A recent report by Business News Europe examines the growth of the Kazakhstan Stock Exchange (KASE) – the most developed in Central Asia – and the uphill struggle it now faces over Kazakhstan’s highly attractive pipeline of IPOs due to intense competition from foreign exchanges.  As the article notes:

“…Kazakhstan’s largest companies typically choose to list in London to gain access to high-quality international investors. Meanwhile, smaller Kazakh companies have been deterred from listing locally because of the high listing conditions set by the KASE. The latter is set to change from June 1 when new rules come into effect that will lower the bar for small and medium-sized companies listing.

The new listing rules are an important step in a four-year strategy plan for developing the stock exchange. Adopted in July 2007, the plan aims to reverse the trend for Kazakh companies to list on foreign exchanges. In order to address this, the KASE intends to become a trading floor where companies can raise at least $50m through an IPO.

But ambitions for the KASE go beyond merely creating an effective exchange for local issuers. Instead, the Kazakh government hopes to transform it into one of the top 15 Asian exchanges by 2015. “We don’t want a Kazakh stock exchange; we want a major international stock exchange that is the gateway to the Central Asian market. We see London as our main competition,” Arken Arystanov, Chairman of the Regional Financial Centre of Almaty (RFCA) told a recent conference. “We are already ahead of Russia by two to three years on legislation and investor relations. However, we are behind on retail investment, mutual funds and marketing work. Our aim is to complete all regulation and remove financial obstacles this year in preparation for a major expansion of the stock market in 2009.”

…Although relatively small, the KASE has nevertheless increased considerably in trading volume in recent years. After a slow but steady increase between 1999 and 2006, trading volume soared from $2.5bn in 2006 to $8.9bn in 2007. The main index of the KASE, KASE Shares, has increased by over 300% since the beginning of 2006. Despite a flattening out in the latter part of 2007, it has enjoyed modest growth in the opening months of 2008.

Activity on the KASE is much greater than that on Central Asia’s other exchanges. In comparison to the KASE’s market capitalization of $67bn, the Tashkent Stock Exchange (UzSE), for example, has a market cap of $2.75bn, and the Kyrgyz Stock Exchange (KSE) $144m. Average daily trading volume for stocks on the KASE is $140m; on the UzSE it’s just $258,000, and on the KSE $375,000.

This disparity gives credence to the ambitions in Kazakhstan of turning Almaty into a regional financial hub for the Central Asian region – precisely the reason why the RFCA was set up. It’s also envisaged that companies from Uzbekistan, Kyrgyzstan and the rest of Central Asia will list in Almaty, which will become a gateway to the region for international institutional investors. “The KASE is understood to be the best, in fact the only real stock exchange among the countries of this region,” says Vitaly Kan, analyst at BTA Bank. “In the foreseeable future we expect foreign companies to list on the KASE. Kyrgyzstan and Uzbekistan have stock exchanges, but they are not as developed as the KASE, so there are benefits to listing on the KASE.”

…The KASE is also seeing increased competition from other international exchanges who want a bite at the IPO pipeline for state companies. At the 2nd Annual Central Asian Investment Conference in March this year, conference sponsors NYSE Euronext aggressively promoted themselves as an alternative to London for Kazakh companies. Asian exchanges such as Hong Kong are also contenders, as are the Moscow exchanges.

However, the Kazakh government is putting its considerable weight behind the KASE, using its position as a shareholder in major Kazakh companies to induce them to list on the local exchange, with the aim of increasing activity on the market and making it more attractive to investors….”