Clare Nuttall in Almaty -

Renaissance Capital launched earlier this year the first and only index tracking equities from across Central Asia. So far, it has outperformed other emerging market indices.

The Renaissance Capital Central Asia Equity Index - known as the Rencasia Index - was launched in order to provide investors with an integral view of the Central Asian equity market. The index was started on January 1, with an initial value of 1,000. As of August 12, it stood at 877.22. Renaissance has calculated its history back to January 2006, when it opened on just 595; since then its value almost doubled, before retreating from mid-June.

"Compared to other emerging markets, it has somewhat outperformed them," Gairat Salimov, head of Central Asia research at Renaissance Capital, says. "In general, it is moving in correlation with other emerging market indices. The recent fall in the index indicates the overall decline in emerging markets right now."

Salimov explains that the launch of the index follows client interest. "A problem for the region is that there's no index to show an aggregate view for the region. A client of ours needed to build their portfolio and look at the top-down situation for the market overall," he says.

"In March this year, we organized a roadshow for the region, and again people were asking us about Central Asia as a whole. For example, they wanted to know whether the market had gone up or down. At that time the only index was the KASE index, which of course only represents the Kazakh market."

Rencasia is therefore designed to facilitate such top-down decisionmaking and to make it possible to compare Central Asia with other emerging markets. "The index accurately represents an average institutional investor portfolio of Central Asian stocks, and is therefore most useful as a benchmark for tracking the performance of a portfolio of Central Asian equities," Renaissance Capital said in its report on the launch.

The index, which is updated in real time, is market capitalization based and comprises the most liquid stocks in the region, with the largest market free floats. Individual stocks are included based on their respective liquidity and free market capitalization, Renaissance Capital says. The firm has included companies whose primary business is in Central Asia, with a high combined average value traded (across all exchanges). It has not excluded securities in companies that are nominally based offshore and not listed in Central Asia, but have the majority of their activities in the region; examples include KazakhGold, Max Petroleum and Steppe Cement.

A 15% weighting restriction has been applied to stocks included in the index. Stock weights are capped if they represent more than 15% of the portfolio value, in order to prevent any single equity from dominating the index portfolio and significantly influencing its value. The companies with the greatest weight in the index are Kazakhmys, ENRC and KazMunaigGas Exploration (each with a 15% weighting), followed by Dragon Oil (14.2%) and Kazkommertsbank (12.7%).

At the launch of the index, all but one of the 13 equities included were based in Kazakhstan - the exception being Dragon Oil, the LSE-listed oil and gas exploration company whose activities are mainly in Turkmenistan. The mining and minerals sector accounts for the lion's share of companies on the index, 57%. Other sectors represented are oil and gas (21%), banking (18%), telecoms (4%) and construction materials (1%).

"At this point Kazakhstan accounts for more than 90% of the index's capitalization," acknowledges Salimov. "We had been planning to create in index for some time and had some internal discussion over whether to create a Kazakh index or one for the whole region. We thought it best to have a bigger scope, to make the index Central Asian and leave the door open for new companies to be added."

In the long-term, Salimov expects more companies from Uzbekistan, Kyrgyzstan and possibly Turkmenistan to enter the index. "I don't think that companies listed in Kyrgyzstan or Uzbekistan will be included on the index in the near future, because they are not big enough. However, significant parts of ostensibly 'Kazakh' companies such as Max Petroleum active in other countries, and this trend could increase in future."

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