Lukashenko says he may quit as president
Belarus hits EU with tit-for-tat sanctions
Belarusian police introduce colour-coded torture system for detained protesters
Kremlin publicly condemns Belarusian police brutality in hint of growing frustration with Lukashenko
Russian services PMI rises to 48.2, but remains underwater as recovery continues to slow
Russia to start mass vaccinations on December 7
Azerbaijan’s Aliyev calls on Armenia, Russia, Turkey and Iran to assist in creating Nakhchivan land corridor
FPRI BMB Russia: Sberbank releases a three-year transformation strategy to e-commerce concern
Ukraine’s banking sector continues recovery, but profits still lagging last year
Ukraine’s real wages up over 10% in October but have been stagnant in dollar terms for almost a year
FPRI BMB Ukraine: Public has confused opinions on resolving the Donbas conflict
Western Balkans plus Ukraine subsidised coal with over €900mn in 2018-2019
Estonian parcel robot firm Cleveron eyes €30mn state loan
Estonia’s chief auditor says €1bn in state COVID-19 loans issued haphazardly
Economic sentiment in CEE falls in November as recovery momentum splutters
Estonian animation studio Imepilt to hold IPO
Brighter days ahead: The economic bounce back in 2021
Central, Southeast Europe stock markets jump in anticipation of COVID-free future
VISEGRAD BLOG: An easing of trade tensions but still an uncertain situation for export-oriented Central Europe
Hungary's PM risks isolation as Poland mulls dropping EU budget veto
Poland ready to back down from veto of EU budget
Hungary's ruling party in damage control mode after MEP sex scandal bombshell
Poland’s PMI remains stuck just above the improvement line at 50.8 in November
Czech companies dominate this year’s Deloitte Technology Fast 50 CE
Coronacrisis to get worse before it gets better forecasts wiiw
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IMF says downside risks to Albanian economy are increasing
EU ministers fail to agree on launch of accession talks with Albania and North Macedonia
Western Balkans commit to green agenda and regional common market at Sofia summit
Bosnia’s opposition ousts nationalist parties in major cities
Bosnia’s main ethnic parties fight to hold onto power in local elections
Southeast Europe’s EU members to get biggest boost from next budget and recovery funds
Bulgaria imposes 3-week lockdown to slow down COVID-19 spread
CEE politicians highlight trade and security ties as they congratulate Biden
Breakaway Transnistria fully under Sheriff’s control as Obnovlenie party sweeps board in parliament election
Moldova’s presidential election is over, now the battle for the parliament begins
Moldova’s foreign policy reset
Russian establishment quick to congratulate Moldova's new president-elect
Rising COVID-19 cases put intense pressure on CEE healthcare systems
MEPs urge European Commission to act against Hungarian media financing in North Macedonia and Slovenia
North Macedonia mulls decriminalising cannabis to boost tourism
Retail surpass pre-crisis peak as Romanians shop instead of holiday
Romania’s stability election
Romanian venture capital firm Catalyst launches new €40mn-50mn fund for TMT
The state is back in business
Slovenian PM Jansa stands alongside Hungary and Poland in EU rule of law row
BEYOND THE BOSPORUS: Turkish number crunchers deliver November inflation surprise of 14%
Erdogan needs to go says analyst assessing Turkey’s economic collapse
Ukraine strikes deal with Turkey to produce killer drones instrumental in Karabakh conflict
In Karabakh deal, as many questions as answers
Protesters flood Yerevan demanding Armenia’s “traitor” PM quit over Nagorno-Karabakh surrender
Who emerge as the real winners from the bloody Nagorno-Karabakh conflict?
Below average 2020 wine production destined for volatile and uncertain global market
Iran calls on Saudis to limit $67bn defence spending to Tehran’s $10bn
Iranian prosecutors pledge to pursue Trump for Soleimani killing even after he leaves White House
No reaction from Kazakh elites as bombshell FT report says Nazarbayev’s son in law siphoned millions from pipeline scheme
UK court freezes $5bn in assets connected to fugitive Kazakh banker Ablyazov
Attack of the Debt Tsunami: global debt soars to a new all-time high
Kyrgyzstan's proposed new constitution provokes widespread revulsion
Kyrgyzstan's China debt: Between crowdfunding and austerity
CFC joins RWC in assessing KAZ Minerals buyout offer as under-valuation
China business briefing: Not happy with Kyrgyzstan
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
Mongolia’s wrestling culture: From the grasslands to the cage
No surprises in Tajikistan as Rahmon retains presidency with 91% of vote
A Tajikistan poised on verge of economic calamity set for vote
Tajikistan revives on-off dispute with Iran
Turkmenistan: The dammed united
Turkmenistan: Everybody yurts, sometimes
Dirty money investigation reviews identified payments worth $1.4bn linked to Turkmenistan
Uzbekistan unveils extensive privatisation programme
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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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