Implications for Investors

• The country is still at the earliest stage of recovery from economic stagnation, the stage at which the potential return to investors is greatest,
• We believe stocks in industrial enterprises, transportation and telecommunications are in a better position to take advantage of any cyclical upturn.

Kazakhstan’s vast reserves of oil require reliable transportation routes. To date, the export of oil and gas has been restricted by the lack of pipeline facilities. The existing system was inherited from Soviet times, with an inordinately high dependence on the Russian export pipeline system. Currently, the Government is discussing with oil companies six possible oil transportation routes. These new pipeline projects are interesting for investors in two dimensions: as facilitators of oil export (with subsequent growth of revenues for oil companies) and by demanding capital for implementation of pipeline projects. The Caspian Pipeline Consortium, which has been assigned to build additional facilities to the existing Kazakhstan-Russian pipeline system, is considered to be the cheapest option, but still requires at least $1.5 billion (at the initial stage). Another option, AMOCO, requires at least $3.1 billion for project implementation.

Pension funds are expected to become a key institutional investor during the course of the next few years. In implementing pension system reform, Kazakhstan has chosen the Chilean model, and after the 1996 Laws on Reform of Pension System and On Voluntary Pension Funds has begun to create a regulatory framework for the emerging private pension funds industry.

The National Securities Commission has issued a special regulation on the investment policies of private pension funds. Pension Funds are required to invest: at least 50% in Government short- and medium term securities, 10% in securities issued by international financial institutions, 20% and 10% in the shares and bonds, respectively, of companies, included in the listing "A" of the Kazakhstan Stock Exchange. The remaining 10% should be invested in deposits in second-tier banks; the list of such banks is subject to prior approval by the National Bank and Securities Commission.

The major objective of asset management companies is to provide professional management of assets in the pension fund industry. As of February 1998, there were two asset management companies – the National Bank of Kazakhstan for the investment assets of the State Cumulative Pension Fund and ABN AMRO- Kazkommerts, a specialised company jointly established by ABN AMRO and Kazkommertsbank.

According to estimates of the National Securities Commission, the expected inflow of pension contributions into the pension fund industry may reach US $60 million per month by the end of 1998.