Central Asia is out of favour with investors at the moment. Markets across the region have tanked since commodity prices crashed last year.
Now, though, Central Asia could offer you some of the biggest profits over the next year.
Take a look at the graph of the Kazakh Stock Exchange below. It’s a picture of boom… and bust. But now the market’s coming to life again…
Kazakhstan’s is the biggest economy in Central Asia. And it is one of the most energy-rich places on the planet. So its stock market took-off like a rocket in 2004 when energy prices started to rise. The index rose by a mind-blowing 1376% in the three years from mid-2004, as investors poured in.
But Kazakhstan’s stock market has crashed nearly 80% over the last 12 months. What’s clear is that its stock market boom coincides exactly with the bull market in energy prices. Since the middle of last year, it has been hit by the collapse of commodity prices, the credit crunch and investors’ retreating from riskier markets.
Now that the oil price is rising again, so is the Kazakh stock market – it’s doubled in 2009, as the circle on the chart shows. To get back to last year’s highs at 2876 from the current 1091, the index would have to rally 163%,
And that could happen to any Central Asian market. These economies are tied to the price of energy and other commodities. That’s why it is time to buy into Central Asia...
Energy prices are rising sharply again. And China can’t do without Central Asia’s natural resources. The IMF has just upgraded its growth forecast for China’s economy from 6.5% to 7.2% for this year. The Dragon is still growing. And it needs to be fed.
China is replicating its African strategy in Central Asia
China has been extremely successful in securing cheap natural resources in Africa. Now it’s trying to repeat this success in Central Asia. The Asian giant is focused on locking-up the energy reserves that practically lie on its doorstep. Companies operating in the region that own real, productive assets could soon be on the take-over list.
The global economic crisis has strengthened China’s position. With its rivals now reeling, it is well on its way to emerging as a genuine superpower. And it has become a lot more aggressive in Central Asia. In fact, China’s giant state oil company, China National Petroleum Corporation (CNPC) recently said that it will shift its focus from Africa to Central Asia. And it has already spent billions in the region.
CNPC already owns a 67% stake in the Kazakh oil producer PetroKazakhstan. And in April it agreed to lend $5 billion to KazMunaiGas, the Kazakh national energy company. The two companies are also jointly acquiring additional oil and gas properties in Kazakhstan.
Meanwhile in Uzbekistan, China is loaning the country $3 billion to develop its giant South Yolotan gas field. Yolotan is said to be one of the five biggest gas fields on the planet. And the Chinese are building a 7,000 kilometre pipeline from Uzbekistan to China. That should be completed by the end of the year. And when it is, it will suck a whopping 40 billion cubic metres of gas out of Uzbekistan every year…
The sheer size of China’s investment will help Uzbekistan’s economy grown by 7% this year according to the IMF. In fact, three of the five Central Asian economies will grow at 5% or more this year despite the global recession.
Those estimates are probably conservative. Energy prices are rising sharply again. If they stay at their current levels, or continue to rise, as I believe they will, the region is going to see a massive new wave of foreign investment.
Here’s a simple way to profit from this
It’s time to take advantage of low share prices at the moment to get in, and we’re looking for the right way in. One simple way to invest in Central Asia is through London-listed Tau Capital (ticker: TAU). The company invests in listed and unlisted companies. Although focused primarily on Kazakhstan, Tau also looks for investment opportunities in the Kyrgyz Republic, Uzbekistan, Turkmenistan, Tajikistan and Russia.
Tau trades on the AIM market and is quoted in US dollars, currently at $0.28, which is just about half the value of its underlying asset value of $.58 per share.
This looks like one very good value long-term investment that we might consider as a way in. But the real pay-off will come if we can get into a good company that’s a potential take-over target in the energy sector. That’s where the rapid profits from Central Asia could come from.
And we’ll let you know as soon as we have found the right way in.
Regards,
Manraaj Singh
For The Right Side
Editor’s note: Manraaj Singh is Chief Investment Strategist for Profit Hunter, a financial advisory that seeks to profit from off the beaten track investments. Whilst Manraaj is looking for a way to play the Central Asia theme, China’s thirst for energy is opening-up new profit opportunities in Africa. Click here to see the latest Africa play from Profit Hunter.
Note: Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary.
