Weekly Update: September 21-28

Top News

UZCARD, the national electronic payment processing system, announced it had suspended service for Russian “MIR” cards, ostensibly for “technical reasons.” “MIR” cards co-branded with UZCARD will continue to work in Uzbekistan. On September 15, the US Treasury Department imposed sanctions on Vladimir Komlev, the head of Russia’s National Payment Card System, and warned global banks that doing business with MIR could help Russia evade sanctions.

An important article by Karen Srapionov of Avesta argues an independent and competent judiciary is essential for protecting the rights of minority shareholders and for improving corporate governance for state-owned enterprises. Srapionov also notes that fewer investors from Western countries arrived in Tashkent this fall for investment and economic conferences, and those that did arrive continued to question the pace of reforms in Uzbekistan.

The Republican Stock Exchange Toshkent’s UCI index hit yearly lows on September 23, as Uzbekistan’s local markets continue to suffer from global headwinds such as inflation, rising energy prices, and a strengthening US dollar. For comparison, the MSCI Emerging Market Index is down 29.8% yoy. The RSE Toshkent’s most liquid stocks, particularly financials, fared better than the rest of the market during the previous week.

Local Markets

Deputy Minister of Finance Odilbek Isakov led a delegation to the Korean Stock Exchange (KRX) to discuss improving Uzbekistan’s online trading platform and assigning International Securities Identification Number (ISIN) to Uzbek stocks. The Korean Stock Exchange provides and services the RSE Toshkent’s (dated) online trading platform and holds a 25% stake in Uzbekistan’s only stock exchange. Most investors and market participants in the Uzbek market eagerly await the modernization and improvement of the RSE Toshkent’s trading platform, which appears to be from the late 1990s.

The State Assets Management Agency (UzSAMA) completed the privatization of 20.41% of spirits producer Urganch Sharob, after announcing the agreement to sell the shares to Jayhun Ulgurji in July.

Orient Finance issued new shares worth UZS 202.4 billion (USD 18.4 million) in a private placement.

In a LinkedIn post, former CEO/CFO of Quvasoy Cement (KSCM) Igor Tilepin highlighted local markets results on September 23, which saw trading volume of USD 12,600 on the RSE Toshkent and USD 1.4 million on the “unorganized market.” Tilepin described the RSE Toshkent as “rapidly disappearing” and “lifeless,” blaming the local exchange’s high commissions.

The Uzbek state directly holds 81.1% of total shares at the Central Securities Depository (CSD), down 0.3% from the previous week and 0.8% from the start of 2022. The Ministry of Finance is the largest shareholder with 70.1% of state-owned shares, followed by the Fund for Reconstruction and Development with 22.4%.

Macroeconomics

The Asia Development Bank raised its forecast for Uzbekistan’s annual inflation from 9% to 12% in 2022 and from 8% to 11% in 2023 on the back of rising energy, food, and import prices.

From January-August 2022, Uzbekistan’s trade turnover with other Central Asian countries increased 15.6% yoy to USD 4.6 billion, according to data from the State Statistics Committee. Trade with Central Asia accounted for 14.2% of Uzbekistan’s total trade turnover over the same period, with exports up 18.2% yoy and imports rising 13.8% yoy. Kazakhstan remained Uzbekistan’s largest Central Asian trading partner, totaling nearly USD 2.9 billion.

Bank deposits rose 5.2% from August to September, per data from the Central Bank of Uzbekistan. Uzbeks have also been increasingly turning to the private sector for banking services, as deposits in private banks have increased by 83% since the beginning of 2022, compared to less than 14% for state-owned banks.

Business

Home sales in Uzbekistan grew 30% in August, according to the Center for Economic Research and Reforms, in part due to increased mortgage lending, which was up 37% mom. Data from the Central Bank of Uzbekistan shows mortgages account for 49% of total bank lending to individuals, with mortgage lending up 18.5% since the beginning of the year. On September 22, President Shavkat Mirziyoyev announced the “My First Home” preferential mortgage loan program, which will launch in Tashkent region.

China’s sovereign investment fund Silk Road agreed to purchase a 49% stake in a thermal power plant in the Syrdaryo region being built by Saudi ACWA Power, in a deal signed after China’s President Xi Jinping visited Samarkand for the Shanghai Cooperation Organization summit. The USD 1.2 billion gas turbine plant project will reportedly have a capacity of 1,500 MW.

South Korean Kyongnam Bank planning to launch digital bank subsidiary in Uzbekistan. The bank, part of the BNK Financial Group, opened its first office in Uzbekistan in March 2021. 

Government & Politics

Foreign Minister Vladimir Norov urged the United Nations to “evolve” in an address to the General Assembly on September 24. Norov emphasized the need to strengthen the UN’s role in addressing global challenges and restated Uzbekistan’s commitment to multilateral cooperation and international stability.

Uzbekistan and Kyrgyzstan initiated negotiations to demarcate and delimitate sections of the border. The discussions assumed new importance after the eruption of armed conflict over border issues between Tajikistan and Kyrgyzstan earlier in the month.

Regional News

A tentative ceasefire continues to hold in the simmering border conflict between Tajikistan and Kyrgyzstan, although unexploded shells remain a danger to residents of the Batken region.

Russian companies continue to relocate to Central Asia, particularly Kazakhstan, as the fallout from Russia’s invasion of Ukraine continues to reshape economics and business in the region. The number of Russian businesses registered in Kazakhstan has reportedly increased by 500-800 every month since March. Newly registered Russian businesses in Kyrgyzstan have grown nearly 150% yoy.

Kazakhstan’s first legal crypto operation executed with support from President Kassym-Jomart Tokaev. On September 28, Eurasian Bank executed a crypto transaction with Interbix, a Kazakhstan-based crypto currency exchange with President Tokaev looking on, signaling legal approval for tenge-crypto exchanges in Kazakhstan.

The first cargo on a new rail transportation route connecting China to Afghanistan through Kyrgyzstan and Uzbekistan arrived in Hairatan, according to Uzbekistan Railways. The rail route has the potential to reach an annual volume of 4,000 containers, and Uzbekistan and other countries have offered steep discounts on tariffs to facilitate more trade in the region.

Republican Stock Exchange Toshkent - September 7-14

Local Treasuries Market

Macro Indicators

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