Hello Kazakhstan

I get a lot of spammy email from fund companies, management firms, firms offering trading solutions and more. I had one email come in earlier this week about investing in Kazakhstan. Kazakhstan is a country I've been trying to keep tabs on for many years and have mentioned it a few times on the blog. The country is obviously resource rich but appears to not be efficient in allocating capital due to corruption. Of course everything we might find about the country is likely to say things are improving on that point. Other than taking a trip there it will be difficult to suss this out, it would even be difficult to figure it out by going there. The country is still of interest and I can easily see investing there again at some point.  

The email in question shared news that many state owned companies will soon be sold into the market in a similar manner as many of the large Chinese companies, at least that is how I read it. Some companies mentioned were Air Astana, KEGOC which operates the electric grid, KazTransOil an oil pipeline company, KazTransGas a gas pipeline company, Kazmortransflot a shipping company, Samruk-Energo which generates power, Kazakhstan Temir Zholy a railroad operator and Kazatomprom a uranium miner. There are also a few materials companies that have been trading on other markets for a while with Kazakhmys (KZMYF) the one name most likely to be familiar. Kazakh Telecom appears to have a listing in France, but not on the US pinks, but it appears to have not traded since February. Kazmunaigas is also included in the announcement but it has shares trading on the AMEX; they've not done too well.

A few years ago we owned Petro Kazakhstan which was traded primarily in Canada but had an NYSE  listing. The company was taken over and is now part of Petrochina (PTR). 

This process is still a couple of years from starting (if not longer) and will play out over several years (if it ever starts) and the email gives the impression that Citigroup and UBS will be involved but I imagine that if this does happen there will be several other banks also involved. 


Regardless of the email's accuracy it is obvious that many countries that are not now easily accessed will be in the future including Kazakhstan. The big idea here is that Kazakhstan has stuff the world needs, it will become more efficient in delivery that stuff to the countries that need it and this will create prosperity in Kazakhstan. This should help Kazakh stocks, of course there is no guarantee, and I believe that someone has filed for an ETF for the country. 


Out and out fraud at one of these state run companies is not a realistic probability as the government has a vested stake and punishment of corrupt executives would be severe. I think a more realistic threat (but with an extremely low probability) would be some sort of of regime change whereby the government takes a company back and leaves shareholders with nothing. 


If you believe that the government having a finger in the pie would make for a poorly run company, then that would be a reason to avoid these stocks but does not necessarily make an argument for them going to zero. 


Obviously some will think even considering this type of holding would be crazy, obviously I don't. Success in the last decade required a willingness to own markets that previously would have been dismissed like Brazil or Norway. These countries are now not far fetched in the slightest (I don't think they are anyway). That same willingness will be required in this decade too but not by solely relying on last decade's countries.