Frontier Market Review: Kazakhstan


How Does Kazakhstan Rate As A Market?

We’re launching a new series called Frontier Market Reviews, where we evaluate the investment potential and viability of a frontier market. Consider them a product review like you would find on tech and gadget sites, but in this case the product is a country’s stock market. Given the amount of research and resources out there for people looking to buy a smartphone or a car, it is shocking how little there is for people looking to invest in new markets. With these reviews, we hope to rectify that situation.

Kazakhstan: Specifics

Our first review is focused on Kazakhstan, home to the Kazakhstan Stock Exchange:

  • Region: Central Asia
  • Main Index: KASE Index
  • Market Cap (USD, mio): 22,808.6 (as of 8 May, 2015)
  • Historical Returns: -10.7% annually from 2010 to 2014
Year KASE Level Return (%)
2010  1,718.09 -2.8%
2011  1,105.58 -35.7%
2012  969.70 -12.3%
2013  918.01 -5.3%
2014  941.86 2.6%
2015  861.93 -8.5%

Investment Story
& Catalysts

As a former part of the USSR, Kazakhstan’s fortunes have long been tied to Russia. However, the emergence of China as an economic powerhouse has given Kazakhstan another important trade partner; China is already it’s largest destination for exports and a close second when it comes to imports. This relationship is set to hit overdrive with China’s new Silk Road Plan (which we’ve covered in detail before here and here).

Central Asia has historically been the key hub for the Silk Road, and is set to take on that role again in China’s new plan. As the largest country in Central Asia, Kazakhstan is poised to be the biggest winner of all these new policies. This has been highlighted with Chinese president Xi Jinping’s visit to Kazakhstan this week, his second in two years. Kazakhstan was the only country in Central Asia he visited on this trip, and President Xi was quoted as saying “We have a plan, and we have outlined specific actions that will take Kazakh-Chinese relations to a new level.”

These developments are obviously bullish for Kazakhstan in the future, although uncertainties around corruption and bureaucracy could temper any positive affects on the local stock market. And even with all that Chinese investment, Kazakhstan remains mostly a one-trick pony with it’s oil-dependent economy.

Economic/Macro Risk (2/5)

Kazakhstan’s GDP growth has sputtered recently, with 1Q 2015 GDP growth falling to just 2.2% yoy, although it has hovered around 4-6% since 2012. The economy is very commodity focused with crude and gas making up almost 65% of all exports, with metals exports making up another 15%:

KazakhstanExportsGraphic from MIT’s Observatory of Economic Complexity

Despite this they have an economic complexity index (ECI) score of 0.0494, and is ranked 64th out of 144 countries in the world; the ECI score is consistent with an emerging market country (anything below zero we consider frontier).

The fall of oil has hit Kazakhstan particularly hard, and exports have already dropped. This in turn will impact government revenues and hamper the amount of fiscal stimulus they can do during this slowdown. It also does not help that their two largest trade partners, Russia and China, are facing big slowdowns themselves as well.

Currency Risk (1/5)

Kazakhstan’s currency, the tenge (KZT) , has been suffering over the past couple years. There was a 20% devaluation in the trading band in February 2014, from 145-155 to its current 170-188 range.

USDKZTFrom Google Finance

Weak oil and recent trouble in the Russian ruble exacerbated their currency troubles in 2014, but the National bank has remained committed to maintaining the current band if oil prices remain around here. However, even as oil has bounced off the lows and the ruble recovered almost 15% this year, USDKZT has failed to follow and the tenge remains in a precarious situation. This is because the currency continues to be very expensive in real terms, with still a lot of room to fall.

Political & Investment Risk (2.5/5)

Corruption is a central issue when it comes to investing in Kazakhstan. In the 2014 Corruption Perception Index, they were ranked 126 out of 178 countries, tying countries such as Honduras, Nepal, and Pakistan. On the optimistic side, Kazakhstan had one of the highest improvements in 2014, since it was ranked 140th in 2013.

Despite this poor showing, we currently have Kazakhstan ranked 96th out of 192 countries in our Investment Safety Rankings. This is because it placed 77th in the 2015 Ease of Doing Business Rankings, and 68th in the 2014 Fragile States Index. This may seem much higher than expected, but this balance between high corruption and relative political stability can be seen in the rule of Kazakhstan’s president, Nursultan Nazarbayev.

President Nazarbayev has been in power since 1989, and was recently elected with 98% of the vote. A vote share like that is dubious, but in this case he was basically running unopposed. He’s also managed to amend the constitution to rule over as many terms as he can, and is currently in his fifth term. He’s been accused of stealing government funds for years, which should not surprise anyone.

On the other hand, under his rule Kazakhstan has made immense strides since leaving the USSR, and can at least boast that they have democratic elections. It has peaceful relationships with all its neighbours, and the adult literacy rate is near 100%. No, President Nazarbayev is not Central Asia’s Lee Kuan Yew, but unlike many countries in Africa who have had the same leaders in power for over 25 years, Kazakhstan has grown under his command.

Valuation (5/5)

Kazakhstan’s stocks are cheap, with a P/E ratio of 3 and a P/B ratio of 0.7. When listed like that, they sound insanely cheap but keep in mind the regional context: Russia’s price ratios are just slightly higher but in the same ballpark. The KASE Index is over 70% off the highs seen in 2008, although it has shown little signs of recovery with the fall of oil.


Kazakhstan is likely home to one of the lowest P/E ratios in the world, but they have been low for a while. In 2013, with US stocks still storming ahead, Kazakhstan’s P/E ratio was still hovering around 5, which was very low at the time. It’s only headed lower since..


Extremely cheap valuations can overcome a lot of other risks, and a P/E ratio of 3 is hard to beat anywhere in the world. But stocks in Kazakhstan have been very cheap for a while, and returns have been negative for the past five years. Currency risk also remains a concern, with a 20% devaluation seen just two years ago. A slowing economy, shaky currency, and middling investment safety rating makes the market cheap for a reason.

We await more concrete news from China’s involvement, and give Kazakhstan a final (average) score of 2.6 out of 5.0, meaning we are currently neutral on Kazakhstan. If the currency devalues more then this market will look much more attractive.

photo credit: SAM_0834 via photopin (license)

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