Stock Market: Evaluation and Forecasts
Zhasulan Bekzhigitov, Member of the Board оf the TuranAlem Securities, answers questions from our magazine
How would you characterise the situation in the domestic stock market?
During the last week of November, trading in the Kazakh stock market livened up, although investors are still under the effect of the recent negative events in the global and, then, domestic economies. Global markets still have a strong influence on the local market. In particular, the possibility that US Federal Reserve System will decrease its rates raised some hopes in the global markets and resulted in a significant growth in the main world indexes. Following the world indexes, the index of the Kazakhstan Stock Exchange also went up (6.31% in the last week of November).
In general, the Kazakh stock market is waiting to see how seriously the autumn crisis has influenced the country’s economy. This situation will clear up when companies publish their annual reports and the 2007 macroeconomic indicators become known.
How do the corrections in the banking sphere affect the situation?
The largest portion of the Kazakh securities are instruments of the financial sector. So, the correction in this sphere has the most negative impact on the country’s stock market. A worsening of the financial position of Kazakh banks – due to the global mortgage crisis – caused a fall in the value of shares of certain banks by more than 50%. Issuers whose securities were traded on both Kazakh and international exchanges are in the worst situation. During the three days when the crisis reached its peak the maximum fall in the prices of some of these securities was more than 25%.
Yet, despite today’s difficulties, we believe that many issuers from the banking sector have enough potential for the growth of their shares that can be realised as early as the next year.
What concerns, in your opinion, are the most critical for the professional players in the stock market?
The most critical concerns of the domestic stock market are low liquidity and a limited supply of financial instruments.
An additional negative factor is that people know little about financial instruments and, consequently, about the services offered by professional market players. Various surveys show that only 10% of people living in Almaty know about collective investment schemes such as UITs. In Moscow, for example, this indicator is over 35%. Market players are solving this issue on their own and with the help of the government that has adopted the Programme to Raise the Investment Culture and Financial Literacy of the Population.
How would you evaluate the situation in the UIT market and what are your forecasts for its development?
Despite the crises, the number of UITs is growing everywhere. Toughening competition shows that this business is attractive. According to the Financial Supervision Agency, the number of investment funds soared from two in early 2005 to 175 in November 2007. We think this is not the maximum. Since Kazakhstan offers favourable investment opportunities, the aggregate assets of investment funds will grow at a higher pace than savings of the population.
It is worth noting that the UIT market is developing in both quantitative and qualitative terms. Today, the market offers a wide range of products from investment funds such as funds of funds, bond and equity funds, and many others. Private investors have also changed their attitude to UITs. If UITs were previously viewed as a sort of deposit, recent events made investors understand that the expected higher profitability involves higher risks, which means that profits from UITs are not guaranteed.
What segments of the stock market will be the most attractive for investors in the short to medium term?
We believe that, within a year, shares and, surely, units in investment funds will be the most attractive investment.
In the light of recent events, could it be expected that private investors would redirect their funds from the real estate sector to the stock market?
The instability in the real estate market that emerged in the last six months makes private investors think about wider diversification of their portfolios to reduce risk. We expect that people will cut their savings in the real estate sector to invest in alternative forms of savings such as deposits, the stock market and UITs. Yet, we think this trend will not become a boom.
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