"A Giant Portfolio": How Pension Reform Will Impact Kazakhstan's Stock Market

Kazakhstani citizens have been granted the right to entrust up to 100% of their pension savings to private fund managers. The essence of the reform lies not so much in a shift toward investments as in a change in the approach to managing pension assets: who manages the assets, how many investment strategies are available to contributors, and whether the local stock market will gain the long-awaited liquidity, writes Yulia Sakharovskaya, a financial consultant at LK FINANCE LLP.

Starting in September 2026, Kazakhstani citizens will be able to entrust up to 100% of their mandatory pension savings to private investment portfolio managers (IPMs)—the limit had previously been capped at 50%.

In public discourse, the reform is often portrayed as “pension funds flowing into the stock market.” However, it’s worth remembering that pension assets are already “in the market”: The National Bank invests approximately 28 trillion tenge ( $62.8 billion—Oninvest) in government securities, corporate bonds, stocks, deposits, and foreign instruments.

Both the National Bank and private companies operate based on investment declarations, adhering to the regulations regarding ratings, diversification, and risk limits established by law for pension savings. The fundamental difference lies in scale and flexibility.

The National Bank manages a massive portfolio. Given its size, it is impossible to actively trade second-tier stocks or small bond issues: any large order placed by the NBRK can significantly impact the local market. Therefore, the regulator’s portfolio is conservative: as of August 1, 2026, 43.5% consisted of government securities issued by the Ministry of Finance, 8% consisted of quasi-government debt, and Kazakhstani stocks and depositary receipts accounted for less than 2%. At the same time, over 40% of the portfolio was denominated in U.S. dollars.

Private fund managers work with much more flexible investment volumes. Starting in September, each private fund manager can create up to three portfolios with different risk profiles—conservative, moderate, and aggressive. This allows them to selectively purchase promising corporate bonds, individual stocks, and global ETFs.

However, this flexibility does not mean that the UIPs will channel all the funds specifically into Kazakhstan’s economy.

As of August 1, 2026, private pension fund managers held a total of 137.5 billion tenge (less than 0.5% of all pension assets). On the scale of the pension system, this amount is modest, but for the local stock market, it is quite significant.

By way of comparison: for the entire year of 2025, the trading volume of shares on the KASE totaled 342.1 billion tenge ($767 million), of which nearly 90% came from the secondary market. In other words, the total assets under management by UIP amount to nearly half of the annual stock exchange turnover.

Of course, fund managers will not allocate all their funds to a single segment. The current structure of their investments is indicative:

• 26.6% — shares in foreign ETFs;

• 15.2% — bonds issued by Kazakh banks;

• 10.9% — quasi-government securities;

• 8% — corporate bonds;

• 7.7% — Kazakhstani stocks and depositary receipts.

A significant portion of private fund managers’ capital is already flowing into the global market. And this is justified: the primary objective of asset management companies is to protect investors’ savings from inflation and currency risks, not to finance the domestic market at any cost.

The main problem facing the Kazakhstani market is not only a shortage of buyers, but also an acute shortage of tools.

As of the end of 2025, only 74 issuers were listed on the KASE. At the same time, liquidity is concentrated among a small group of blue-chip companies, and the percentage of shares in free float remains low. It is telling that even with a total stock market capitalization of about $100 billion, the key MSCI Kazakhstan index includes only three companies.

The corporate debt market appears more vibrant: in 2025, 40 new bond issuers were listed, and the total volume of outstanding corporate debt reached 16.2 trillion tenge ($36.3 billion). The selection in the fixed-income segment is broader, but there are still few high-quality issuers with reliable credit ratings.

This is where a market trap arises: if UIPs receive a significant amount of new capital but do not see any new offerings, the inflow of pension funds will not create market depth but will merely drive up prices for a limited range of existing securities. Without new IPOs, SPOs, and an increase in the free-float percentage, institutional demand will simply hit the supply ceiling.

The right to transfer up to 50% of savings has been in effect since 2021, but in five years, only a handful have taken advantage of it: less than 0.5% of the system’s total assets have been transferred to private managers. Raising the limit to 100% is unlikely to cause a rush on its own.

The reason lies in a fundamental behavioral pattern: choosing a fund manager requires an individual to assess risks, fees, and returns without any guarantees. In a situation of uncertainty, most investors act rationally from a psychological standpoint—they choose the “leave everything as it is” strategy, or the status quo.

In Sweden, where participants can choose a pension fund, about 99% of new contributors remain in the default state fund, AP7. The system works successfully not because citizens have become active stock traders, but because the default fund itself uses a life-cycle strategy: it holds 100% in the equity fund until age 55, and then gradually reduces risk.

In Chile, citizens can choose from five funds with varying levels of risk. However, most remain in the default age-based profile offered by the government for years: in 2006, such participants accounted for 66% of the total.

Poland presents a negative scenario. In the 2010s, the government drastically cut back the private pension component, and the open pension funds (OFE) lost approximately half of their assets. The weakening of key domestic institutional investors was one of the factors behind the subsequent multi-year stagnation of the Warsaw Stock Exchange.

Global experience shows that successful pension reforms are not based on the illusion of widespread financial literacy, but on a well-designed default choice architecture.

So, in the short term, we shouldn't expect an immediate boom on the KASE. For the market to receive a significant boost, three factors must align:

1. Investors will begin to consciously diversify their savings through accessible UIP strategies.

2. Asset managers will consider the domestic market more attractive than foreign instruments, or attractive enough to invest a significant portion of their assets under management there.

3. The business sector will offer investors new, high-quality IPOs and bond offerings.

Thus, the main value of the reform lies in the long term. The competition for pension assets will force investment management companies to compete on strategy, publish transparent analyses, and improve the investment culture. And the emergence of a pool of demanding institutional managers will create exactly what the Kazakh market lacks—consistent professional demand for transparent and mature businesses.

This article was AI-translated and verified by a human editor