The death of Uzbekistan’s post-independence strongman President Islam Karimov without a designated successor, a pattern neighboring counterparts may repeat, has combined with commodity, currency and banking crises to sideline Central Asia from the current global liquidity-driven yield chase into frontier financial markets.

Islam Karimov

The few stocks and bonds available in Kazakhstan, Azerbaijan, Mongolia and the rest of the region have suffered their own political and economic drift and trade and investment hangovers from next door major partners China and Russia.

After dismissing criticism of poor governance and business climates, they began haltingly to embrace reforms that now may move into higher gear with approaches to international development lenders for energy and mining project and fiscal and external payments assistance.

However, the risks of autocratic family dynasties and large exchange rate, transaction rule, and credit access swings will linger, as growth and structural gaps with surrounding Central European and East Asian economies become more pronounced.

Kazakhstan stocks on the MSCI frontier index were flat through August on barely positive GDP growth in the first half, with only agriculture a good performer, up 2.5%. President Nazarbaev reshuffled his cabinet the first week in September, naming a former business executive and economics professor as prime minister, to underscore commitment to escaping recession after dual oil price and currency crashes.

He moved Karim Massimov, frequently mentioned as a successor along with his daughter who is a deputy prime minister, to head of the security service, which was called on to quash street protests last year.

Since 2015’s tenge devaluation and 50% loss against the dollar, inflation has skyrocketed to near 20%. The central bank kept the benchmark interest rate at 13% at its last meeting, and forecasts single digit inflation into 2017 as banks and households absorb the exchange rate blow. Recently, Halyk Bank, the number two lender and a main stock market listing, raised its profit expectation as retail and corporate clients steadily “de-dollarize.”

ADB has approved a $250 million loan for transport system modernization that will aid preparations for World Expo 2017 in Astana

Foreign direct investment plunged 30% last year, but recovered in the first quarter to $2.7 billion diversifying from commodities into chemical and auto manufacturing, according to government statistics. A global push targeting the US, Europe and the Middle East is underway, but the Foreign Minister Erlan Abilfayizuly Idrissov recently urged a more project-tailored approach, and criticized the lack of “clear import and export policies.”

The Asian Development Bank approved a $250 million loan for transport system modernization that will aid preparations for next year’s World Expo in Astana, with an estimated $3 billion price tag. By then, the sovereign wealth fund also intends to unload 25% stakes in big state-owned firms including the airline, electricity, oil and gas, and uranium companies. By end decade, 65 offerings are to take place, out of over 200 enterprises with $65 billion in assets in Samruk-Kazyna’s portfolio.

However, the timetable has slipped with recent hydrocarbon export rebound, and international investors remain wary of bad corporate governance after independent directors at London Stock Exchange-listed KazmunayGas, among the first on the block, protested a minority shareholder buyout attempt.

External bond buyers are also cautious after $4 billion in sovereign issuance a year ago, as the investment-grade credit rating has since slipped to the lowest ranking in the category, and the government debt strategy now stresses domestic state pension fund placement.

Azerbaijan, the area’s other energy giant, has already been downgraded to junk “BB” status with a negative outlook, amid rumors of another currency devaluation  and capital controls after banks suspended dollar sales with a chronic shortage after the previous 50% adjustment.

President Aliev ordered the $35 billion sovereign wealth vehicle Sofaz to increase supply to preserve calm before an end-September constitutional referendum which would extend his term from five to seven years. He has released jailed political opponents and journalists in a bid to win $8 billion in support from international development lenders to complete a direct Caspian Sea to Europe pipeline.

The economy will shrink 3% this year, according to the IMF, and bad loans are in double digits after one bank rescue in the immediate manat depreciation aftermath, as both Central Asian leaders try to salvage once semi-prosperous, family-controlled legacies.

Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in Washington, D.C.

(Copyright 2016 Asia Times Holdings Limited, a duly registered Hong Kong company. All rights reserved. Please contact us about sales, syndication and republishing.)

Pioneer and recognized expert in the field of global emerging economies and financial markets. Founder of first consulting firm dedicated to providing independent analysis and advice to public and private sector clients in 1987, and research coverage and firsthand experience covers 75 countries in all developing regions. Advisor on financial vulnerability issues, risk management, portfolio allocation,...

Join the Conversation

36 Comments

  1. whoah this blog is excellent i really like studying your
    posts. Keep up the great work! You recognize, lots of persons are hunting around for this info, you could help them greatly.

  2. Right here is the right website for anyone who wishes to find out about this topic.
    You realize a whole lot its almost tough to argue with you
    (not that I actually will need to…HaHa). You certainly put a brand new spin on a topic which has been written about for years.
    Excellent stuff, just great!

  3. I was excited to uncover this website. I want to to thank you for ones
    time for this fantastic read!! I definitely savored every
    little bit of it and i also have you saved to fav to see new things on your
    site.

  4. It’s a shame you don’t have a donate button! I’d without a doubt donate to this fantastic blog!

    I guess for now i’ll settle for book-marking and adding your RSS feed
    to my Google account. I look forward to new updates and will talk about this blog with my Facebook group.
    Chat soon!

  5. I know this if off topic but I’m looking into starting
    my own blog and was wondering what all is needed to get set up?
    I’m assuming having a blog like yours would cost a pretty penny?
    I’m not very internet savvy so I’m not 100% sure. Any tips or advice
    would be greatly appreciated. Thanks

  6. Wonderful goods from you, man. I have understand your stuff previous to and you are
    just too fantastic. I actually like what you have acquired here, really
    like what you are stating and the way in which you say it.
    You make it enjoyable and you still take care of to keep it sensible.

    I cant wait to read much more from you. This is actually a terrific website.

  7. Hey! Someone in my Facebook group shared this site with us so I came to check it out.

    I’m definitely enjoying the information. I’m book-marking and will be tweeting this to my
    followers! Terrific blog and amazing design and style.

  8. I blog often and I truly thank you for your information. This article has really peaked
    my interest. I am going to take a note of your site and keep
    checking for new information about once per week.
    I opted in for your Feed too.

  9. Hey! I could have sworn I’ve been to this site before but
    after reading through some of the post I realized it’s new
    to me. Nonetheless, I’m definitely happy I found it and I’ll be book-marking and checking back frequently!

  10. Excellent article. Keep posting such kind of info on your blog.

    Im really impressed by it.
    Hi there, You’ve performed an incredible job. I’ll definitely digg it and for my part suggest to my friends.
    I am confident they will be benefited from this website.

  11. Howdy! I’m at work browsing your blog from my new apple iphone!
    Just wanted to say I love reading through your blog and look forward to all your posts!
    Carry on the outstanding work!

  12. Nice post. I was checking constantly this blog and I am impressed!
    Very helpful info specifically the last part :
    ) I care for such information much. I was seeking this particular information for a long time.

    Thank you and best of luck.

  13. Very good website you have here but I was curious
    about if you knew of any user discussion forums that cover
    the same topics talked about here? I’d really love to be a
    part of online community where I can get comments from other knowledgeable people that share the
    same interest. If you have any suggestions, please let me know.
    Many thanks!

Leave a comment

Your email address will not be published. Required fields are marked *