International Ice Hockey Federation (IIHF) has stripped Belarus of the right to hold the World Championship this year
Russian opposition activist Alexei Navalny arrested on arrival as he returns home
LONG READ: The oligarch problem
COVID-19 and Trump’s indifference helped human rights abusers in 2020
Russian opposition activist Navalny calls for supporters to take to the streets this weekend
One of Russia’s biggest wood product companies, Segezha could be Sistema’s next IPO
New Ukrainian VC firm QPDigital aims to invest up to $100 million in digital startups
EBRD investments reach record €11bn in pandemic-struck 2020
OUTLOOK 2021 Lithuania
EBRD says loan to Estonia’s controversial Porto Franco project was never disbursed
Estonian premier quits after Tallinn development scandal
Czech Pirates and Mayors approve final coalition agreement for 2021 elections
OUTLOOK 2021 Czechia
BRICKS & MORTAR: Rosier future beckons for CEE retailers after year of change and disruption
OUTLOOK 2021 Hungary
Hungarian government remains silent after Capitol riots
World Bank expects modest recovery for Europe and Central Asia in 2021
OUTLOOK 2021 Slovakia
FDI inflows to CEE down 58% in 1H20 but rebound expected
Slovakia to invest €1.2bn in digitisation
Corona-induced slump in global clothing sector dragged down Albania’s 2020 exports
BALKAN BLOG: The controversial recipe for building up Albania
Heavy flooding causes chaos in parts of Southeast Europe
Vodafone Albania plans €100mn infrastructure investments after AbCom merger
Turnover rose on Bosnia's two stock exchanges in 2020 while prices fell
Storming parliaments: New Europe's greatest hits
Kyiv accuses Bosnian President Dodik of lying about icon gifted to Russian foreign minister
Bulgaria’s government considers gradual easing of COVID-related restrictions
Sofia-based LAUNCHub Ventures holds first close of new fund on €44mn
ING THINK: Growth in the Balkans: from zero to hero again?
Labour demand down 28% y/y in Croatia in 2020
Zagreb Stock Exchange's Crobex10 index at highest level since March 5
OUTLOOK 2021 Kosovo
Arrera Automobili aims to launch Albania’s first supercar
World Bank revises projection for Moldova’s 2020 GDP decline to 7.2%
Moldova’s PM resigns to prepare the ground for early elections
Socialist lawmakers in Moldova scrap settlement on $1bn bank frauds
Montenegrins say state administration is most corrupt institution
75% of Montenegrins want EU membership
Montenegro’s new ruling coalition carves up top state jobs
North Macedonia's manufacturing confidence indicator down by 8.5 pp y/y in December
OUTLOOK 2021 North Macedonia
Transparency International warns of high corruption risk in CEE defence sectors
OUTLOOK 2021 Romania
Romania’s central bank cuts monetary policy rate by 25bp to 1.25%
Romanian construction companies' activity slows in November after intense 2020
OUTLOOK 2021 Serbia
Slovenia’s opposition files no-confidence motion against Jansa cabinet
Slovenia’s government to release funds to news agency STA after EU pressure
UK Moneyhub picks Slovenia for post-Brexit European base
Slovenia’s dire COVID-19 situation in 4Q20 caused second economic dip
Turkcell denies any affiliation with $1.6bn loan in default extended by Ziraat Bank to Virgin Islands company
BEYOND THE BOSPORUS: Let’s tentatively pencil in a date for Turkey’s hot money outflow
Armenia ‘to extend life of its 1970s Metsamor nuclear power plant after 2026’
OUTLOOK 2021 Armenia
COMMENT: Record high debt levels will slow post-coronavirus recovery, threaten some countries' financial stability, says IIF
Armenia’s PM cautions conflict with Azerbaijan “still not settled” after trilateral meeting with Putin
OUTLOOK 2021 Georgia
Georgia’s political kingpin Bidzina Ivanishvili quits politics
Modern-day “Robin Hood” inspires Georgians drowning in debt
Durov rejects Western funds’ offer to buy 5%-10% of Telegram with $30bn valuation
Iran’s navy conducts missile drill while analyst argues Trump even capable of nuclear strike in final days
TEHRAN BLOG: Who’s more credible? Johnson backing Trump’s Nobel chances or Iran applauding arrest warrant for US president?
Central Asia vaccination plans underwhelm, but governments look unruffled
Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’
OUTLOOK 2021 Kyrgyzstan
Mongolia's winter dzud set to be one of most extreme on record says Red Cross
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
Mongolia in lockdown after suffering first local coronavirus transmissions
OUTLOOK 2021 Tajikistan
China business briefing: Not happy with Kyrgyzstan
OUTLOOK 2021 Turkmenistan
Turkmenistan: How the Grinch stole New Year
Turkmenistan: The dammed united
COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?
