Департамент торговых идей

Inflation in January was at 0.7% mom for the third month in a row, in annual terms a slight increase from 5.4% to 5.6% - the highest level since October 2018. "Defrosting" of tariffs and fuel prices of state monopolies expectedly enforced inflation.

Forecasts and expectations for 2020: economy, banking sector, stock market

Numerous fiscal and administrative incentives aimed at increasing household incomes, as well as continued growth of consumer lending, had a positive effect on consumer activity. However, their effect was offset by increased demand for foreign currency by the population and weaker economic growth in some regions. As a result, despite the increase in the purchasing power of the population, the retail trade turnover in 2019 grew weaker than a year earlier by a modest 5.8%.

Inflation in December 2019 was 0.7% mom, unchanged from November. In annual terms, inflation amounted to 5.4% compared to 5.3% in 2018 with a minimum reading of 4.8% in 2013. Stable inflation in 2019 at the level of 5.4% was largely achieved due to government intervention, which resulted in a reduction in tariffs for state monopolies in the utilities sector (-2.7%) and lower prices for fuel (gasoline -4.6%). 

Inflation in November accelerated slightly to 0.7% after an increase of 0.6% in October. In annual terms, inflation fell by 0.1pp to 5.4%. Based on November data, we believe that inflation will also be moderate in December, which will be associated with a relatively stable tenge against a background of record low ruble volatility against the dollar and administrative measures to curb inflation by government agencies.

Due to the smooth transit of power and the beginning of reforms aimed at moving to a more open economy, starting in 2016, Uzbekistan has attracted an increased attention of investors worldwide. Large-scale changes and the first steps towards liberalization pave the way to the promising development prospects for Uzbekistan, however, the success of this transformation depends on how consistent the authorities will be in implementing the announced reforms and how successfully they will be able to translate the declared plans into reality.       

Amid increased economic growth, tax revenues showed a high growth rate – above +15% yoy. In turn, the expenditure side of the state budget increased more than the revenue side – by 17% yoy. At the same time, less than 30% of the state budget expenditures for 9 months of this year was invested in the economic development of the country, while the lion's share of the expenditures was directed for financing the current consumption. Significant budget allocations of funds toward non-productive sectors will ultimately have only a short-term impact on the economic growth.

We recommend Buying common shares of Kaz Minerals, raising our 12M TP to 641 GBp per share: since our last report, company’s stocks have risen by 27%. We expect continuation of positive momentum due to continued growth in operating performance. In addition, an increase in planned capex on Aktogay 2 and Baimskaya projects in 2019 will help speed up the process of bringing them to full capacity, which will demonstrate positive operating results and, potentially, increase copper production by 84% over the next 8 years. Demand for copper will get support from growth of China’s economy – the main consumer of copper in the world, as well as through the development of infrastructure programs, the growth of electronics and the electric car market on a global scale.

The growth of the economy of Kazakhstan in the third quarter of 2019 intensified, reaching 4.6% yoy, which was facilitated by large-scale budget injections and continued high investment activity against the background of negative dynamics in oil prices. Inflation risks were not fully realized – high devaluation expectations of the population and weakening of the national currency were not adequately reflected in the official statistics in regard to the consumer prices growth. Based on the current dynamics of the main macroeconomic factors, we expect GDP to grow by 4.4% in the base case for 2019, inflation at 5.5%, and the national currency rate at – 389.5 tenge per dollar at the end of the year.