Last week Uzbek President
Since it was set up in 1994, not much has happened on the bourse. The total market capitalisation of the market stands at around
However, in recent years that has started to change. There is trading on the exchange and a small group of around 7,000 retail investors that have started to play the market account for something around 40% of its daily turnover of about
Bekhruzbek Ochilov is one person trying to push market development. He works for
Indices and research
He is also the founder of EquityResearch.uz, which is the first attempt to gather research on publicly traded companies by local analysts and track performance – a basic tool for a would-be trader.
“We have done many things to help develop the market. We have bought illiquid shares and sold them again to improve liquidity – a de facto SPO,” Ochilov told bne IntelliNews in an interview from
There is now. Ochilov called all the brokers and invited them to contribute their research to the EquityResearch.uz project and most of them did. It's a pie-growing exercise: the more information there is available, the more confident the investors will be, so the more they will trade and the more business there is for the brokerages. The site now offers company research, macroeconomic results, brokerage assessments and commentary, as well as some “How to” articles with step-by-step explanations on how to open a brokerage account for both local retail investors and international investors. For the meantime, the site is just in Russian, but there are plans to do an English version too.
A decent index is a first requirement for traders. As bne IntelliNews reported, the Uzbek market just experienced its first big “pump and dump” incident where the shares in insurance company Universal Sugurta soared 2,000-fold in just a few weeks in February only to crash back in March. Actions like this make index results meaningless.
“It's the same with [the national pipeline operator] Uztransgas,” says Ochilov. “A few months ago there were some big trades and the price was swinging up and down. It just shows we need a decent index to assess the performance of the market.”
Ochilov adds that he also plans to include analysts' historical predictions compared to what then actually happened so that investors can start to work out who the best analysts are. In short, Ochilov is trying to set up a UzBloomberg of sorts.
Tiny market as stocks locked in limbo
Saying that it is early days for the Uzbek capital markets is probably an understatement. The market remains tiny. While the total market cap is worth over
“The market cap is a few percent of GDP but the free float is tiny. It's a huge problem,” says Ochilov.
One source of stock to trade should come from all the company employees that were given shares in their companies during the privatisation rounds in the 90s. Shares in companies were distributed to workers, most of which still have them, but they have never done anything with these shares.
“People know they have their shares but they do nothing with them. If they wanted to sell them they would have to open a brokerage account. There were lots more tools for these investors to work with and the first privatisation funds, but today these have turned into joint stock companies and there are less tools to work with,” says Ochilov.
The market mechanics of what needs to be done to transfer the ownership of these privatisation shares have proved to be an obstacle to freeing them up.
In
In theory, the same scheme could be carried out in
Cleaning up the market
A lot of work has already been done to clean up the market. There were a total of some 500 stocks traded on the TSE, all OTC, but after the rules were tightened that number has been reduced to 135. And Ochilov says that if those that are still listed were asked to reapply half would fail to meet the new critieria.
As the quality of listed stocks in the liquid part of the market improves, retail investors are being sucked in as the best stocks are performing well and starting to produce decent returns.
Two cement companies have attracted particular attention as their stocks are liquid and they pay decent dividends. Kizilkumcement has seen its shares rise from about UZS1,500 a year ago to UZS6,000 today. Kuvasaycement has a very similar story and is another investor darling.
The only true blue chip on the TSE is the
Ironically, the very illiquid nature of the market has also created willing parties on both sides of the deal, but a key part of the trade is if a company pays dividends – almost all the liquid stocks pay decent dividends.
“If the shares of a company rise then some investors see that as an opportunity to finally exit and sell,” says Ochilov. “But if the stock pays dividends and the share price is going up then there are those that want to get in and buy. So that is the basis of the market and creates the liquidity."
The dividend yields in
In other frontier markets, international investors set up shop and basically track the index and then sell products like exchange-traded funds (ETFs) to their international clients. However, until a year ago foreign investors were not allowed to invest into Uzbek shares unless they formed a partnership with a local partner bank. Those rules have already been relaxed.
Capital market reforms
The president’s decree on the capital market reforms is a bid to improve the conditions on the market; at the heart of the decree is a goal to increase the free float on the market to 5% of GDP – a huge increase from now. The way to achieve this will be to list some of the biggest and sexiest companies on the TSE as a way of privatising them.
One of the measures already in place is a ban on Uzbekistan’s biggest and best companies from listing overseas before they have a local listing. Typcially in a resource-rich country like
As bne IntelliNews reported, Uzbekistan’s privatisation drive has been re-launched and the list includes almost all of the country’s biggest and best companies. However, few are ready. Banking shares have already been liberalised and foreigners can now buy up to 5% of a bank's stock, making them some of the most liquid shares on the exchange.
“There are more banks on the list and they may be ready this year,” says Ochilov. “But many of the others are still in the process of being prepared. [The national oil and gas company] Uzbekneftegaz is still merging all its production assets and having its non-core assets cut away. But there is a problem, as the state wants to turn the common stock of the subsidies into a preferred stock that pays very little dividend yield if any, and the shareholders are resisting. [Mining giant] Navoi is still dividing its gold and uranium mining assets, as the gold part will be privatised but the uranium will remain in state control. And
There's clearly a lot of work to do, but the government looks increasingly serious about getting it done. Part of the president’s decree dissolved the
“The CMDA had a lot of good ideas and worked hard, but it was decided that it wasn't going fast enough,” says Ochilov. “But now with the weight of the Ministry of Finance behind the reforms, I'm sure they will be able to push them through.”
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