This paper aims to investigate the causal relationship between macroeconomic indicators and Kazakhstan stock exchange (KASE) index. The results indicate the existence of cointegrations between these series implying violation of market efficiency hypothesis. The results of the study are in compliance not only with theory but also with the issues in practice. Using the bound testing approach, within the Autoregressive Distributed Lag (ARDL) model framework, we examine their long-run relationship. Johansen Cointegration test, Engel-Granger two-step approach and Granger causality test reveal that the main determinants of KASE are income per capita, inflation and the exchange rate and dummy variable accounting for worldwide crisis impact. Other effect on stock index comes from oil price volatility measure, causing windfall gain effect as a consequence of rapid, but temporary, increase in oil price.
Kazakhstan Stock Exchange
The Kazakhstan Stock Exchange (KASE) is the principal stock exchange in Kazakhstan. It is located in Almaty and was founded in 1993 as the Kazakh Interbank Currency Exchange. It is a part of the Almaty Financial Centre.
The KASE is a universal financial market, which can be conditionally divided into four major sectors: the foreign currency market, the government securities market (including supranational securities of Kazakhstan), the market of shares and corporate bonds, the derivatives market.
On November 15, 1993 Kazakhstan introduced the national currency – tenge. Two days after, the National Bank of the Republic of Kazakhstan and twenty three leading commercial banks of Kazakhstan made the decision to found the currency exchange. The previously existed Center of Interbank Currency Transactions (the Currency Exchange) was the structural subdivision of the National Bank. The main objective set for the new exchange consisted in organization and development of the national currency market due to introduction of tenge. As the legal entity the exchange was registered on December 30, 1993 under the name Kazakhstan Interbank Currency Exchange with the closed joint-stock company business form.
On March 3, 1994, the exchange was re-registered under the name Kazakhstan Interbank Currency Exchange that was explained by the necessity of bringing the exchange name into line with the legislation in force.
New activities
During the first two years of existence the Exchange has been organizing trades only in foreign currencies. However in August 1994, the Exchange Council charged the Exchange Board with the task to work out the issue related to the Exchange service development on the securities market, and for reflection of further Exchange activities area, the general meeting of its shareholders decided to change the Exchange name to Kazakhstan Interbank Currency and Stock Exchange. Under the new name the Exchange was re-registered on July 12, 1995.
After adopting of the temporary statute about securities issue and circulation and about the stock exchange, which was confirmed by the resolution of the Cabinet of Ministers of Kazakhstan dated October 3 of 1994 N° 1099, the stock exchange’s activity became subjected to licensing by the Ministry of finance of Kazakhstan. The necessity to receive license for conducting activity as the stock exchange was included also into the decree of the President of the Republic of Kazakhstan having validity of the law “About securities and stock exchange” dated April 21 of 1995. Functions of the licensor were given from the Ministry of finance to the founded again National securities commission of Kazakhstan.
On October 2 of 1995 the stock exchange received license N° 1 for conducting stock exchange activity at securities market, however acting of the license was limited with the right of organizing trades in government securities only. Trades in government securities were first held at the stock exchange on November 14 of 1995. At that time, because of various reasons stock exchange segment of the government’s debt instruments market took a little stake, trades in government bonds had an episodic irregular character, and in one year – on September 20 of 1996 the stock exchange had to interrupt trades in these securities. In 1997 trades in government securities were not held at all. Activation of stock exchange’s market of government’s debt instruments started only in the year 1998 – after accumulative pension system was started in Kazakhstan.
Together with the efforts, which were made for development of the organized securities market, the stock exchange worked at the development of futures market. In the beginning of 1996 there was carried out the work on creation of normative base, which regulated stock exchange’s futures contracts market, and in May of the same year currency futures market was opened. Unfortunately, the first attempt to open this market was lacking vitality, and trades in futures contracts were interrupted in February of 1998. And only in March of 1999 it became possible to restore this sector of the market.
Reorganization
On the reason the new law of the Republic of Kazakhstan “About securities market” dated March 5 of 1997 limited stock exchange’s activity with work with securities only, general meeting of stock exchange’s shareholders in April of 1997 made decision about its reorganization by means of making it a separate legal entity Almaty financial instruments exchange CJSC (AFINEX), which was registered on July 30 of 1997. Since September 1 of the same year trades in foreign currencies and futures contracts were moved to the trade floor of AFINEX. Kazakhstan stock exchange was reregistered on July 3 of 1997 under its former name and on September 19 of the same year it held the first trades in corporate securities.
Government Securities
1998 was notable with restoring of stock exchange’s government securities market, which occurred due to appearance of a new group of securities market’s professional participants – pension assets management companies, which, because of the legislation’s demands, had to operate only at the organized stock market. In the same year, with the help of National securities commission of Kazakhstan, the organized secondary market of sovereign eurobonds of Kazakhstan was formed in Kazakhstan. The first trades in these eurobonds were held at the stock exchange on October 19 of 1998. Since July 15 of the same year the stock exchange set in exploitation the quotation trade system that, actually, solved the problem of foundation of over-the-counter quotation organization in Kazakhstan.
Since 1999 development of stock exchange’s market of corporate bonds was started, first of them were included into the stock exchange’s official list on February 1 of that year. The year 1999 was also notable with starting of stock exchange’s sector of repo transactions on government securities since July 5 and holding of the first auction on municipal bonds floatation on July 7.
Reunification
After the law of the Republic of Kazakhstan “About including of changes and additions into some legislative acts of the Republic of Kazakhstan concerning questions of joint-stock companies” dated July 10 of 1998 took effect, prohibition for the stock exchange to organize trades in foreign currencies and other, besides securities, financial instruments was removed that let join AFINEX to Kazakhstan stock exchange. The decision about it was made by the general shareholders meeting on January 6 of 1999, and on March 16 of the same year the corresponding state re-registration of the joined exchange was made.
Special trading floor
Order No. 74 of the Chairman of the Agency of the Republic of Kazakhstan on Regulation of Activities of the Regional Financial Center of Almaty (ARA RFCA) of December 15, 2006 defining the exchange as an operator of the special trading floor of RFCA was made effective on January 7, 2007. The first trades on STF RFCA were held on February 27, 2007.
Private company
On August 8, 2007 with of the Law of the Republic of Kazakhstan “On Making Amendments in Legislative Acts of the Republic of Kazakhstan on Development of the Regional Financial Center of Almaty” of July 21, 2007 coming into effect, the Exchange lost its non-commercial organization status, and its shares have been available since for purchase by any interested persons. Prior, the legislation restricted the circle of shareholders exclusively to professional participants of securities market and other organizations, non-professional participants of securities market, exercising a right to execute deals in other, except for securities, financial instruments in accordance with the legislation of the Republic of Kazakhstan.
On the same date the voting principle was also changed by the general meeting of Exchange shareholders (“one shareholder – one vote” was substituted for “one share – one vote” voting principle) and a limit on the maximum stake which may be held jointly by one shareholder and affiliation persons was introduced. This restriction equals to 20% of the total of offered shares of the exchange for any shareholders of the Exchange, except for RFCA JSC (the right of ownership and use of the state owned shareholding of which belongs to ARA RFCA), which may hold up to 25% of the total of offered shares of the Exchange.
On August 23, 2007 the annual general meeting of shareholders of the Exchange approved its Development Strategy for 2007-2010, prior agreed by the Exchange Council on July 26, 2007.