Stock Indices. Uneasy Start
Over the first four months of 2008, Kazakhstan Stock Exchange (KASE) transactions totalled $79,747.8 million or 9,606.6 billion tenge. This amount comprises transactions at all sectors, including transactions on the special trading floor of Almaty’s Regional Financial Center (RFCA). As compared to January-April of 2007 the stock exchange turnover decreased by 13% in terms of dollars and 15.6% in terms of tenge (Table 1).
The volume of transactions went down by 28.9% in terms of dollars and by 29.4% in terms of tenge (Table 2) compared to the previous four-month period (September-December, 2007).
Government securities market
The volume of government securities purchase and sale transactions, inclusive of bonds issued by local executive bodies was 271.3 billion tenge or $2,253.7 million over the first four months of 2008. It decreased by 16.27% or 13.82% in terms of dollar compared to the same period of the last year (Table 3).
In addition to the National Bank, 38 companies participated in government bonds purchase and sale transactions. The ten most active “K” category KASE operators accounted for 74.5% of government bonds turnover. According to the activity ratio* they were rated as follows: Halyk Savings Bank of Kazakhstan(2.97), RBNT Securities (1.73), Euroasian Bank (1.08), АТF Bank (0.78), Zhetysu specialised asset management company(0.76), Bank CenterCredit (0.62), Kazpochta (0.6), TuranAlem Securities (0.58), Grantum Asset Management (0.48), Sberbank of Russia (0.47).
* Hereinafter referred to as an activity ratio of participants calculated by a new ranking method specially created by FSA for these purposes. This method consists in the following: a place of a company in ranking is defined by value of the so-called activity ratio (Ka) calculated for each member of stock exchange. The first position in the rating conforms to the greatest value of Ka. For market operators this ratio is calculated by the following formula Ka = V + N + D.
V indicates the volume of transactions closed by a to-be-rated member of stock exchange for the period under review on KASE secondary market based on open trade methods. Also, V = Vi / Vmax, where Vi indicates the volume of transactions closed by a to-be-rated member for the period, Vmax indicates maximum volume of transactions closed by any KASE member for the same period (with no regard for the National Bank). N indicates the number of transactions closed by a to-be-rated member of stock exchange for the period under review on KASE secondary market based on open trade methods. N = Ni / Nmax, where Ni is a number of transactions closed by a to-be-rated company for the period, Nmax – is the greatest quantity of transactions, closed by any KASE member for the same period (with no regard for the National Bank ). D indicates the number of effective days within the period under review for a to-be-rated stock exchange member (an effective day is a day when a to-be-rated member has closed at least one transaction on KASE secondary market based on open trade methods. Also, D = Di / Dmax, where Di indicates the number of effective days of a to-be-rated member; D(max) – the maximum number of effective days recorded for the period under review on any KASE member.
Vi, Ni, Di, Vmax, Nmax, Dmax are specific values; they are calculated as a relation of the volume of transactions (number of transactions or number of effective days) to the number of days in the period under review within which a given trade participant was a member of stock exchange in this category. Thus, dependence is aligned of the indicator values on the duration of operations of a to-be-rated KASE member on the exchange.
To be included into ranking a company should be a KASE member of relevant category of no less than 70% of time of the period under review (number of calendar days), if a period up to three months inclusive is considered; no less than 60% if the period is three to six months long; and no less than 50% if a longer period under review is used.
As a result, as of May 1, 2008, Kazakhstan’s public debt in the form of government securities, including municipal bonds and servicing (coupon payments) stood at 1,236.2 billion tenge in current prices or $10,268.2 million at the exchange rate of 120.39 tenge to the dollar.1
1. This conclusion was made by IRBIS experts as a result of analyzing own databases. Future payments on Indexed Treasury Bills were calculated taking into account the consumer price index recorded between February 2007 and April 2008 inclusive and on Long-term Savings Bills and Long-term Indexed Treasury Bills – between May 2007 and April 2008 inclusive.
It should be observed that this April was notable for liquidity deficit in the economy. According to the tax calendar the bulk of annual income tax payments fell exactly on this month which is, in fact, the largest payment during the year. Therefore, the National Bank “injected” 30 billion tenge to the market to boost liquidity in April.
The Ministry of Finance attracted 36,710.2 million tenge in March and 31,310.2 million tenge in April by placing Treasury Bills. The Ministry of Finance made payments of principal value of bonds and coupon compensations to the amount of 16,874 million tenge. Thus, balance of net borrowings of the Ministry of Finance’s is estimated at +14,436.2 million tenge in April.
