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24 I Cover story bne May 2021
Uzbekistan's stock market remains tiny with a monthly turnover of around $2mn and some 10,000 active retail investors. But the index is rising and there is money to be made.
lots more tools for these investors to work with and the first privatisation funds, but today these have turned into joint stock companies and there are less tools to work with,” says Ochilov.
The market mechanics of what needs to be done to transfer the ownership of these privatisation shares have proved to be an obstacle to freeing them up.
In Russia many bankers got rich by going into the regions and going door to door to offer the workers of big companies bottles of vodka and gifts of cash to take ownership of their privatisation vouch- ers. They would fly back to Moscow and convert the vouchers to shares and take big positions in some of the most impor- tant companies in the country, making millions of dollars along the way.
In theory, the same scheme could be carried out in Uzbekistan, but no one has tried; Ochilov says that you would have to bribe the depository to get the list of owners but even then it is not as straight-
There is now. Ochilov called all the brokers and invited them to contribute their research to the EquityResearch.uz project and most of them did. It's a pie- growing exercise: the more information there is available, the more confident
the investors will be, so the more they will trade and the more business there is for the brokerages. The site now offers company research, macroeconomic results, brokerage assessments and commentary, as well as some “How to” articles with step-by-step explanations on how to open a brokerage account for both local retail investors and international investors. For the meantime, the site is just in Russian, but there are plans to do an English version too.
A decent index is a first requirement for traders. As bne IntelliNews reported, the Uzbek market just experienced its first big “pump and dump” incident where the shares in insurance company Uni- versal Sugurta soared 2,000-fold in just a few weeks in February only to crash back in March. Actions like this make index results meaningless.
“It's the same with [the national pipeline operator] Uztransgas,” says Ochilov.
“A few months ago there were some
big trades and the price was swinging up and down. It just shows we need
a decent index to assess the performance of the market.”
Ochilov adds that he also plans to include analysts' historical predictions compared to what then actually happened so that
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investors can start to work out who the best analysts are. In short, Ochilov is try- ing to set up a UzBloomberg of sorts.
Tiny market as stocks locked in limbo
Saying that it is early days for the Uzbek capital markets is probably an under- statement. The market remains tiny. While the total market cap is worth
“The very illiquid nature of the market has also created willing parties on both sides of the deal, but a key part of the trade is if a company pays dividends”
over $2bn, the trading volumes for any one name are of the order of $10,000- $20,000 per day, says Ochilov.
“The market cap is a few percent of GDP but the free float is tiny. It's a huge problem,” says Ochilov.
One source of stock to trade should come from all the company employees that were given shares in their companies during the privatisation rounds in the 90s. Shares in companies were distributed to workers, most of which still have them, but they have never done anything with these shares.
“People know they have their shares but they do nothing with them. If they wanted to sell them they would have to open a brokerage account. There were
forward as the company being listed on the TSE, as most of them are; transfer- ring the ownership of a share without a broker is not possible.
Cleaning up the market
A lot of work has already been done to clean up the market. There were a total of some 500 stocks traded on the TSE, all OTC, but after the rules were tight- ened that number has been reduced to 135. And Ochilov says that if those that are still listed were asked to reapply half would fail to meet the new critieria.
As the quality of listed stocks in the liquid part of the market improves, retail investors are being sucked in as the best stocks are performing well and starting to produce decent returns.