MARKET NOTES
Degrees of fear
BY FRANK HEMSLEY
It’s time to check in again on one of our favourite indicators, the Volatility Index or VIX.
This is a measure of the premium investors are willing to pay to purchase options on the S&P 500 index for protection against a market fall.
We call the VIX the ‘fear gauge’. That’s because when the VIX rises, it shows that investors are growing more fearful of a potential downside move in the market. They are prepared to pay more to protect themselves via ‘put options’ on the index. You see, put options rise in value as the index falls.
Meanwhile, when the VIX falls, that’s a sign that investors are more bullish. They are not prepared to pay for protection as they believe stocks will go up.
You can track the VIX – or the mood of investors – by looking at a chart. Here’s what the VIX is doing right now:
Fear is ebbing away from the markets… but what happens next?
Source: Stockcharts.com
The down trending black line shows that fear has been dropping away… ever since November last year. But it’s not been a smooth ride. I’ve circled in pink a few of the times when investors have panicked about the market… and the VIX has spiked.
Still, the trend is down. Fear has been ebbing away.
But the final blue circle hints that investors are still not totally comfortable. When the stock market fell at the start of this week, the VIX spiked again, from 28 to 33.
The key levels to look at are 30 and 40, where the horizontal lines are marked. If the VIX holds above 30 and moves towards 40, then expect stock markets to be falling.
If it breaks above 40, then we’re looking at a full scale rout.
Editor’s note: In one of his boldest and most important pieces of analysis yet, Theo Casey is predicting that the markets could fall further in the coming months. He’s found a unique way to play this – by “buying the fear index”. You can access his recommendation right now by checking out The Fleet Street Letter.
Note: Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary.
The Daily Reckoning – Savings are Going Up. Spending is Going Down.
By Bill Booner
Paris, France
Friday, 19 June 2009
Let us begin with a chart. We don’t often use charts here at the Daily Reckoning. But we’ve been sharpening our computer skills. And often charts tell a story faster than you can tell it with words. This was sent to us by Dr. Eberhardt Unger:
Savings are going up. Spending is going down. That is the fundamental economic trend of the post-Bubble Epoque era.
“Without a genuine return of the tendency of households to consume,” says Dr. Unger, taking the words out of our mouth, “there can’t be, in the United States, a durable economic recovery. Manufacturing is still in sharp decline. It’s only the presence of a large volume of liquidity that permits Wall Street to fantasize about a new phase of economic growth.”
Forget the rally; it’s fake. And forget the ‘green shoots.’ They’ll soon shrivel up in the hot summer sun. There ain’t going to be any real recovery in the immediate future until the mistakes of the recent past are corrected. And that, as we keep saying, takes time.
Yesterday, the Dow rose 58 points. Oil and bonds both stayed put. Gold lost a dollar. And the dollar itself is back to $1.38 per euro.
Nothing very exciting.
But what’s this? It’s the end of the housing decline! For the first in two years property prices in Southern California went up last month. Is that good news, or what?
But wait... they only went up because more expensive houses were sold. Apparently, the mortgage market has loosened up enough to permit larger houses to find buyers. Good news for people who want to buy or sell a house for more than $500,000. But we’re not sure it is any indication of a strengthening housing sector. Half the houses sold had been foreclosed
It’s hard to imagine people bidding up house prices when their savings rates are going up and their spending rates are doing down. The three just don’t go together. Like a top hat, morning coat, and a pair of sneakers. Like Moe, Larry, and Omar... or the father, the sun and the holy tomato. Nah... not likely. Prices should stabilize... but they’re not likely to rise.
And here’s a new forecast from Deutsche Bank that says house prices in the New York area will drop by 40%. All real estate is local, of course. There are bound to be some areas where property prices fall more. And some areas where price declines have already overshot the equilibrium points. These latter areas may experience gains in the bounce-back... but don’t expect any broad recovery in the housing market any time soon.
Meanwhile, investors take comfort from the employment figures too.
“Fall in jobless claims raises hopes,” says an item in the Financial Times.
Continuing claims dropped off in the first week in June, the report explained. But each week still brings more claims. What, exactly, is happening, we don’t know. But we doubt that there is any significant increase in employment in the works. The US economy is still in a downward trend... and this summer, we predict, it will get worse.
Read on…
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