Total balance of net borrowing of all Kazakh government securities issuers stood at 15,603.1 million tenge against +49,830.3 million tenge in March.
Primary government securities market. Over the period under review the Ministry of Finance held 2 auctions to sell Treasury Bills in this sector. An auction to place Medium-term Treasury Bills of issue No 64 (KZK2KY030643, MOM036_0064; 1000 tenge, 15.04.08-15.04.11, 30/360) was held in the stock exchange’s trade system on April 15. The point of trade was the rate of coupon. It was initially targeted to attract 15 billion tenge. In the auction 12 primary dealers took part and submitted 26 limit active orders to the total volume of demand making 17,602 million tenge (165.7% of offered bonds).
The yield ranged between 8.5% to 13%, with average weighted annual yield of 10%. As a result of the trading, the issuer cut the price of demand at 8,75% and satisfied the demand for buying 9 million bonds to the tune of 9 billion tenge (60% of the target). In the total volume of bonds placed 44.4% was bought by pension market players; 12.2% by commercial banks and 43.5% – commercial banks’ clients.
On April 23 repeat auction was held to place Long-term Treasury Bills (KZKDKY070016, MUM084_0001; 1000 tenge, 14.03.07-14.03.14, 30/360). The point of trade was the net price of bonds. It was initially targeted to place 20 million bonds. In the auction 8 primary dealers took part and submitted 21 limited active orders to the total volume of demand making 16,991.7 million tenge (97% of offered bonds). The net price of bonds ranged between 80.41% (11.5% per annum) to 92.12% (8.5%), averaging 86.85% (9.77%). As a result of the trading, the issuer cut the price of demand at 87.98% (9.5% per annum), having satisfied the demand for buying 10,310.2 million tenge (57.5% of planned volume of placement). The pension market players bought 62.2% of bonds, and commercial banks – 37.8%.
A specialized auction was held on April 29 to place Long-term Indexed Treasury Bills (KZKBKY070018, MUX084_0001; 1 000 tenge, 29.04.08-29.04.15, 30/360). The point of trade was the fixed coupon. It was initially targeted to attract 12 billion tenge. In the auction 17 primary dealers took part and submitted 50 limit active orders to the total volume of 52,117 million tenge (434.3% of offered bonds). The rate of fixed coupon ranged between 0.01% to 1%, averaging 0.26% per annum. As a result of the trading, the fixed coupon rate was established at 0.06%, having satisfied the demand for buying 12 billion tenge (overall targeted volume of placement). Expected yield of bonds was estimated at 18.71% per annum with circulation period of 7 years.
Please note that these figures are not official and were obtained as a result of analyzing information available in databases on the primary government securities market. Information on domestic obligations was checked against data provided to the IRBIS by the Central Depositary of Securities.
Secondary government securities market. Although this sector’s share in the total stock exchange turnover went down from 99.2% to 91.4% in April compared to March, a slight activation was observed in terms of the number of purchase and sale transactions. Traders were mostly interested in short-term instruments. In the turnover of secondary market, 71% went to the National Bank’s annual discount notes which were repaid on May 8. Overall, the government securities market still features low liquidity without any tendencies observed so far.
As seen from Table 4, for the four months of 2008, the value of purchase and sale transactions closed at KASE, including RFCA’s special trading floor, came to $850.9 million or 102.5 billion tenge. The indicator went down by $293.8 million (39.2 billion tenge) or 1.3 times (1.4 times in terms of tenge) as compared to the same period of the last year.
A total of 54 companies took part at KASE trades of “P” category with the ten most active members accounting for 69.6% in the turnover of secondary shares market as follows: TuranAlem Securities (3.58), Centras Securities (2.71), BCC Invest (2.61), VISOR Capital (2.54), Renaissance Capital Investments Kazakhstan (2.48), RBNT Securities (2.37), Kazkommerts Securities (2.31), IFG Continent (2.2), Asyl Invest (2.1), REAL-INVEST.kz Financial Company (2.04).
It should be noted that a season of quarterly reports in the US by which results all investors are now guided, keeps on gratifying. Although these reports show an overall non-uniform picture, an unexpectedly great number of positive results are now accepted as good news, where losses not below expected ones are often considered to be positive. Reports now play one of the key roles on stock exchange floors as they allow defining a degree of negative impacts on corporate sector of mortgage and loan crises as well as slowdown in the US economy.
