28 February 2017 Kazakhstan in a global context Analyst Contacts: Yerassyl Berkimbayev y.berkimbayev@tengricap.com Dmitriy Sheikin d.sheikin@tengricap.com Leila Kulbayeva l.kulbayeva@tengricap.com Tengri Capital, JSC: +7 (727) 311 05 06 Contents: Kazakhstan economic news 2 Global economic news 3 Equities 4 Credit 5 Bonds 6 Money markets 7 Currencies 8 Commodities 9 Dollar funding 10 Events calendar 11 Summary Kazakhstan economic news» NBRK would increase foreign currency assets of Unified Accumulative Pension Fund to 30 percent Global economic news» President Trump to propose ten percent defense spending boost Stock Markets» KASE fell 1.95 percent (Page 4)» MICEX dropped 1.75 percent (Page 4)» Nikkei grew 0.69 percent (Page 4) Credit Markets» Markit CDX Emerging Markets grew 2.50 bp (Page 5)» Markit itraxx Europe Crossover declined 0.24 bp (Page 5) Government Bond Markets» Argentinian bond yield added 0.08 bp (Page 6)» Italian bond yield lost 0.06 bp (page 6) Commodities» Uranium decreased 1.10 percent (Page 9)» Gold reduced 0.41 percent (page 9) The information provided herein is NOT intended as investment advice. When making investment decisions investors are recommended to perform their own independent analysis and consider the information and assessments found in this report as only a single factor in decision-making. PLEASE SEE ANALYST CERTIFICATION, DISCLOSURES AND DISCLAIMERS AT THE END OF THIS REPORT.
W Wee W Kazakhstan economic news NBRK would increase foreign currency assets of Unified Accumulative Pension Fund to 30 percent The National Bank of the Republic of Kazakhstan (NBRK) intends to increase foreign currency assets of the UAPF to 30 percent, said the deputy chairman of the Bank, Galymzhan Pirmatov. The deputy chairman added that the Bank plans to attract foreign managers from Latin America, Middle East and South- East Asia to acquire experience and expertise in the specific sectors, which would boost efficiency of the investments made by the UAPF. According to the UAPF, as of 1 st of February 2017, dollar assets in the UAPF s portfolio amounted to 21.85 percent and tenge assets 77.47 percent. We believe that the decision to achieve such proportion is rather logical due to the limited range of KZT denominated investment instruments as well as risk of potential devaluation of KZT on the back of external shocks. Figure 1: Asset structure 100% 80% US$ assets KZT assets 60% 40% 88% 83% 77.66% 77.47% 70% 20% 0% 12% 17% 22.34% 21.85% 30% 2014 2015 2016 Feb-17 Planned 2017 Source: NBRK February 28, 2017 2
Global economic news President Trump to propose ten percent defense spending boost President Donald Trump would propose defense spending up by US$54 bln. in his first budget plan, offset by an equivalent cut from the rest of the government s discretionary budget, according to the administration officials. The main purpose of the boost would be increase of law enforcement and keeping terrorists out. In addition, President Trump promised that the new budget would include big infrastructure spending. Budget Director, Mick Mulvaney said: We will be spending less overseas and more back home. If Congress were to adopt Trump s plan it would mean programs outside of national security - including medical research, veterans care, education, national parks, food and drug regulation would be down by 10 percent on average. Bloomberg Dollar Spot Index increased 0.19 bp. on the news. Figure 2: Bloomberg Dollar Spot Index 1300 1250 Bloomberg Dollar Spot Index 1200 1150 1100 1050 February 28, 2017 3
