Page 21 - bne_newspaper_January_18_2019

Eurasia
January 18, 2019 www.intellinews.com I Page 21
Frontier investment funds are moving into Uzbekistan
Mark van Loon in London
It was only a matter of time before the attention of frontier market investors turned towards Uzbekistan, Central Asia’s largest country that until only a few years ago was stuck in a post- Soviet time warp. Today, the country is in the midst of a transformative economic reform process, and potential is considerable given that growth will come from a low base. The Tashkent Stock Exchange, which has been trading since 1994 but on a very limited scale, is opening up – and will provide an excellent opportunity for early moving frontier investors.
So far exposure to this market has been almost non-existent but change is imminent. I spoke to two fund management companies with different approaches, who are eyeing the Uzbek market.
Asia Frontier Capital, based in Hong Kong, will be the first to launch an Uzbekistan Fund in March. Despite weak sentiment towards emerging mar- ket at the moment, founder and manager of the fund Thomas Hugger believes this is the right time to look at this market.
He compares Uzbekistan with North Korea or Cuba, were they to open up, or Venezuela if it were to resurrect one day.
“The key difference is that unlike these other off-the-radar investment destinations, today Uzbekistan is a functioning country, with nascent capital markets, a reasonably diversified economy, natural resources, agricultural and industry sectors in a descent state,” Hugger said.
Frontier investment funds are moving into Uzbekistan
A potential global economic downturn doesn’t worry him. Hugger says he views Uzbekistan as an ‘uncorrelated play’, meaning it would be less affected by a global downturn as it has its own growth drivers.
Some listed stocks are extremely cheap, trading around 3-5 times price-to-earnings, 0.5 times price-to-book, with good earnings growth and dividend yields in some sectors.
Hugger mentions cement companies, coal mines, services companies in the oil & gas sector, to focus on. For now banks are un-investible as Central Bank approval is needed to acquire stakes - something brokers are lobbying the government to change. The expected replacement of the current, conservative Central Bank governor
this year might help accelerate this process.
“At this point this market is underdeveloped and trading volumes are low. There are 132 listed companies but many never trade. 10 stocks are relatively liquid, another 10-15 are semi-liquid,” Hugger explains. “Average daily turnover of
the entire market (ex banks) is not more than $100,000. To find blocks you have to be creative sometimes, and going to companies and buying shares from employees can be an option.”
Another source of stock will be IPO’s or priva- tisations of which 50 are planned over the next 2 years. A challenge will be to convince sellers, often the State, that their price expectations are unrealistically high.