Going Public or Taking Out a Bank Loan: How Capital Market Reform Will Change Things for Kazakhstan

BlackRock's chief strategist, Ben Powell, said in a recent interview with Bloomberg that the investment bank sees Central Asia as a new hub for investment and is encouraged by Kazakhstan's reforms, including those in the capital markets. What is he referring to?

In early September, the Agency for the Regulation and Development of the Financial Market (ARRFR) presented the Capital Market Development Program for 2026–2030 and shortly thereafter submitted a draft law on market reform for public comment. According to the Kazakhstani authorities’ plan, the reform should create a market capable of redirecting capital to the real sector of the economy, increasing liquidity in the stock market, and stimulating IPOs and SPOs by local companies. Aigerim Ilyasova, a candidate of economic sciences and an expert at the Qazaq Expert Club, writes about what the reform means for institutional and retail investors in a column for Oninvest.

The new stock market reform is important precisely because it aims not to solve a single problem, but to build the entire capital market ecosystem. This is planned to be achieved through a combination of several measures: simplifying the process for companies to go public, developing institutional investors, expanding collective investments and ETFs, improving market-making, creating a securities borrowing mechanism, and launching covered short selling.

According to the ARRF, over a five-year period, the market capitalization of the Kazakhstani stock market more than doubled, rising from 19.1 trillion to 41.8 trillion tenge (from $42.6 billion to $93.2 billion—Oninvest).

The bond market also nearly doubled during this period—from 32 trillion to 58 trillion tenge ($71.4 billion to $129.3 billion). According to KASE data, as of September 1, 2026, the stock market capitalization stood at approximately $108.1 billion, up 39% since the beginning of the year, while the KASE index rose by about 16% during this period.

These figures are encouraging, but does nominal growth in the stock market indicate its qualitative development, depth, and liquidity? Stock prices may rise, and market capitalization may increase; however, if a significant portion of securities is held by major shareholders and is not traded on the market, it is difficult for investors to buy or sell a substantial volume without affecting the market price. Liquidity is precisely one of the main problems facing the Kazakhstani stock market.

According to estimates by the Association of Financial Professionals of Kazakhstan, the turnover ratio for stocks is only 1.4%, for bonds—9.1%, and for corporate bonds—3%. The free float—or the percentage of shares in free circulation—has declined from 38% to 21%. These are very low figures, indicating a lack of significant and sustained two-way demand and supply for securities on the Kazakhstani market.

One of the main goals of stock market development should be to increase liquidity—that is, to create a market where significant volumes of securities can be bought and sold on a regular basis. To achieve this, measures are needed to stimulate both demand from investors and supply from issuers and security holders.

Currently, the largest institutional investor in securities is the National Pension Fund (NPF). However, the National Bank’s conservative investment strategy focuses its portfolio on low-risk bonds. The role of pension savings in the development of the stock market increased significantly in 2026. Due to the increase in the adequacy thresholds for withdrawing excess pension savings, as well as the elimination of the government’s guarantee to preserve the value of savings in line with inflation, citizens had more reasons to transfer their pension savings to private management companies.

The Capital Market Development Program calls for improving approaches to the management of pension assets. Starting September 7, 2026, up to 100% of pension savings may be transferred to private investment portfolio managers. Based on the results of the past 12 months, the returns of all private investment management companies are higher than those of the Unified Pension Fund (UPF), indicating that the former are investing in higher-yielding securities. Along with the growing role of private investment portfolio managers, the National Bank will also revise its investment strategy based on the life cycle of contributors. Thus, younger contributors will be able to adopt a more aggressive investment approach, while older contributors will be able to adopt a more conservative one.

Plans also call for stimulating demand through the development of exchange infrastructure and the integration of Kazakhstani stocks into international custody and settlement systems, which is important for foreign investors. For retail investors, the development of the collective investment market is important, specifically money market funds, real estate funds, bond funds, index funds, and sector-specific funds (ETFs). It is difficult for the average person to select individual securities for their portfolio. Buying an ETF allows investors to purchase a broad range of securities, which diversifies risk and eliminates the need for retail investors to track the performance of individual securities.

A revival in demand is also possible through the planned implementation of a short-selling mechanism. Currently, investors earn money from rising asset prices and from income in the form of stock dividends and bond coupon payments. Short selling allows investors to profit even when markets fall. In short selling, securities are first sold and then repurchased after the price has fallen. Importantly, this mechanism is planned to be launched through the borrowing of temporarily available securities. Such coverage will reduce the risks of uncontrolled speculation while increasing market liquidity.

The Kazakh stock market is largely dominated by large companies and the quasi-public sector. Therefore, expanding the participation of private businesses is one of the key objectives of capital market reform. To stimulate supply from issuers, plans are in place to simplify the procedures for entering the stock market. Currently, IPOs and debt securities offerings are lengthy and costly processes that only large companies can afford. The capital market development program calls for creating more flexible conditions for medium-sized companies, digitizing procedures, and providing support from “listing sponsors,” whose role will be to improve the quality and attractiveness of issuers in terms of corporate governance and transparency.

An important economic question is why private companies today are in no hurry to go public. The reason is not just the complexity of the process. For a company’s owner, an IPO means disclosing information, changes in corporate governance, the emergence of a large number of minority shareholders, ongoing communication with investors, and additional expenses. Therefore, simplifying regulations is not enough; private companies must see the economic rationale for going public.

For companies, raising equity or debt capital on the stock market should offer advantages over bank loans. Tax incentives could also boost stock market liquidity, as a temporary reduction in the corporate tax rate is proposed for publicly traded companies that maintain a certain percentage of shares in free float. In my view, tying economic incentives specifically to maintaining the free-float will be far more effective for liquidity than simply encouraging IPOs.

The proposed initiatives could address a structural problem in the capital market and help match the domestic savings of households and institutional investors with the business sector’s need for long-term financing. The main outcome of the reforms should be a significant increase in the stock market’s role in financing the Kazakh economy.

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