Equities KASE fell 1.95 percent MICEX dropped 1.75 percent Nikkei grew 0.69 percent Figure 3: KASE Index 1,700 1,500 KASE Index 1,300 1,100 900 700 Table 1: Equity Indices NAME Value 1 Day (%) 1 month (%) YTD (%) 1 year (%) STOXX 600 369.52-0.13 2.61 2.24 10.66 Standard & Poor s 500 Index 2,369.75 0.10 3.99 5.85 22.64 MSCI Emerging Markets Index 940.32-0.34 3.42 9.05 27.01 DAX Index 11,822.67 0.16 2.49 2.98 24.51 FTSE 100 7,253.00 0.13 2.17 1.54 18.96 Hang Seng Index 23,925.05-0.10 2.31 8.64 25.06 Shanghai Composite Index 3,228.66 0.13 2.33 4.16 20.27 Nikkei Index 19,107.47 0.69 1.04 0.66 0.66 NASDAQ Index 5,347.55 0.08 4.51 9.95 9.95 MICEX Index 2,056.46-1.75-7.26-7.89 11.75 KASE Index 1,540.57-1.95 2.72 13.45 63.77 MSCI Frontier Markets Index 532.19-0.18-0.04 6.57 9.16 Table 2: Implied Volatility Indices NAME Value 1 Day (%) 1 month (%) YTD (%) 1 year (%) VIX Index 12.09 5.41 0.83-13.89-41.17 VFTSE Index 11.31 4.49-12.69-2.22-48.74 VSTOXX Index 16.04 1.17-7.65-11.49-46.05 VDAX Index 15.54 1.62-9.44-12.91-46.24 February 28, 2017 4
Credit Markit CDX Emerging Markets grew 2.50 bp Markit itraxx Europe Crossover declined 0.24 bp Figure 4: Markit CDX Emerging Markets Index 450 Markit CDX Emerging Markets Index 400 350 300 250 200 Table 3: CDS Indices NAME Value (b.p) 1 Day (b.p) 1 month 1 Year YTD (b.p) (b.p) (b.p) Markit itraxx Europe Index 74.18-0.16 0.82 2.36-26.44 Markit itraxx Europe Crossover 294.66-0.24-5.89 1.80-113.12 Markit itraxx Asia ex-japan IG Index 95.89-0.07-20.01-17.09-61.54 Markit itraxx Japan Index 52.20 0.04-1.74-5.36-47.31 Markit itraxx Europe Senior Financial 93.58-0.19 3.37-0.05-16.43 Markit CDX Emerging Markets Index 220.77 2.50-13.64-7.73-145.76 Markit CDX North America IG Index 62.39-0.07-3.71-7.64-45.21 February 28, 2017 5
Bonds Political risk in Europe boosted bonds on Monday Argentinian bond yield added 0.08 bp Italian bond yield lost 0.06 bp Figure 5: Argentinian Bond Yield to Maturity 8.0 7.5 7.0 6.5 6.0 5.5 5.0 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Argentinian Government Bond Table 4: Developed Market 10Y Bonds NAME Price 1 Day (%) 1 month (%) ASW YTM (b.p) 1 Day YTM (b.p) US-Treasury(USD) 92.59 0.04 0.77 5.21 2.38 0.00 UK-Guilt(GBP) 103.82 0.03 3.04-5.31 1.07 0.00 Spanish Government Bond(USD) 97.75 0.44 0.35 87.68 1.55-0.05 Italian Government Bond(GBP) 95.99 0.52 0.80 141.92 2.09-0.06 German Bund(EUR) 98.83-0.12 2.30-48.79 0.13 0.01 Japanese Government Bond(JPY) 100.56-0.04 0.24-17.79 0.04 0.00 Table 5: Emerging Market 10Y Bonds NAME Price 1 Day (%) 1 month (%) ASW YTM (b.p) 1 Day YTM (b.p) Kazakh Government Bond(USD) 100.62 0.00 0.32 155.43 3.78 0.00 Polish Government Bond (PLN) 90.59-0.03 0.82 259.86 3.70 0.00 Czech Government Bond (EUR) 119.60 0.00 0.01 123.37 0.11 0.00 Hungarian Government Bond (HUF) 116.82 0.17-0.55 99.25 3.16-0.03 Brazilian Government Bond(USD) 108.76-0.35 1.50 123.37 4.80 0.05 Chinese Government Bond (USD) 136.94-0.16 0.96 123.37 3.37 0.02 Indian Government Bond (INR) 103.60 0.00-3.20 62.10 7.04 0.03 South African Government Bond (ZAR) 111.48-0.17 0.49 73.47 8.73 0.03 Argentinian Government Bond (USD) 104.69-0.56 0.21 455.65 6.80 0.08 Thai Government Bond (THB) 95.33-0.06 0.42 7.12 2.68 0.01 February 28, 2017 6
