Border Crossing: How Kazakhstan Can Become an Emerging Market

Kazakhstan continues to be classified as a frontier market. However, based on a number of indicators, the country already appears stronger than a typical frontier market: According to the 2026 MSCI (Morgan Stanley Capital International) review, Kazakhstan has no significant issues regarding capital controls, foreign investor rights, market regulation, depositary infrastructure, or a number of other parameters. Moreover, MSCI raised its assessment of the stability of Kazakhstan’s institutional environment this year, writes Ramazan Dosov, chief analyst at the Association of Financiers of Kazakhstan , in a column for Oninvest.

Over the past 5 years, the KASE stock market capitalization has more than doubled—from 20.1 to 47.6 trillion tenge (from $43.7 billion to $103.5 billion), or 26% of the projected GDP for 2026. Large publicly traded companies recognized by international investors have emerged; the infrastructure of KASE and AIX is developing; and retail activity has grown significantly: the number of investment accounts opened has increased from hundreds of thousands to several million on both exchanges. At the same time, the stock market itself remains fairly concentrated: as of the end of the first half of the year, KASE’s trading lists included 88 stock issues from 75 issuers.

In many respects, Kazakhstan has already outgrown its “Frontier” status in terms of infrastructure, but has not yet surpassed it in terms of market depth. The first key constraint to transitioning to “Emerging Market” status is the relatively narrow range of large companies in which international institutional investors can invest significant amounts of capital.

As of July 31, 2026, the MSCI Kazakhstan Index includes only three securities: Kaspi.kz ADS, Kazatompom’s GDRs, and Halyk Bank. Their combined market capitalization, taking into account the free float, is $12.65 billion. This clearly illustrates the key problem: while the total market capitalization of the KASE stock market is approximately $100 billion, the portion of the market that is actually accessible to global institutional investors is significantly smaller.

Market capitalization is not always a reliable indicator here, since global funds primarily value the portion of the company that is actually in free float.

The example of KazMunayGas is telling. With a market capitalization of 21.2 trillion tenge ($46.1 billion), the company accounts for nearly 45% of the total market capitalization of the KASE stock market; however, its free float is only 12.2%. For a number of other large quasi-state-owned companies, the free-float ratio also remains in the 9–15% range. Therefore, further privatization is important not only as a source of new IPOs. Secondary public offerings (SPOs) by already publicly traded companies and an increase in their free-float shares could have a significant impact.

There are also other restrictions that are particularly important for large international investors: mandatory registration requiring the legalization and translation of documents, limited availability of information in English, partial advance funding for T+2 settlements, certain restrictions on over-the-counter transactions, as well as the underdevelopment of securities lending and short selling.

The second challenge is liquidity. Even a large company remains a difficult investment for a global fund if it is impossible to buy or sell a significant position without having a noticeable impact on the price. Therefore, an increase in the number of issuers must be accompanied by the development of a fully-fledged secondary market—including market-making, repo transactions, derivatives, and other mechanisms that enhance trading volume and the quality of price formation.

Romania’s experience is illustrative in this regard. As early as 2017, the FTSE (Financial Times Stock Exchange) noted that the country had met virtually all the requirements for an upgrade, with the only unmet criterion being sufficient liquidity in the broader market. Following further improvements in market conditions in 2019, a decision was made to reclassify Romania from “Frontier” to “Secondary Emerging” effective September 2020. In other words, to make the transition, it is not necessary to first become a wealthy economy—the primary requirement is to create a sufficiently accessible and liquid market.

The MSCI and FTSE Russell classifications differ. For example, since 2020, FTSE Russell has classified Romania as a Secondary Emerging Market, but MSCI continues to classify it as a Frontier Market. Kazakhstan remains a Frontier Market in both classifications. The MSCI Frontier Markets also include, among others, Vietnam, Morocco, and the combined Baltic market. This shows that the distinction between “Frontier” and “Emerging” markets is determined not by the level of economic development per se, but by a set of requirements established by a specific index provider regarding market size, liquidity, and accessibility.

The third objective is to expand the base of institutional investors. The growth of asset management companies, investment funds, insurance companies, and other institutional investors can generate additional long-term demand for market instruments and increase market depth.

As of July 1, 2026, pension savings in the Unified National Pension Fund (UNPF) reached 28.1 trillion tenge ($61.1 billion). Starting September 7, UPF contributors will be able to transfer up to 100% of their pension savings to private managers, instead of the current 50% limit, a move that is specifically aimed at expanding the institutional investment base. However, a change in the rules alone may not be sufficient, as over the years the current model has fostered a persistent passive attitude among the public toward the management of their pension savings. Therefore, fostering competition among managers and increasing contributor engagement may take a long time.

Fourth, strong institutions. For an investor, a stock is not only a financial instrument but also a set of legal rights. Therefore, property protection, minority shareholder rights, transparency in corporate governance, regulatory predictability, and effective judicial protection directly affect the risk premium and the cost of raising capital for Kazakhstani companies.

First and foremost, the investment “universe” in which the country operates is changing. Frontier and Emerging markets belong to different families of global indices—FTSE and MSCI. Following the upgrade, the relevant Kazakhstani securities become eligible for inclusion in the Emerging Markets indices, which serve as benchmarks for international passive and active funds. This broadens the potential investor base and enhances the market’s international visibility.

That said, it would be wrong to expect that this upgrade will automatically “lift all boats.” Kazakhstan’s initial weighting in global indices will most likely be small, and direct demand will primarily be concentrated in the largest and most liquid securities. However, the secondary effect could be broader: an increase in the number of market participants, liquidity, and the quality of price formation could gradually reduce the risk premium and improve conditions for raising capital.

For issuers, this means access to a broader range of investors and a potentially more liquid stock market. For the government, it provides a more effective platform for privatization and attracting private capital. For the economy as a whole, it offers a more developed mechanism for converting domestic savings into investments.

That is precisely why a country’s transition from “Frontier” to “Emerging” cannot be reduced to simply meeting a few MSCI or FTSE requirements. This transition must be underpinned by a more sweeping transformation: from the state as the largest owner to a more competitive private sector; from a few large quasi-state-owned issuers to a steady stream of private public companies; from the concentration of long-term savings in a limited number of instruments and institutions to a broad capital management industry; from a population consisting primarily of consumers of financial services to a middle class that owns financial assets; from a narrow range of financing sources—to a more diversified system for raising capital; from a developed technical market infrastructure—to an environment in which investors’ property and rights are reliably protected.

In other words, Kazakhstan could become an “emerging” economy by removing several specific market constraints. However, for this status to reflect a qualitatively new economic model, the very structure of the formation, accumulation, and distribution of private capital must change along with the market.

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