OUTLOOK 2021 Uzbekistan
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A “golden cross” is a chart technical analysis term in the investment industry referring to when the short-term moving average of a security crosses over a major long-term moving average, to the upside. Commonly, this is the 50-day moving average crossing above the 100 or 200 day-moving average, indicating bullish momentum and the start of an uptrend from a conservative standpoint as the uptrend would likely already be weeks old at this point.
In Uzbekistan things are expected to play out as in other frontier markets. The sustained slowing of inflation and an injection of foreign capital into the domestic banking sector would in time enable the Central Bank of Uzbekistan (CBU) to lower its policy rate. That means falling lending and deposit rates by banks, which in turn increases the attractiveness of listed equities on the Tashkent Stock Exchange (TSE) for local investors. It is still early days, but there are signs this is already starting to happen. The market activity on TSE has already begun to pick up.
Other frontier markets are prone to violent re-ratings, in a positive sense, -- especially in the equity and real estate markets -- it is worth looking for potential triggers to kick this process off. For example, real estate on the outskirts of Phnom Penh, Cambodia in 2014 – actually no more than rice paddies at the time -- was selling for $5/sqm at the time, but today the same paddy field is valued at over $200.
While every country re-rates in its own way, depending on the catalysts that drive the re-rating, on of the sparks that can set a rapid change in valuation off is when deposit rates fall below dividend yields on listed equities. And once the re-rating fire is alight it can burn for years.
This “golden crossover” has now happened in Uzbekistan. The deposit rates has already crossed the dividend yield curve and the spread between them is expected to continue to widen until more foreigners, who are increasingly arriving by opening brokerage accounts, and local investors wake up to the realization that one of the best investments to make in Uzbekistan today is in listed equities.
(Source: Stat.Uz, AFC Research)
Courtesy of COVID-19, Uzbekistan’s GDP growth in 2020 is expected to slow to 1.5% from the previous World Bank estimate for 5.5% growth this year. The expected slowdown in GDP growth has seen demand for credit moderate and inflation fall (save for a short-term spike in various food-related commodities during the initial quarantine in March 2020 due to the closure of international borders).
Disinflation has enabled the CBU to lower its policy rate by 100 basis points on two separate occasions this year, falling from 16% to 14%. These cuts have led the average one-year term deposit rate for individuals at banks to fall from 20.3% in March to 16.4% in August. Businesses meanwhile are offered different (lower) deposit rates, which fell from 17.2% to 15.1% during the same period. As inflation continues to moderate and new banks enter Uzbekistan, while existing ones are able to increase their available capital for lending and competition for clientele should begin to drive down lending rates and in due course provide the CBU the means with, which to further cut its policy rate.
For example publicly listed bank, Ipak Yuli issued $25mn in new shares to German investment corporation DEG and Triodos Investment Management in August, while Gazprom Bank, Russia’s third largest bank received approval to open a representative office in October.
(Source: Uzbekistan Respublika Markazi Banki, AFC Research)
Likely in a bid to both slow credit growth – that in previous years was as high as 50% -- and inflation further, the CBU put a cap on bank lending rates of 21% and 24% from July 1, 2020 through to the year end for business and individual borrowers respectively. As such socialist policies are usually ineffective, lending has fallen precipitously and is likely to remain subdued until this cap is removed. While certainly not a free-market principle, it will be effective in moderating credit growth and subduing inflation, allowing the CBU to potentially cut the policy rate yet further, a situation, which would only make investing into the equities market that much more attractive.
What does all of this mean for the Tashkent Stock Exchange and the potential for listed equities? From an opportunity cost perspective, local individuals and corporations who currently prefer to invest their risk capital into term deposits can now receive significantly higher double-digit dividend yields from a multitude of listed equities. A typical excuse one will often encounter from locals in Central Asian countries when discussing the benefits of investing into exceptionally cheap listed equities with double-digit dividends is that the dividends are not high enough to justify the perceived risk of owning them, relative to term deposits. This is due to many local investors not understanding the risk-reward of investing in equities and view them simply as another fixed-income-type product where cash flow is all that matters. However, today even the relative cash flows favours investing into Uzbekistan’s listed equities.
The stage is now set. It is likely only a matter of time until the increasing foreign participation in the stock market and/or locals seeking high yield investment opportunities, triggers a more rapid and profound phase of re-rating .
(Source: Toshkent Stock Exchange, AFC Research)
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