foremost, the government has been pursuing a privatization program that aims to raise $7 billion by selling stakes in around 900 companies. The world’s largest landlocked country is taking a page from the playbook of Margaret Thatcher, the U.K.’s former prime minister, who saw privatization as “fundamental to improving Britain’s economic performance”.

Meanwhile, the countries of Central Asia are in talks to create something along the same lines as ASEAN, the Nordic Council, the Visegrád Group for Central European states or Mercosur for South America. On November 29, Kazakhstan’s First President Nursultan Nazarbayev joined with the leaders of Tajikistan, Turkmenistan and the Kyrgyz Republic to declare that they would work toward joint development and cooperation in areas that range from economic trade and investment to infrastructure, tourism, science and culture. Positive developments like these are winning plaudits.

Kazakhstan jumped eight positions to reach No. 28 in the World Bank Group's Doing Business 2019 report that ranks the world's top economies for their ease of doing business. Kazakhstan’s ranking places it ahead of No. 30 Spain, No. 46 China and No. 77 India.

And Kazakhstan isn’t alone. Neighboring Uzbekistan, which is ranked No. 76 in the same rankings and has recently opened up for foreign investment, looks set to spur a “healthy rivalry” in Central Asia that will potentially boost the economy of Kazakhstan, according to the International Monetary Fund. The competition will make both countries policymakers work harder to further improve transparency, their policy frameworks and business environment.

The recently held Almaty Investment Forum aimed to firmly position Almaty and Kazakhstan as the center of Central Asia’s economic development. Kazakhstan's policymaker hope to make the country’s largest city, Almaty, into a significant transport, logistics and tourism hub on the new Silk Road. This year’s forum saw 31 agreements worth $2.3 billion signed between various government agencies and the business community in late November.

Kazakhstan also plans to offer investment residency status to foreigners investing at least $60,000 into equities at the Astana International Financial Center’s stock exchange, the center's governor, Kairat Kelimbetov told Bloomberg News recently. Investors will be guaranteed a five-year multi-entry visa. The measure, aimed at nationals from the former Soviet Union republics and Middle East, is expected to raise KZT100b (over $250 million) within the five years of the start of the program.

Kazakhstan’s real interest rates are expected to remain relatively attractive in the near term with the National Bank of Kazakhstan’s base rate at 9.25%, and an expected slowdown in inflation to the mid-range of the 4% to 6% target corridor throughout 2020.

Kazakhstan is certainly a value investment at the moment. KASE (Kazakhstan Stock Exchange) trades at a price-earnings ratio of 6.44, a dividend yield of 3.73% and a Price-to-book of 0.9. In comparison, the MSCI World Equities Index trades at a P/E ratio of 20.04 and the MSCI Emerging Markets Index trades at P/E ratio of 14.67.

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