According to many analysts, quarterly reports of both American and European companies, published in April indicate that the peak of the problems on the loan market could be way behind now. At least, the risk of system crisis to occur in this sector is already passed. Big banks are getting their losses reduced, and investors consider it as a sign of improving situation. To date, 100 companies whose shares are included into S&P 500 index base have already presented their quarterly reports. Profits of 58% of them appeared to be higher than analysts predicted. Probably, for this reason the volume of all KASE transactions grew by 30.4% and came to $23,596.5 million in April 2008 against the previous month.
At the same time, reconsideration by Standard & Poor's agency in April 30 of the outlook on sovereign credit ratings of the Republic Kazakhstan from stable to negative can entail further outflow of funds from the market for account of non-residents. Therefore with no positive news in the near future the index can further be falling.
Another important event over the period under review was Fitch Ratings’ report for April that said about significant deterioration in the quality of assets of Kazakhstan’s banking system as compared to the period of aggravated financial crisis in 2007. On the other hand, depreciation of credits in banking sector has not yet reached its critical level. According to reports, the most appreciable rise in these parameters is observed with Alliance Bank (BB-/negative), Bank Caspian (B+/stable) and Kazkommertsbank (BB+ /negative). One can assume that it was exactly Fitch’s report that had an effect on the reduction of quotations almost in all Kazakhstan banks.
Despite such dissimilar news, transactions were closed on KASE open secondary market with shares of 59 names in January-April. The top ten liquid listed shares accounted for 66.3% of turnover (Table 5).
A long-expected KASE listing of ordinary shares EURASIAN NATURAL RESOURSES CORPORATION PLC (GB_ENRC) was received by investors with great enthusiasm. Since April 3, the first day of trade opening, GB_ENRC was traded very actively. Apparently, these securities will maintain high liquidity in the short-term prospect. Ordinary shares of KAZAKHMYS PLC (GB_KZMS), on the contrary, could not maintain the level set in March and got back to positions as of the beginning of the current year. This indicates that a surge of investment interest in these securities, observed in March, was speculative to a greater extent.
With sharp growth in trading (43.2 times against results in March) with ordinary shares of АТFBank (ATFB) these securities got back to liquidity rating. ATFB transactions closed in April are of market pattern, while closer analysis of their range showed that this growth was provoked by large buy-up volumes by one of the counterparts.
Corporate bonds market
The general tone also had an effect on the most liquid instrument of the stock market as bonds. Over the four months of 2008 the value of bonds transactions at KASE, including RFCA’s transactions, came to $578.7 million (69.7 billion tenge), that is $767.8 million or 57% less against the same period of the last year (Table 6).
In addition to the National Bank, 50 companies took part in trade operations of this period. The top ten companies accounted for 61.7% in the turnover of secondary market of bonds as follows: TuranAlem Securities (3.8), RESMI Investment Financial House (1.75), BCC Invest (1.45), Asia Broker Services (1.08), RBNT Securities (0.998), Almaty Investment Management (0.995), Astana-Finance (0.92), Аsyl Invest (0.79), IFG Continent (0.77), Alliance Capital Financial Company (0.74).
It should be noted that against the absence of trading activity in the shares market in April the turnover of bonds went up. Capitals that flood back from an equities segment in general and commercial banks’ shares in particular (due to increased risks in Kazakhstan’s banking sector) temporarily went to investments in debt instruments. However a retrospective glance at dynamics in turnover of corporate bonds market since the beginning of the year showed that the revival in April is a temporality, and this segment of market is still unattractive for investors.
Transactions had a quite marketable pattern while the share of internal transactions is very small to influence the final result. It was difficult to identify a leader among debt instruments traded at KASE both in March and in April. The pricing setup on the corporate bonds market was as follows: out of 82 names of bonds involved in secondary market transactions 63 names were traded with discount, 17 with premium, and 2 by nominal value. The bonds of Kazakhstan Mortgage Company (KZIKb8) appeared to be among the most overbought ones with average weighted price of 120.4%, and among the most oversold bonds were that of Astana-Finance (ASFIb11) – 63%. As a whole, average weighted net price of corporate bonds on the secondary market went down from 93.9% in March to 93.5% in April 2008.
Foreign exchange market
As seen from Table 7, the value of currency transactions at KASE reached $24,554.3 million and went up by $1,902.2 million or 8.4% (5.21% in terms of tenge) against January-April of the last year.
The weighted average market exchange rate of the tenge to the dollar calculated on all deals closed in the main/morning session of KASE between 01.01.2008 to 04.30.2008, stood at 120.45 tenge to the dollar, and on all exchange transactions – 120.48 tenge to the dollar.
