World’s First Kazakhstan ETF

Russia

World’s first Kazakhstan ETF gets listed in Moscow

Kazakhstan – the largest of the Central Asian ‘stan’ countries – is about to get an ETF erected in its honour thanks to the Russian ETF provider FinEx.

The FinEx FFIN Kazakhstan Equity ETF (FXKZ) will track the Kazakhstan Stock Exchange Index, which from what data we can find, appears to be index is made up of just eight companies. They are: Bank CenterCredit; Halyk Bank; KAZ Minerals; Kazakhtelecom; KazMunaiGas EP; KazTransOil; Kcell; KEGOC.

Most of these appear to be former Soviet monopolies that remain partly-owned by the Kazahk State. As one might expect, the index has a strong tilt towards financials and materials – as in Russia.

Taking a broader view, the exchange is – by western European standards – quite illiquid. The past week, trading volume was equal to around $4 million USD. While the index’s total market cap appears to be less than $50 billion. The exchange appears to be doing everything within its power, however, to market itself to western investors.

The index has delivered a 1-year performance of 10%. However, that doesn’t include currency movements. The Kazakh Tenge appears to be in a state of structural decline against the dollar.

Product Review: Mafias and state-owned enterprises

While this ETF is hands down the most interesting listing of 2018, if not of all time, investors considering sending capital to Russia in order to buy it may want to familiarise themselves with Kazakh corporate governance.

Kazakhstan sits alongside the post-apocalyptic basket case Libya as one of the world’s most corrupt countries on earth, the World Bank claims.

Disagreement exists over just how powerful organised crime is in Kazakhstan, and particularly as to how strong the ‘mafias’ are compared with the nice guy oligarchs. The cynical view is painted a young Kazakh man interviewed by visiting scholars in a recent book titled Between Morality and the Law:

“In today’s Kazakhstan you can kill a person for $100 in the morning and in the evening drink the money with a prostitute… It is not just what our élite and the Mafia do; everybody has the same mentality. Our people are starving but the new Raskolnikovs without a conscience are building their villas in Medeo, buying their Mercedes and spending money on prostitutes.”

The optimistic one by the UN Office on Drugs and Crime: “almost all banks and related financial structures [are] owned by famous oligarchs supported by public authorities, intelligence services and law-enforcement agencies.”

Perhaps the truth of the matter lies somewhere in between. Regardless, investors considering this should know that corporate governance works a bit differently in Central Asia.

USA

JPMorgan lists short duration municipal ETF

JPMorgan is keeping up the momentum on its thrashing entry into the US ETF market, listing a new fund that tracks short duration municipal bonds. The JPMorgan Ultra-Short Municipal ETF (JMST) will be actively managed and invest in US municipal bonds, which are issued by local governments and exempt from federal income tax. JMST will seek to maintain a duration of two years or less, which could prove helpful in todays climate of rising rates. The fund will charge 0.18%.