ANALYSIS: Financial and primary sectors of KASE index face global tendencies

/IRBIS, Vitaliy Tomskiy, Ruslan Dzubaylo, August 29, 2008/ - August 28 KASE index renewed its minimal value for the last 52 weeks - 1,978.60 point, overcoming psychologically main point in 2, 000. Since the beginning of August index decreasing is estimated in 14.9 %, since the beginning of current year - by 25.0 %. Falling relative to maximum in 2008 on closing day (2,858 point on 21.02.08) reached 30.8 %. From the viewpoint of technical analysis, Kazakhstan shares market is in evident "bear" phase of its development. Below the Information Agency of Financial Markets IRBIS (Almaty) publishes its opinion on Kazakhstan share market situation. Kazakhstan banks` shares continue falling on reappraisal risks global process Continuing and developing process of growth of financial institutes` defaults on the West as a result of world credit crisis, affects domestic banking structures, which have already deeply integrated in global economy. The major American financial companies Freddie Mac and Fannie Mae, which controlled the half of USA mortgage market and were supported by state credits, having faced big problems, became the serious messengers of crisis's depth and further bankruptcies in financial sector. After difficult initial 6 months of 2008, when major investment banks worldwide continued publishing data on forced writing-offs, connected with mortgage (one of the last - $1.5 bn. by JP Morgan), today forthcoming huge maturity on two-year notes with floating rate is of primary importance. Total maturity volume of western banks on these instruments till the end of 2009 should make $800 bn. (by 43 % more than for the previous 1.5 years). Refinancing value becomes more and more expensive. Spreads on markets of loan capital expanded significantly; a year ago it was hundredths of per cent, but now reaches 2 p.p. Expanding lists of "problem" USA bank, which are under bankruptcy, also make negative effect. Today this figure is more than a hundred. One of the last huge bankruptcies became IndyMac with $32 bn. assets (third in USA history). As a result, now there is a process of so called "escape in quality", when more speculative part of western investor base began to sell instruments of all financial organizations, not depending on their geography and character. The same is with depositary receipts of Kazakhstan banks, which have listing on London Stock Exchange (LSE). Besides, risks reappraisal by more qualified portfolio investors leads to the fact that the stake of companies` instruments from emerging markets and also that stake of financial sector's companies in portfolios rebalance in downward direction. It is natural that such change of investment strategies leads to the sale of domestic bank's depository receipts. But we shouldn't forget about internal factors. The last data of authorized regulating body testifies on retaining tendencies of significant recession of financial indicators and continual deterioration of assets` quality. Table 1. Price dynamic of bank equity instruments, included in representative list of KASE index from July 1 to 28 2008 (in %) ------------------------------------------------------------- Share Price Share in Issuer code trend index ------------------------------------ ----- ------ -------- BTA Bank JSC BTAS -19.41 14.22 ------------------------------------ ----- ------ -------- Bank CenterCredit JSC CCBN -4.50 10.78 ------------------------------------ ----- ------ -------- Halyk Savings Bank of Kazakhstan JSC HSBK -23.70 12.80 ------------------------------------ ----- ------ -------- Kazkommertsbank JSC KKGB -25.00 12.41 ------------------------------------ ----- ------ -------- KKGBp -14.60 2.23 Temirbank JSC TEBN 0 4.13 ------------------------------------------------------------- As we see from the table, since the beginning of August securities of financial institutes showed unexampled fall. For the same period, global depositary receipts of Kazkommertsbank on LSE decreased by 38.0 %, Halyk Bank - by 41.5 %. Primary sector - dependence on world conjuncture on exported goods and in expectation of tax burden Quotations of equity securities of domestic primary companies experience the same decrease. Table 2. Price dynamic of Kazakhstan primary companies` shares, having parallel listing on KASE and LSE since July 1 - 28 2008 (in %) ------------------------------------------------ Ticker Issuer KASE/LSE KASE LSE ------------------ ------------ ------ ------ KAZAKHMYS PLC GB_KZMS/KAZ -19.14 -21.70 ------------------ ------------ ------ ------ EP KazMunaiGaz JSC RDGZ/KMG -12.69 -29.31 ------------------ ------------ ------ ------ ENRC PLC* GB_ENRC/ENRC -16.00 -27.77 ------------------------------------------------ * ENRC PLC - abbr. Eurasian Natural Resources Corporation PLC (shares of this issuer are not included in KASE index representative list) The major negative background for the companies of primary sector is still decreasing prices on energy resources and metals. Thus, Brent oil price decreased by 6.4 % since the beginning of August, having reached $116 per barrel (maximum - $147 in July). At that, very contrary viewpoints are uttered relative to further price moving. However, it should be note that today $100 per barrel is rather significant level of support and oil exporter countries will try to retain fluctuations above this point. Shares of primary giants KAZAKHMYS PLC and ENRC PLC decreased on uncertain reaction of investors relative to increasing the stake of KAZAKHMYS in ENRC to 25.02 %, what in fact means intention of the first to participation in company's management. Discussion of Kazakhstan new Tax Code, which should be effective since January 1, 2009 was also the important theme of the month. Government intention to release non-primary sector from tax burden and load it on primary sector arouse alert of investors. Moreover, there is still unclear situation with rate and principle of differentiation of new tax on minerals production. IRBIS agency gives notice that the material given above is not an offer or recommendation to sell or buy shares on KASE. Any one using the material while taking investment decisions does not make IRBIS agency responsible for possible losses, resulting from such decisions. [2008-08-29]