Battling Headwinds: Bank of America Calls the CIS an “Almost Safe Haven”

The CIS countries have benefited from the current external shock: the escalation
in the Persian Gulf has turned the region into “almost a safe haven,” according to
analysts at BofA Global Research in a report titled “Back to School: Riding the Waves of Supply Shocks.” In their view, these countries are relatively well-supplied with energy resources and are largely unaffected by disruptions to global trade flows; in some cases, they even benefit from military conflicts due to the redirection of capital, trade, and Russian tourism from the UAE.

This is supporting economic growth and local currencies, although some of them already appear overvalued. One of the most notable examples is Uzbekistan,
where the sum has strengthened by more than 4% since early February. Inflation in the country fell from 7.3% at the end of 2025 to 6.4% in July, with the policy rate at 14%. BofA believes that the Central Bank of Uzbekistan still has room to cut rates by 1.5–2 percentage points by the end of the year, and that the resumption of external borrowing by Uzbek companies could become an additional source of demand for the sum. According to BofA analysts, the continued inflow of global capital is likely to support steady real GDP growth across the region, including not only Uzbekistan but also Kyrgyzstan, Armenia, and other countries, as well as support currency exchange rates in the region, even despite their already high levels.

Although the section on Kazakhstan is titled “Fighting the Headwinds,” BofA analysts see the same combination of slowing inflation and sustained economic growth in the country. In the first half of the year, GDP grew by 4.1% despite significant disruptions in oil supplies, and the investment bank expects growth of 4.5% for the full year. This slowdown, compared to 6.5% growth in 2025, is viewed as a return of the economy to more normal dynamics and is attributed to easing inflationary pressures. They also cite “radical fiscal consolidation”—aimed at increasing revenue, including a 4 percentage point increase in the VAT rate this year—as a factor holding back economic growth.

In August, inflation fell to 9.8%, and according to BofA’s forecast, a combination of tight fiscal policy, high interest rates, and the base effect resulting from the VAT increase could bring it closer to the 5% target by the end of 2027 or in 2028. This, along with effective sterilization of the tenge through the foreign exchange market, gives the National Bank significant room to cut interest rates, which analysts estimate will ultimately reach approximately 10%—and this year alone, the total reduction could amount to 3.25–4 percentage points. Official net foreign exchange sales in August fell below $300 million, the lowest level since early 2024—largely due to an inflow of non-resident funds. “We continue to believe that strong capital inflows may persist, as the investment attractiveness of tenge-denominated debt instruments remains high and is developing in line with our positive expectations,” write BofA experts.

Experts view the “return” of fiscal stimulus as the main domestic risk. In 2027, the government plans to increase National Fund spending by approximately 1.5 trillion tenge (about 0.7% of GDP). BofA acknowledges that this could slow disinflation and limit the National Bank’s ability to cut interest rates. However, this effect could be offset by an overall reduction in the budget deficit—from 2.5% of GDP in 2026 to 2.3% in 2027 and 0.9% by 2029.

An external risk is the tightening of global financial conditions. Analysts
expect the Fed to raise interest rates, which could limit monetary easing in emerging economies. Furthermore, according to the investment bank’s assessment, the tenge itself has already entered an “overvalued zone,” so further appreciation of the currency makes the trade-off between potential returns and currency risk less clear-cut.

Looking ahead to the coming quarters, Kazakhstan has two additional advantages over many comparable markets. The first is a relatively quiet political calendar: once the current electoral cycle concludes, BofA does not anticipate any major events until
the 2029 presidential election. The second is the planned integration with Euroclear in the spring of 2027, which should facilitate access to local securities for foreign investors and increase market liquidity.

In the EEMEA region (Eastern Europe, the Middle East, and Asia), many countries are facing either an energy crisis, budgetary challenges, or the need to raise interest rates. Against this backdrop, Kazakhstan is demonstrating a relatively rare combination of macroeconomic stability and expanding access for foreign investors. That is why BofA expects the inflow of non-resident funds to continue and believes that the tenge “will likely remain well supported” at least through the end of the year.

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