Based on the types of bonds in which they deal, the Securities Industry and Financial Markets Association has categorized the bond market into five types. These are:
· Corporate: includes trading in debt securities issued by corporations and industries to raise funds.
· Government and Agency: involves trading in bonds issued by government departments as well as enterprises sponsored by the government or agencies backed by it.
· Municipal: covers transactions in municipal securities issued by states, districts and counties.
· Mortgage Backed Securities: includes dealings in asset-backed securities that are protected by mortgages.
4 Bond Market of Kazakhstan.
The first corporate bonds were issued in 1998, but the bond boom began in 2000. Since its inception, the Kazakh market in corporate bonds has been exposed to many influences, the most important of which were macroeconomic stabilisation and the growth of the national economy in 1999-2000, and the rise of a powerful class of domestic portfolio investors who, through the agency of pension funds, maintain a steady demand for this type of security. These factors provided a strong impetus for accelerated development and restructuring of the bonds market.
Corporate bonds play an important role in the current phase of the country’s economic development. Most of all, these instruments are catalysing the evolution of the stock market.
The attractiveness of Kazakh bond market lies in:
1) Marketability. High liquidity is a characteristic of Kazakh corporate bonds that distinguishes them from other non-public securities traded on the domestic market. Basically, the status quo is contributed to by the presence of the institution of market makers on the Kazakh stock market, and the sustained demand for dependable securities by institutional investors.
2) Reliability. Kazakh corporate bonds feature a fairly low risk level, a quality contributed to by a variety of conditions.
The structure of the Kazakh corporate bonds market has the following characteristics. The maturity terms of bonds traded at present vary from 1 to 8 years. Most bonds listed on KASE (16 issues out of 19) are in the «?» category, a proportion which reflects the high degree of stability of the Kazakh bonds market in general, since these issue account for more than 90% of the total pool of bonds. The high reliability of corporate bonds also ensues from the issuers’ structure (Table 5), dominated by the largest Kazakh banks and industrial corporations (73%).
The market in corporate bonds features a high degree of organisation, with nearly 99% of bonds being listed and traded on KASE. Corporate bonds are playing an increasingly important role in stock exchange trading. Thus, in 2000, KASE’s most actively traded instruments included the bonds of the Halyk Savings Bank of Kazakhstan (1,306,925,500 tenge, or 9.4% of the total secondary market trade volume), Kaztransoil (1,027,843,900 tenge, or 7,4%, respectively), Kazakhstan Temir Zholy (699,672,500 tenge, or 5%), Kazakhoil (416,734,600 tenge, or 3%). The trend towards a greater proportion of corporate bonds on the Kazakh stock market persisted in 2001. In the first quarter of 2001, these bonds accounted for 50.1% (3,061,093,600 tenge) of KASE’s trade in all non-public securities; in other words, bonds took a decisive lead in the domestic stock market. In the light of the above dynamics, the future for corporate bonds in Kazakhstan appears very promising.
The evolution of the Kazakh securities market, largely assisted by the success of financial sector reform in the second half of the 90s, passed the point where corporate bonds, a type of financial instruments which had been new to Kazakhstan, emerged on the domestic market.
It should be noted that investors have a means of improving the profitability of corporate bonds through trading on the stock exchange, which represents an important advantage over any other investment option. An example of rigging the profitability of bonds by trading on KASE.
Over the 2nd half of 2011, the average profitability of corporate bonds dropped from 12.3% to 11%. This downward trend continued in 2012, during the first five months, resulting in an average coupon rate of 10.4%. Nevertheless, a comparison of profitability of Kazakh corporate bonds with that of other investment options comes out in favour of the former, which suffices to keep them fairly attractive.
Thus, after the first few years of the history of corporate bonds in Kazakhstan, it can be concluded that these securities bring numerous benefits to all the parties involved, and have a tremendous influence on the country’s financial and investment sector. An analysis of the current state of the bonds market confirms this conclusion.