Guy Norton in Almaty -

There were cackles of delight outside the InterContinental Hotel in Almaty at the start of the Renaissance Capital Central Asia Investor Conference in mid-September. But not from the 400-plus horde of government officials, investment bankers, investors, issuers and a select bunch of financial hacks who descended upon the event, gnomically titled, "Rediscovering Value - Navigating The New Silk Road." It was the flocks of common mynah birds gambolling on the immaculately manicured lawns outside the hotel that were making all the noise.

Inside the marbled lobby of the hotel, the atmosphere was altogether more sober. Not surprisingly. The past 12 months have proved to be a year of living dangerously in Kazakhstan, with the one-time debt and equity capital markets hero suddenly transformed into one of the principal villains of the global credit crunch piece.

Investors who piled into the raft of Eurobonds and IPOs that emanated from the country in the two years up to August 2007 have had just cause to rue their enthusiasm, given tumbling prices and rising risks. Demand for all types of assets from Kazakhstan has been dealt a hard knock, with one-time investor confidence and appetite for all things Kazakh arguably having given way to a mood of fear and loathing.

Of course, we've been here before. Just over 10 years ago when Russia defaulted on $30bn-plus of debt, Kazakhstan was struck by the tsunami of selling that washed over emerging market assets in the wake of Russia's financial - and some would argue moral - bankruptcy.

In the intervening period, Kazakhstan has staged a remarkable economic recovery by any stretch of the imagination, with GDP expanding at an average annual rate of 8.2%, putting Kazakhstan firmly among the ranks of the top-10 fastest-growing economies in the world. With dollar GDP quintupling over the same period and banking assets multiplying by 45 times, it's no surprise that Kazakhstan emerged as an investment hotspot. Consequently, banks and corporations from the country were seemingly able to issue debt and equity at will, and with the benefit 20/20 hindsight that seems to have been just the problem.

Of course, Kazakhstan can hardly be blamed for the sub-prime mortgage fiasco in the US and the ensuing global credit crunch which followed, but many of the country's issuers started to issue bonds and stocks in a manner reminiscent of a hypochondriac popping pills. When the supply - for which read oversupply - of cheap money dried up last summer, the Kazakh economy went cold turkey, with the solvency of the country's banking sector and valuations in the real estate markets plummeting.

The pertinent question that the RenCap conference sought to pose was, has Kazakhstan undergone the archetypal emerging market transformation from being over-hyped and overbought to underestimated and oversold?

Bloodied but unbowed

In his opening address, Alex Pertsovsky, Renaissance Group's chief executive, argued that the Kazakh economy may be bloodied, but is nevertheless largely unbowed. Inflation at 20% remains a challenge, as does the collapse in property prices that are down by as much as 60% in some areas.

GDP growth in the next four years is expected to be half the 10% level recorded in the previous four, but should still come in at a more-than-respectable 5% figure. Dire predictions of the meltdown of the Kazakh banking sector have - so far at least - proved to be wide of the mark, with all the country's banks having successfully met their debt servicing schedules. Hard and soft commodity prices may be sharply off their recent all-time highs, but are still way above the levels budgeted for by the country's natural resource firms, many of which rank as true global majors.

Of course as a sell-side representative - currently viewed as being akin to the Dark side of the Force in some circles - Pertsovsky could be accused of talking his own book. But given that RenCap's operation in Almaty now numbers 50-plus staff and rising, he's also clearly putting his firm's money where his mouth is.

And with more than 70 international investors bothering to make the trip out to Kazakhstan, the country clearly remains on many asset managers' investment radar. While long-only investors may have taken a beating in Kazakhstan in the past year, there were more than a few bne talked to who through selective use of shorts had reaped the benefits of recent volatility.

Perhaps most importantly of all, there was almost universal unanimity that in terms of political stability Kazakhstan remains the pick of the CIS bunch, something that bodes well for future investment prospects.

The aftershocks from the global credit crunch will undoubtedly induce continued caution, but the overall mood among the investors gathered in Almaty was that as and when we see renewed stability in global markets, Kazakh assets will likely prove a prime beneficiary.

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