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Eurasia
January 18, 2019 www.intellinews.com I Page 22
The largest investment hurdle is capital controls according to Hugger, although the repatriation
of dividends has been allowed since September 2017, and the Central Bank is expected to abolish remaining controls, for principal invest- ment capital and capital gains, later this year. In December, it wrote a letter to all CEO’s of com- mercial banks to start processing repatriations for foreigners in 2019.
"Additionally, corporate governance is in infancy. Accounting standards are weak. Assets have sometimes never been depreciated so can be massively overvalued. Access to companies can be strenuous and few firms have any sense of investor relations.
“The largest risk though is sudden policy chang- es, something that is often inevitable in these kind of markets and where the biggest losses can be incurred,” says Hugger.
The Tashkent Stock Exchange is not represented on Bloomberg yet. TSE is now talking to Bloomb- erg to change this. As TSE’s existence is not uni- versally known, this could help putting the Uzbek equity market on the map.
Sturgeon Capital in London is another Central Asia frontier investor and also looking at the mar- ket but with a different strategy.
Sturgeon agrees the opportunity is huge. “There will be mistakes along the route but the pace
of reforms is very exciting’, says CIO Clemente Cappello.
He wants to do more in Uzbekistan, but not nec- essarily in the listed companies space. “The economy works but the capital markets are still developing.”
The plan is to provide investors not with a dedi-
cated fund for listed stocks, but rather a private equity type vehicle that is accessible and that gives exposure to the broader Uzbek economy, including banks, construction companies, real estate and tourism.
The banking sector specifically is interesting as with reforms going on, the black economy will be reduced and trust in banks will be improved. People will start putting their deposits in banks, says Cappello.
To capitalise on this, Sturgeon want to invest in banks with a good shareholders structure, dy- namic management that will copy best practises from for instance Georgian banks, with a focus on technology. Cappello mentions Russian fintech pioneer Tinkoff Bank as a great example of what he thinks is possible in Uzbekistan.
Another focus is early stage situations for instance in microfinance, grocery delivery and travel app spaces. In Uzbekistan, even small investments to get people started and launch can go a long way.
“Uzbekistan will grow its GDP no matter what they do, there is so much low hanging fruit’,” Capello says, referring to upside that can be expected from changing the structure of the economy to a more market oriented one. He adds that China will keep investing in the Belt Road Initiative, something Uzbekistan will profit from, even if China will encounter economic woes itself.
Either approach, through investment in listed or non-listed companies, will encounter the usual hurdles found in frontier markets, but also offers first mover advantage for portfolio investors.
Mark van Loon is a former investment banker spe- cialising in emerging Europe.