So should I invest in Kazakhstan? Click here to see why would I even ask? Meanwhile, here is what I’m thinking. It is increasingly likely that the U.S. dollar is going to crash; which means, if that happens, that something else will be going up.
Of course it means gold and silver will be going up; but I fear that the powers-that-be, knowing that all the
terrorists patriots will be buying the precious metals, will drive the price of precious metals down first to flush out all the holdings they can before letting it rise (which it will, to the stratisphere … someday).
It means cryptocurrencies will go to the moon, as the blockchain, which is decentralized and democratic, replaces faith in the fiat currencies, which are centralized and manipulated to the advantage of the few. But crypto has just doubled in a month’s time and it is really hard to pay up after a big move like that.
So what’s left for my speculative juices to work on? China? China is in its own bubble. It may be a great idea, since politically the fix worldwide seems to be in for China to become regarded as a stable and safe financial center like the United States always has been. On the other hand, their financial shenanigans are notoriously opaque and their shadow banking economy is really scary. And even just looking at official statements China is struggling with a massive credit bubble. No known bubble has ever gently subsided. They all blow apart catastrophically. So I am not too interested in China, in spite of the current A-shares scheme.
But the China / Russia / Asia / Middle East trade block is probably the entity that will cause loss of faith in the U.S. dollar and its bonds and take them down.
BNY Mellon Kazakhstan GDR (Index)
So, the country that is running point for that trading block in significant ways is Kazakhstan. It is the leading edge of the Silk Road as it enters the middle east on its way to points beyond. In particular it exports oil and natural gas to China and also through Russia to Europe. It has that advantage, and it has the advantage that it is not China. So let’s have a look.
According to wikipedia,
Kazakhstan is the dominant nation of Central Asia economically, generating 60% of the region’s GDP, primarily through its oil/gas industry. It also has vast mineral resources.
Kazakhstan is officially a democratic, secular, unitary, constitutional republic with a diverse cultural heritage. Kazakhstan shares borders with Russia (and) China … and also adjoins a large part of the Caspian Sea. …
Kazakhstan was the last of the Soviet republics to declare independence during the dissolution of the Soviet Union in 1991. The current President, Nursultan Nazarbayev, has been leader of the country since … .
Islam is the religion of about 70% of the population, with Christianity practised by 26%; Kazakhstan officially allows freedom of religion, but religious leaders who oppose the government are suppressed. The Kazakh language is the state language, and Russian has equal official status for all levels of administrative and institutional purposes. …
The capital is Astana … .
Continuing with Wikipedia:
Kazakhstan weathered the global financial crisis well … . During the global economic crisis, Kazakhstan’s economy contracted by 1.2% in 2009, while the annual growth rate subsequently increased to 7.5% and 5% in 2011 and 2012, respectively. …
Energy is the leading economic sector. … According to industry analysts, expansion of oil production and the development of new fields will enable the country to produce as much as 3 million barrels (480,000 m3) per day by 2015, and Kazakhstan would be among the top 10 oil-producing nations in the world. … (Even more, now.)
The CIA World Factbook is more current for economic and financial information. It says that Kazakhstan,
possesses substantial fossil fuel reserves and other minerals and metals, such as uranium, copper, and zinc. It also has a large agricultural sector featuring livestock and grain. The government … has made initial attempts to diversify its economy by targeting sectors like transport, pharmaceuticals, telecommunications, petrochemicals and food processing for greater development and investment.
Kazakhstan’s vast hydrocarbon and mineral reserves form the backbone of its economy. Chevron-led Tengizchevroil announced a $36.8 billion expansion of Kazakhstan’s premiere Tengiz oil field in July 2016. Meanwhile, the super-giant Kashagan field finally launched production in October 2016 after years of delay and an estimated $55 billion in development costs.
Kazakhstan is landlocked and depends on Russia to export its oil to Europe. It also exports oil directly to China. (It helped form) the Eurasian Economic Union (EAEU) in January 2015. … The economic downturn of its EAEU partner, Russia, and the decline in global commodity prices from 2014-2015 contributed to an economic slowdown in Kazakhstan, which continues to experience its slowest economic growth since the financial crises of 2008-09. In 2014, Kazakhstan devalued its currency, the tenge, and announced a stimulus package to cope with its economic challenges. … Since reaching a low of 391 to the dollar in January 2016, the tenge has modestly appreciated, helped by somewhat higher oil prices.
Despite some positive institutional and legislative changes in the last several years, investors remain concerned about corruption, bureaucracy, and arbitrary law enforcement, especially at the regional and municipal levels. An additional concern is the condition of the country’s banking sector, which suffers from low liquidity, poor asset quality, and a lack of transparency. Investors also question the potentially negative effects on the economy of a contested presidential succession as Kazakhstan’s first president, Nursultan NAZARBAYEV, who turns 77 in 2017, has not announced whether he will seek reelection in 2019. (CIA World Factbook)
Their economy has slowed in the last few years, shrinking by 0.8% in 2016, and the government showed a deficit of 3% of GDP. Public debt compared to GDP is about 24%. Inflation has popped up to 14.6%. The country had banking reserves amounting to $30.1 billion in 2016 and the Central Bank discount rate was up to 16%, with the commercial bank prime lending rate up to 12.4%. Its primary export markets were China 15.1%, Russia 12.3%, France 9.3%, Germany 7.9%, Italy 6.7%, Greece 4.1% in 2015. It imported primarily from Russia and China.
To me the primary positive features are Astana’s political position in the EAEU, and the country’s oil and mineral reserves. If the world goes to commodity-backed currency, Kazakhstan’s banking reserves will jump. It had proven reserves of 30 billion barrels and 2.4 trillion cubic meters of natural gas as of 2016. At today’s prices of around $50/ barrel and $3 per cm, respectively, that amounts to north of $7 trillion U.S. dollars, which is something like 200 times the country’s current banking reserves. That is not counting the other mineral resources. It’s not Iraq, but it’s not chump-change either. And Iraq is not open for business yet, besides which it is right in the middle of a hornet’s nest and runs a higher risk of war or violent disruption.
Unfortunately, Kazakhstan is a “significant consumer of opiates.”
So, would I invest in Kazkhstan for those yummy 16% government yields and huge potential? But the economy is in a downtrend. Steve Sjuggerud’s philosophy is to find a long term downtrend (check), and wait for bad news to get less bad and for a breakout of that downtrend. I am at least beginning to observe.