JUNE 2013 - FEAS

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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013 KYRGYZ STOCK EXCHANGE In 2009 trading volume of the Kyrgyz Stock Exchange has decreased 29.4% in comparison with 2008. Kumushbek Shamkanov President In 2009 trading volume of the Kyrgyz Stock Exchange (KSE) has decreased by 29.4% in comparison with 2008 and the volume totaled 2,95 billion KG Som (about US$ 66 million). The total quantity of the transactions has decreased by 72.8% represented by 926 transactions. In listing sector trading volume has increased on 41.3% in comparison with 2008 and totaled 842.8 million KG Som (about US$ 19,1 million). In non listing sector trading volume has decreased by 41,2% in comparison with 2008 and totaled 2,1 billion KG Som (about US$ 46.9 million). Trading volume of primary market totaled 1,52 billion KG Som (about US$ 34,7 million), in comparison with volume of 2008 it has increased by 69,0%. Trading volume of secondary market totaled 1.43 billion KG Som (about US$ 31,3 million), in comparison with volume of 2008 it has decreased by 56,6%. HISTORY AND DEVELOPMENT The KSE was founded in 1994. The official opening and the first trade in stocks took place in May 1995, while the privatization process was in full swing in our country. At the initial stage of its existence and up until 2000, the KSE had functioned as a non-profit organization with a total membership of 16. In May 2000 the KSE was transformed into a jointstock company; simultaneously we acquired one of the largest shareholders and a reliable partner the Istanbul Stock Exchange, which has actively assisted us in improving our activities. In 2001 the Kazakhstan Stock Exchange became a shareholder allowing the KSE to significantly increase its technical software potential. At present the KSE is a closed-type non-profit jointstock company with 17 shareholders. A significant contribution has been made by the US Agency on International Development (USAID) for the sake of our continued development. Thanks to the USAID, the KSE has obtained powerful financial support that has allowed our Exchange become independent. FUTURE OUTLOOK Priorities for the KSE in 2010 are: • Transfer of government treasury bills’ circulation of the trade area of KSE • Circulation of securities of «blue chips» • Development of corporate equity market and capital formation by domestic companies • Development of listing and market making • Development of municipal equity market • Integration with the cross markets and international exchanges. CAPITAL MARKET DEVELOPMENT AND ECONOMIC OUTLOOK Economic performance Economic downturns in Kazakhstan and the Russian Federation (the major economic partners) and the country’s power shortfalls took economic performance in 2009 down to 2.3% from 8.4% in 2008. Their difficulties hit the economy through reductions in three channels: remittances from migrant workers (which constituted around 20% of GDP in 2008); inflows of foreign direct investment; and demand for exports. GDP growth was driven mainly by a robust performance of agriculture (due to favorable weather conditions), which grew by 7.3%. Construction increased by 6.3%, after a 10.8% contraction the prior year, a rebound primarily due to activity in the hydropower generation and mining subsectors, rehabilitation and construction of roads, and residential building. However, industry overall declined by 3.4% because of reduced output in the textile and sewing industry, transport equipment, electric energy, and gas and water distribution. Gold production also declined. PAGE 58
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013 KYRGYZ STOCK EXCHANGE The government forecasts its budget deficit at 5.1% of GDP in 2010. The widening deficit is a result of the increased budgetary allocations for the development budget (mainly infrastructure projects), monetization of benefits, higher pensions, and increased compensation to vulnerable groups (to offset an increase in electricity and heating tariffs). The National Bank of the Kyrgyz Republic (NBKR) followed an expansionary monetary policy. It reduced banks’ reserve requirement from 10% at the start of the year to 9.5% from June; and lowered the discount rate from 14.4% in January to a record low 0.9% at year-end. Although the commercial banks’ lending rate remained almost unchanged (at about 20%), credit to the private sector surged by 46.5%. For the year, money supply rose by 20.4%, carried by increased net foreign assets (reflecting the budget assistance) and the expanded credit to the private sector. Among financial reforms, a deposit insurance scheme was launched in April 2009, covering deposits up to Som100,000 ($2,290). All banks are required to participate. A new law under which agricultural land can be used as collateral for loan receipts was adopted on 29 June 2009. In the energy sector, the government believes that the new tariff will bring the sector to cost-recovery levels and attract private investment. It has no plans for any further tariff increases this year. The PRC made a preliminary agreement to grant a $342 million loan for a power transmission line, which would help the country ensure energy security. Construction is expected to start in 2011 and finish 2 years later. In October 2009, the country embarked on a government sector reform under which the number of ministries and agencies has been reduced. The reform also envisages cutting the number of government employees by 30% and aims to streamline the work of government and cut other costs. Economic prospects GDP is projected to grow at 5.5% and 6.0% in 2010 and 2011, respectively. The expansion is mainly due to the expected recovery of Kazakhstan and the Russian Federation, boosting demand for exports, foreign direct investment inflows, and migrants’ remittances— the last of which will directly bolster private consumption. Foreign-financed hydropower projects should carry on underpinning strong construction growth, but until all those projects are brought into commission (the first is scheduled for May), power shortfalls will continue to hamper manufacturing. The government will also provide impetus to growth as it is planning to raise spending on wages and pensions and on infrastructure, the latter with financing assistance from development partners. The expected increase in global food and oil prices will exert upward pressure on prices, though the contracted import price for natural gas will fall by about 10%, as will stronger workers’ remittances. These forces will push up inflation in 2010 and 2011, to 8.5% and 9.0%, respectively. Given the large import share in the consumer basket, the NBKR will use the exchange rate to mitigate inflation. Credit growth will remain subject to the bottlenecks that face Kazakh banks (which account for half the banking sector) in supplying capital to their subsidiaries in this country. However, increased foreign exchange inflows may allow the NBKR to adopt an accommodative credit policy. Information obtained from the Exchange. Key Information Contacts National Bank of the Kyrgyz Republic www.nbkr.kg Ministry of Finance www.minfin.kg The Service of Supervision and Regulations of Financial Market of Kyrgyz Republic www.nsc.kg Ministry of Foreign Trade and Industry of the Kyrgyz Republic www.mvtp.kg CONTACT INFORMATION Contact Name Mr. Kumushbek Shamkanov E-mail kse@kse.kg Website www.kse.kg PAGE 59
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