Stock indices: Fighting all winds

business and economy

By SRI ⋅ June 13, 2008 ⋅

Summarising the development of the Kazakh stock market in 2007, we note that despite all “fluctuations” the total volume of operations on the Kazakh Stock (KASE), including the special trading floor of the Almaty Regional Financial Centre, grew by 90% to $322.5 billion, or by 85% to 39,505.6 billion tenge.

The year 2007 started with warnings made by the former chairman of the US Federal Reserve, Alan Greenspan, in February about a possible recession in the US economy. He said that the US economy had been constantly growing since 2001 and it had started showing up signs of the end of the current economic cycle. Soon after, the Chinese stock market fell by 9% amid expectations of the Chinese government’s measures to limit speculation and tighten requirements for investment activities on stock exchanges. By doing this, the Chinese authorities intended to prevent the overheating of the country’s stock market which grew by 135% in the previous year. As a result, the Shanghai and Shenzhen 300 index fell by 9.2%, while the Shanghai Composite fell by 8.8%. This was the sharpest slump in the past decade and dragged all the main world indices down with it.

However, the biggest shock was the global liquidity squeeze. A report on mortgage repayment delays on the US property market was published as early as in March 2007, while New Century Financial Corporation, the USA’s major mortgage company, went bust in April 2007. However, the full scale of the problem was realised only in summer when the main financial institutions suggested that they would write off mortgage-backed assets.

The shockwaves of this reached Kazakhstan in the second half of 2007, when the problems of the financial and construction sectors which had been accounting for half of GDP growth in previous years started destabilising the situation on the Kazakh stock market (Table 2).

Government Securities Market

Kazakhstan’s total public debt, amassed in 2007 in form of government securities, including municipal bonds and servicing (coupon payments) stood at 1,083 billion tenge in current prices or $9,002.6 million at the exchange rate of 120.3 tenge to the dollar (Table 3). The future payments on Indexed Treasury Bills with a maturity of at least three months were calculated taking into account the consumer price index recorded between October and December 2007 inclusive and on Long-term Savings Treasury Bills with a maturity of over five years and Long-term Treasury Bills with a maturity of over five years – between January and December 2007 inclusive.

In 2007, 47 companies were involved in buying and selling government securities. The share of the 10 most active players on the KASE in Category K was 79.5% of the total volume of the relevant sector of the stock market. These were HSBC Bank Kazakhstan (19%), Halyk Savings Bank of Kazakhstan (18.8%), BTA Bank (formerly TuranAlem Bank) (12%), Kazkommertsbank (8.3%), ATF Bank (7.2%), Alliance Bank (6.1%), Citibank Kazakhstan (3.1%), Zhetisu investment pension company (2.1%), Halyk Bank’s Pension Fund and the State Pension Fund (1.3%).

Primary government securities market. In late 2007, the Ministry of Finance held two auctions to sell Short-term Treasury Bills: the first one was the ministry’s Short-Term Treasury Bills with a maturity of six months of issue No 181 (KZK1KM061816, MKM006_0181; 100 tenge, 12.12.07 – 12.06.08, actual/actual). The point of trade was in the price of securities. It was initially planned to attract 10 billion tenge. The total volume of demand was 36,120.1 million tenge (379.4% of the volume of securities offered). Yield ranged between 8.2999% and 12.0001%, with the average-weighted annual yield of 10.1026%. As a result of the trading, the issuer cut the price of demand at 95.7% (yield of 8.9864%) and satisfied the demand for buying 137,359,833 securities to the tune of 13,184,443,909.42 tenge, which exceeded the target by 37.4%.

The second auction was to sell the Ministry of Finance’s Short-term Treasury Bills with a maturity of nine months of issue No 9 (KZK1KM090096, MKM009_0009; 100 tenge, 26.12.07 – 26.09.08, actual/actual). It was initially targeted to attract 20 billion tenge. The total volume of demand was 68,614.1 million tenge (368.4% of the volume of securities offered). The yield ranged between 8.4952% and 12%, averaging 9.8358%. As a result of the trading, the issuer cut the price of demand at 93.7292% (8.9042%) and satisfied the demand for buying 72,833,333 securities to the tune of 6,828,278,533.75 tenge, (36.4% of the target).

It should be noted that by the end of 2007 the total debt in tenge equivalent fell by 40.5 billion tenge (-3.6%) and by $292.5 million in dollar terms (at the National Bank’s exchange rate) (-3.1%). For comparison, these figures stood at +49.3 billion tenge (+4.6%) and +$405.5 million (+4.6%) in November 2007.

Nevertheless, despite this drop, as of 1 January 2008, the Ministry of Finance’s public debt increased. This may be linked to the adjustment of securities to inflation and an increase in interest rates on the primary government securities market. The reason in both cases was higher inflation and the Ministry of Finance’s certain pliability in placing its instruments, caused by the need to fund the central budget at the end of the year. For example, while public debt decreased by 4,933 billion tenge nominally, the cost of servicing it, which reflects the sum of all the forthcoming coupon payments, grew by 16,546 billion tenge. At the same time, no Long-term Treasury Bills, which could significantly increase servicing, were issued in December.[1]

Secondary government securities market. Following a considerable drop in activity in October and November 2007, the secondary government securities market somewhat recovered at the end of 2007. Its volumes grew because of the stable primary market. The bulk of turnover was supported by the sale of the National Bank’s short-term notes by some commercial banks several days ahead of their maturity. Activity was also boosted as greater competition emerged among players that hoped to occupy leading positions in terms of gross volumes of government securities in 2007.

(Kazakhstan International Business Magazine)