Kazakhstan upheaval impacts country’s banks, bonds, equities and uranium and oil industries

Kazakhstan upheaval impacts country’s banks, bonds, equities and uranium and oil industries
The Russian defence ministry on January 6 released video footage of its military "peacekeeping troops" heading into Kazakhstan. / Russian defence ministry.
By bne IntelIiNews January 6, 2022

All of Kazakhstan's financial organisations including its banks and stock market remained suspended on January 6 amid the country’s social unrest, according to the press secretary of the National Bank of the Republic, Olzhas Ramazanova.

"The Agency of the Republic of Kazakhstan for the Regulation and Development of the Financial Market and the National Bank of Kazakhstan, taking into account the conduct of counterterrorist operations ... and taking into account temporary disruptions in the Internet ... report the temporary suspension of the activities of all financial organisations," Khabar 24 TV channel quoted him as saying.

Ramazanova also said that the measure was aimed at protecting the life and health of employees and clients of financial institutions, although there are reports of inhabitants of the capital Nur-Sultan and largest Kazakh city and commercial capital Almaty—scene of the biggest deadly clashes between protesters and law enforcement and troops during the week’s unrest—going hungry due to the closure of ATMs [Watch video below]. With the internet down, shops cannot process digital payments and are demanding cash, unavailable due to the offline ATMs.

Also closed amid the crisis in Kazakhstan’s were the country’s three main airports, with all flights cancelled on January 6. With a state of emergency in place, entry to the country to foreigners has been temporarily suspended, RIA reported. Earlier in Nur-Sultan, and in Alma-Ata, telephone communications were disconnected and the internet was closed down by the operator Kazakhtelecom.  

Sovereign bonds hit

Kazakhstan’s sovereign bonds were hit as the crisis rapidly escalated and Russian paratroopers were dispatched to assist the ex-Soviet state’s regime.

January 6 saw Kazakhstan's 2045 dollar bond, which had its worst day since the peak of the COVID-19 panic in March 2020 on January 5, slide further, falling as much as 1 cent and nearing 20-month lows.

With a solid macroeconomic position Kazakhstan’s debt has been seen as relatively stable. The nation’s debt lost 2.9% last year, according to a Bloomberg index tracking sovereign dollar bonds from emerging markets, so obligations have already lost more value in the first days of January than in all of last year.

Kazakh equities fall in London

The protests this week hit Kazakhstan companies listed in London, mostly raw material producers, with the local exchange in Almaty closed.  

“From the market perspective, we note the clear impact on local stocks that were hit in London on January 5, led by internet company Kaspi.kz, down c30% yesterday and another 12% on January 6,” Slava Smolyaninov, head of strategy at BSC GM said in a note.  

Equity investors were caught out by the Kazakh demonstrations, which came out of nowhere and hit in the middle of Eastern Europe’s extended Christmas and Orthodox New Year holidays that run to January 14.  

The leaderless revolution rapidly expanded and morphed from protests against a specific issue—rising vehicle fuel prices—to a more general anti-government movement becoming a political protest.  

“Apparently, the situation with street violence in Almaty, the financial center of the country, is out of control with military confrontation and numerous casualties,” Smolyaninov said. “Authorities ordered an anti-terrorist operation in Almaty in the evening of January 6 and called for military support from Russia, Belarus and other member states of the Collective Security Treaty Organization [CSTO].”

The instability and call for a Russia-led CSTO military intervention on the eve of key talks with the US and Nato over a new European security deal has been seen by investors as weakening Russian President Vladimir Putin’s hand going into the talks, which makes a quick resolution of tensions less likely. And that hurt Russian equity prices as well.  

The Russian market reacted negatively even though Brent was back trading above $80, causing the leading dollar-denominated Russia Trading System (RTS) index to fall further to 1,540, or 20%, from its 1920 peak level seen at the end of October, said Smolyaninov.  

Uranium production 'unaffected'

Kazakhstan's reputation for stability under Nursultan Nazarbayev, an autocrat who ruled for nearly three decades until 2019 but appears to have left the country amid the turmoil, helped attract hundreds of billions of dollars of foreign investment into its oil and metals industries, such as uranium extraction.

Kazatomprom , the world's biggest uranium producer, said on January 6 it was operating normally with no impact on production or exports. "Uranium mining is going according to plan there have been no stoppages. The company is fulfulling its export contracts," a Kazatomprom spokesperson was quoted as saying by Reuters.

Uranium prices have, however, soared in recent days amid the unrest Kazakhstan, which produces more than 40% of the radioactive metal used in nuclear fuel.

Uranium surged almost 8% to $45.25 a pound on Wednesday from $42 Tuesday, according to UxC data.

Given Kazakhstan’s role as the world’s No. 1 uranium supplier, “it’d be like if the Saudis had issues in oil,” Jonathan Hinze, president of UxC LLC, a leading nuclear fuel market research and analysis firm, was quoted as saying by Bloomberg, adding: “Even if there isn’t a shortage right now, the potential for this to create a shortage is what people now are trading on.”

Oil stoppage

In southwestern Mangistau province, where much of the country's rich oil reserves are extracted, Chevron confirmed to Sky News on January 5 that it was working to end a stoppage at its Tengizchevroil venture.

On January 6, TheEdgeMarkets reported Reach Energy as announcing that its unit in Kazakhstan might be affected by the country’s state of emergency declaration. In a filing to Bursa Malaysia, Reach Energy noted that the government of Kazakhstan had declared a two-week emergency regime in Almaty and Mangistau province, where Emir-Oil LLP, the company’s sub-subsidiary is located.

Emir-Oil LLP holds the entire subsoil use rights in an 850.3-square-kilometre onshore hydrocarbon exploration and production contracted area in Mangistau province.