Money markets Chinese interbank effective rate (1y) went down 0.74 bp Indian interbank effective rate (1d) dropped 0.06 bp Figure 6: Chinese and Indian Interbank Effective Rates Indian ER (1d,LHS) Chinese ER (1y,RHS) 10 8 6 4 2 0 4 3 2 1 0 Table 6: Monetary Policy Target Rates Target rate tenor Current Rate Previous rate Effective Rate (ER) ER 1 Day YTD Next (b.p) (b.p) 1 Year (b.p) meeting United States o/n 0.75 0.50 0.66 0.00 0.11 0.28 3/15/2017 Canada o/n 0.50 0.75 0.50 0.00 0.00-0.01 3/1/2017 Eurozone 1w -0.40 0.05-0.36 0.00-0.03-0.11 3/9/2017 United Kingdom o/n 0.25 0.50 0.21 0.00 0.05-0.26 3/16/2017 Switzerland 3m -0.75-0.25-0.73 0.00 0.00 0.08 3/16/2017 Norway o/n 0.50 0.75 1.06 0.01-0.11 0.01 3/16/2017 Sweden 1w -0.50-0.35-0.47 0.01 0.12 0.04 4/27/2017 Russia 1w 10.00 10.50 10.38 0.02 0.01-0.81 3/24/2017 Japan o/n -0.04 n/a -0.04-0.01 0.02-0.04 3/16/2017 China 1y 1.50 4.60 2.60-0.74-0.64 0.28 7/23/2017 India 1d 6.25 6.50 6.04-0.06-0.21-0.90 4/6/2017 Korea o/n 1.25 1.50 1.49 0.00-0.03-0.14 2/23/2017 Hong Kong o/n 1.00 0.75 0.94 0.00-0.08 0.35 2/17/2017 Singapore o/n 0.08 0.03 1.18-0.04-0.16-0.61 3/28/2017 February 28, 2017 7
Currencies Brazilian real depreciated 1.50 percent against the USD Russian ruble strengthened 0.62 percent Figure 7: USD Exchange Rate YTD(BRL per USD) 4.20 USDBRL 4.00 3.80 3.60 3.40 3.20 3.00 Table 7: Exchange Rates against the USD Per 1 USD 1 Day (%) 1 month (%) YTD (%) 1 year (%) Euro 0.94 0.02 2.02-0.61 2.73 Japanese yen 112.70-0.12-0.21-3.76-0.12 British pound 0.80 0.09 1.20-0.70 11.96 Swiss franc 1.01-0.01 1.99-0.99 1.05 Chinese renminbi 6.87-0.02-0.22-1.09 4.84 Kazakh tenge 311.67 0.03-4.96-6.60-10.95 Russian ruble 58.08-0.62-2.91-5.20-22.77 Australian dollar 1.30-0.08-1.24-6.24-7.02 Canadian dollar 1.32 0.08 1.23-1.87-2.58 Mexican peso 19.91 0.05-4.38-3.89 9.84 Brazilian real 3.11 1.50-1.93-4.32-21.43 Singapore dollar 1.40 0.08-0.31-2.86-0.09 Swedish krona 9.06 0.00 3.67-0.47 5.79 Turkish lira 3.61-0.02-4.39 2.39 21.64 Korean won 1,133.75-0.11-2.50-6.23-8.42 South African rand 13.01 0.01-3.45-5.31-18.02 Polish zloty 4.07 0.00 1.78-2.70 1.87 Czech koruna 25.52 0.03 2.02-0.65 2.56 Hungarian forint 290.50 0.02 1.24-1.29 1.87 Indian rupee 66.71-0.18-1.95-1.79-2.50 Argentinian peso 15.48-0.16-2.86-2.52 0.86 Thai baht 34.86 0.14-0.86-2.50-2.06 Emirati Dirham 3.67 0.00-0.01-0.01-0.01 ICE DXY US Dollar Index 101.13 0.03 1.66-1.03 3.00 Trade-weighted Broad US Dollar Index 125.41 0.13-1.07-2.18 1.42 February 28, 2017 8
Commodities Uranium decreased 1.10 percent Gold reduced 0.41 percent Figure 8: Uranium Price Performance (US$/lb ) 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - Uranium Table 8: Commodity Prices NAME Price (USD) Forward Price (USD) 1 Day (%) 1 month (%) YTD (%) 1 year (%) Oil 55.93 56.10 0.30 0.72-1.27 55.96 Gold 1,258.80 1,253.70-0.41 3.73 8.86 1.56 Copper 5,925.00 5,931.00 0.12 0.64 7.22 25.63 Gas 2.69 2.69-0.15-13.73-27.79 57.16 Zinc 2,803.75 2,825.00-0.84 2.27 9.37 59.60 Uranium 22.50 n/a -1.10-4.26 10.29-29.69 Wheat 418.75 419.75 0.24-0.24 2.88-5.67 Cotton 74.97 75.90-0.60 0.16 6.11 29.44 February 28, 2017 9