Devaluation rate of the tenge to the dollar at market rate is estimated at 0.20% per annum as of April 30, 2008. Over the first four months level of devaluation in nominal terms was 0.07%.
Total of 26 commercial banks took part in currency transactions. The most active KASE members of category “B” were: ABN AMRO Bank Kazakhstan (2.43), Kazkommertsbank (2.4), Nurbank (2.37), Alliance Bank (2.23), BTA Bank (1.55), HSBC Bank Kazakhstan (1.48), National Savings Bank of Kazakhstan (1.441), Citibank Kazakhstan (1.439), Bank Caspian (1.437) and Kazinvestbank (1.13).
According to the International Herald Tribune after a six-year fall the dollar shows signs of getting strengthened. Just recently its exchange rate to the Euro reached a record low point, by dropping below $1.6. Since then it strengthened to $1.55 and for this reason some economists believe that a probability of sheer fall in the dollar has lowered considerably. They note that representatives of the US authorities, especially the head of the Federal reserve System (FRS) Ben Bernanke express apprehension over the falling dollar and consequences for inflation in the US. In addition, weakening of the dollar made for rise in prices for oil and other import goods.
At the same time, experts believe that stabilization of the dollar to the Euro will be sustained only if the economic growth resumes in the US, while in Europe it will be observed to slow down. The recent appreciation of the dollar is considered to prove this trend. One of the reasons for the dollar fall was that investors transferred money to the assets denominated in Euro, due to higher interest rates in Euro zone. The markets now expect that the FRS would make a pause in reducing interest rates.
Analysts believe that the FRS implies discontinuance of reducing rates not only due to inflation concerns but also for apprehensions over the dollar. Many economists believe that the dollar weakened probably as a consequence of the US’s foreign trade deficit, rather than low interest rates. Therefore, the Harvard university’s Professor of Economy Martin Feldstein expects that the dollar can continue to weaken, even though the trade balance has lately improved, the distortion is far to disappear very soon.
On the Kazakhstan’s dollar market the last month’s trends are observed to continue in April. The American currency fluctuated in a stable price range supported by the National Bank’s position. In so doing, the regulator acted mainly as a net buyer thereby restraining an undesired volatility. The growth in the volume of transactions was in many respects attributable to effects of the traditional factors, such as that the banks and their clients made final quarterly payments to the budget. The situation with short-term liquidity of the tenge was quite problematic within that period. This can be confirmed by TONIA indicator (average weighted rate on overnight repo transactions), that reached in April its maximum values recorded within the last six months.
The value of repo transactions at KASE came 6,204.8 billion tenge ($51,510.1 million), having reduced by 21.8% against the same period of the last year (Table 8).
In addition to the National Bank, 73 companies took part in the transactions in this sector. The top ten traders accounted for 43.4% of the market turnover. They included National Savings Bank of Kazakhstan (2.7), TuranAlem Securities (2.41), RESMI Investment Financial House (2.26), Almaty Investment Management (2.17), Temirbank (1.95), BCC Invest (1.92), RBNT Securities (1.66), Caspian Bank (1.64), Eurasian Bank (1.589) and Asia Broker Services (1.588).
Overall the repo market shows an upwards turn. The market makers were in exigency of short money in April that caused the rise in rates of transactions closed. Experts attribute this to quarterly budgetary payments. In addition, payments of annual income tax were due.
Those market makers who still had free funds mainly preferred to invest in short-term notes of the National Bank with considerably increased value of the offer. The yield on these notes also tends to increase since beginning of the year that looks logical against the growing inflation (it was 19.1% in April in yearly terms). The existing situation required participation of the main country’s bank which had to actively add liquidity to the market.
The growth of activity in this segment can further be limited in view of toughened requirements of the Financial Supervision Agency (FSA) for minimum size of commercial banks’ reserve capital intended to ensure cover for potential losses from banking operations and to increase financial stability of the banks.
Disclaimer: the above information should not be considered as an offer or recommendation to sell or purchase securities at KASE. Using this information by any persons to make investment decisions should not entail author’s responsibility for any possible losses or damages resulting from such investment decisions.
By Tatyana Kudryavtseva
based on information provided by Irbis
based on information provided by Irbis
MEKAM – Treasury Bills issued by Finance Ministry of RK
МЕIКАМ - Indexed Treasury Bills
МЕUJKAM - Long-term Savings Treasury Bills
МUIКАМ - Long-term Indexed Treasury Bills
МЕUKAM – Long-term Treasury Bills
МЕОКАМ - Medium-term Treasury Bills
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