The world economy seems to have felt quite well this year as evidenced by both macroeconomic indicators and appetite of investors for purchases as well as by growing number of IPOs in the world. The technology sector was the best in the world markets. The shares of mineral and financial companies demonstrated the most significant growth in Kazakhstan. Private equity in the national economy was increased as well.
Timur Turlov, General Director of Freedom Finance Investment Company:
2017 international market demonstrated a positive growth dynamics against the background of improved macroeconomic indicators and monetary policy of central banks of global developed countries. So a S&P 500 index in the US stock market was increased by 18.4% since the beginning of the year while a Nasdaq index gained 26.6%.
In the context of industries, the technology sector has become a growth leader this year. Only energy sector demonstrated negative dynamics with fluctuations against the background of volatility of oil prices.
Kazakhstan securities market also demonstrates the same - since the beginning of the year the KASE index was increased by 56%; this dynamic follows the growth of 2016 (+ 56%). Similar growth is seen in the group of emerging market indices - MSCI Emerging Markets (+ 29% YTD), i.e. the growth dynamics is global. The reasons for appreciation of Kazakh shares include the improvement of financial results of issuers and economic situation in the country, smoothing the fluctuations of the national currency rate and individual corporate histories - both dividend and corporate.
Activity in the IPO market has reached the pre-crisis 2007 scale. As a result, since the beginning of the year 1624 public IPOs on the US exchanges have been registered or by 49% higher against 2016. Capital raising amounted to $ 188.8 billion or by 40% higher against previous year.
Kazakh market saw only one primary offering - shares of Bank of Astana, which were increased by 13% from the placement price.
From the shares in S&P 500, papers of the following companies demonstrated the most positive growth dynamics since the beginning of the year: Align Technology (+ 151.7%), NRG Energy (+ 126.1%) and Micron Technology (97.8%). In the Kazakhstan market, the top three in terms of growth in value included the securities of Kaz Minerals (+ 130%), KMG EP (+ 70%) and Halyk Bank (+60%).
International markets have good prospects to continue rapid growth in 2018 against the background of GDP growth rate recovery in global markets. So the 2018 US GDP may reach 4%. The shares of technology companies and banking sector may become the most promising in the coming year against the background of growing digitalization and globalization.
Kazakhstan's forecasts are also favorable - according to the World Bank the country's GDP growth in 2017 will be 3.7%, in 2018 - 3.7%, in 2019 - 4%. The views and forecasts of experts on oil prices also seem promising. In view of the foregoing, we see the prospects for further growth of companies’ quotations on KASE.
Askar Dostiyarov, Chairman of the Management Board of Kazyna Capital Management JSC (KCM):
In 2017 the Kazakh private equity market demonstrated a certain activity against the background of improved macroeconomic indicators. So, the net inflow of private equity for 1H2017 exceeded the indicator of 6 months of 2016 by 20% and reached $ 4.2 billion. Companies began positively to assess the attracting of private equity in capital for several reasons. First, most of Kazakh companies faced difficulties in obtaining bank financing. For example there is a reduction in the role of the banking sector in financing the national economy. So, if in 2009 the share of bank lending of legal entities to GDP was 30%, then in 2016 this indicator was decreased down to 19%. Second, the implementation of state programs enabled to ensure the inflow of capital to certain sectors of the economy increasing their attractiveness for investors. Third, the program of privatization of state assets acted as a catalyst for increasing activity in the private equity market.
If to summarize KCM’s interim results, the investments of private equity funds with KCM’s participation for 11 months of 2017 amounted to circa KZT 10 billion in projects in the area of agribusiness, automation and robotics, processing and other industries. Over the past few months, corporate decisions have been adopted to establish three new funds with a circa $ 600 million total capitalization. So there is a positive dynamics in investment business of both KCM and the market as a whole.
In addition to traditional mineral and banking sector the transport and logistics sector and agro-industrial complex were the most attractive projects this year.
Within the framework of development of Kazakh transit potential in the region, the transport and related infrastructure in recent years has received considerable impetus from both state programs and initiatives such as the Nurly Zhol program and interstate initiatives of our neighbors as the “One Belt – One Road” initiative. At the same time we already see that the Funds with participation of KCM actively consider logistics centers and development of transport infrastructure as the targets of their investment.
Significant investments of private sector and governmental subsidies to the agricultural sector of Kazakhstan as well as unique geographical location with Chinese enormous market with over 1.4 billion potential buyers and membership in the Eurasian Economic Union with a market of over 180 million people make the agricultural sector as a hot topic for investment and the development of export potential for the coming years.
In addition to development of agriculture, the innovation is a promising area for investment.
Kazakh economy is rapidly recovering after slowdown caused by external shocks and it has created an excellent base for further growth through reform process. We hope that the opening of the International Financial Center Astana in early 2018 will also give a certain push to the growth of private equity.
Taking into consideration all this as well as a number of other specific efforts implemented by the government of Kazakhstan to ensure an attractive investment climate in the country it may be assumed that the private equity flow in 2018 will remain in a positive course.
In general it can be noted that the 2017 moves and trends will continue in the next year, and the most promising areas for private equity will include the infrastructure, especially transport, agricultural sector and petrochemical industry.