Dollar funding CHF 3m basis swap gained 3.50bp JPY 5y increased 2.88 bp Figure 9: 3m Cross-Currency Basis Swaps 50 0-50 -100-150 -200 JPY Basis Swap 3m EUR Basis Swap 3m CHF Basis Swap 3m GBP Basis Swap 3m -250 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 Table 9: Cross Currency Basis Swaps Basis Swap Rate 1 Day (b.p) 1 month (b.p) 3m USD Yield Ask Implied Libor/MS JPY 3m -43.50 0.13-0.63-0.46-0.02 EUR 3m -26.13 0.75 11.50-0.59-0.35 CHF 3m -29.50 3.75 7.25-1.02-0.73 GBP 3m -15.00 1.50 7.25 0.21 0.35 JPY 5Y -81.50 2.88 7.88-0.77 1.99 EUR 5Y -40.00 1.00 2.88-0.44 1.99 CHF 5Y -47.75-1.00 1.75-1.09 1.99 GBP 5Y -12.00 0.25 2.75 0.55 1.99 February 28, 2017 10
Events calendar Date Event/Comment Source/Company 27-Feb-17 Trade Balance Report (USD bn) Turkey 28-Feb-17 Copper Production Total tonnes Chile 1-Mar-17 Manufacturing PMI Index Eurozone 1-Mar-17 Feds Release Biege Book US 1-Mar-17 Interest Rate Announcement & Quarterly Inflation Released Canada 3-Mar-17 Fed's Evans and Lacker Speak in New York US 3-Mar-17 Private Payrolls k US 7-Mar-17 CPI m/m Russia 8-Mar-17 Trade Balance Report (USD bn) China 8-Mar-17 International Women's day (holiday) Kazakhstan 9-Mar-17 ECB - Deposit Rate and Refinancing Rate Eurozone 9-Mar-17 ECB President Draghi gives press conference following interest rate announcement Eurozone 15-Mar-17 AGRITEK ASTANA, International Exhibition for Agriculture Astana, Kazakhstan 21-Mar-17 Nauryz Meiramy Kazakhstan 22-Mar-17 Nauryz Meiramy Kazakhstan 23-Mar-17 Nauryz Meiramy Kazakhstan 1-Apr-17 OILTECH ATYRAU, Kazakhstan Petroleum Technology Conference Atyrau, Kazakhstan 11-Apr-17 AtyrauBuild (ITECA) Atyrau, Kazakhstan 19-Apr-17 KAZREALTY, Kazakhstan International Real Estate & Investment Exhibition Almaty, Kazakhstan 26-Apr-17 KZT10bn bond maturity (CCBNKZ 7 ½ 04/26/17 Corp) Bank Centercredit 26-Apr-17 POWER ASTANA, Kazakhstan International Energy, Electrical equipment and Machine building Exhibition Astana, Kazakhstan February 28, 2017 11
ANALYST CERTIFICATION: The research analyst(s) responsible for authoring this report hereby certifies or certify that (i) the views expressed in this report accurately reflect the personal views of the author(s), while not necessarily representing the views of their employer and (ii) no part of this report was influenced by commercial considerations of their employer. IMPORTANT DISCLAIMER: The information provided in this report is for informational purposes only. No warranty or representation is made as to the correctness, completeness and accuracy of either the information provided or the conclusions drawn. Opinions reflected in this document may change without notice. Opinions expressed may be different or inconsistent with views reflected in other reports produced by Tengri Capital, and Tengri Capital assumes no obligation to bring such other reports and opinions to the attention of any recipient of this present report. Copyright 2016. Tengri Capital, JSC, Nurly Tau 4B, 17 Al-Farabi, Almaty 050059, Kazakhstan. All rights reserved. When quoting please cite Tengri Capital Research. February 28, 2017 12