Kazakhstan's new plan to deepen its capital market and boost liquidity

BlackRock chief strategist Ben Powell said in a recent Bloomberg interview that the asset manager sees Central Asia emerging as a new investment hub and is encouraged by reforms taking place in Kazakhstan, including its capital-market reform. 

In early September, Kazakhstan’s Agency for Regulation and Development of the Financial Market (ARDFM) presented its Capital Market Development Program for 2026-2030 and shortly thereafter released draft legislation for public comment. The Kazakhstani authorities intend the reform to create a market capable of channeling capital into the real economy, increasing financial-market liquidity, and encouraging local companies to conduct IPOs and SPOs. Aigerim Ilyasova, who holds a PhD in economics and is a member of the Qazaq Expert Club, explains in a column for Oninvest what the reform means for institutional and retail investors.

The new capital-market reform intends not to solve a single problem but to build an entire ecosystem. The plan has several goals: making it easier for companies to enter the market, developing the institutional investor base, expanding collective investment and ETFs, improving market-making, establishing a securities-lending mechanism, and introducing covered short sales.

According to the ARDFM, Kazakhstan’s equity market capitalization has more than doubled over five years, from KZT19.1 trillion to KZT41.8 trillion (from $42.6 billion to $93.2 billion). The bond market has also nearly doubled over that period, from KZT32 trillion to KZT58 trillion (from $71.4 billion to $129.3 billion). According to KASE data, equity market capitalization stood at around $108.1 billion as of September 1, up 39% since the beginning of the year, while the KASE Index had gained around 16% year to that date.

These figures are encouraging, but nominal capital-market growth does not necessarily indicate improvements in its quality, depth, and liquidity. Market prices and capitalizations may rise, but if a significant share of securities is held by major holders and does not trade, investors cannot buy or sell substantial volumes without affecting the market price. Liquidity remains one of the main problems facing Kazakhstan’s capital market.

Based on estimates from the Association of Financiers of Kazakhstan, the turnover ratio is just 1.4% for stocks and 9.1% for bonds, including 3.0% for corporate bonds. Free float has declined from 38% to 21%. These very low figures point to a lack of substantial and sustained two-way interest in Kazakhstani securities.

One of the principal goals of capital-market development should therefore be to increase liquidity, in other words, to create a market where substantial volumes of securities can be bought and sold regularly. Achieving that requires measures to stimulate both investor demand and supply from issuers and securities holders.

The Unified Accumulative Pension Fund is currently the largest institutional investor in securities. However, the National Bank’s conservative investment strategy concentrates its portfolio in low-risk bonds. The role of pension savings in developing the capital market increased substantially in 2026. Higher adequacy criteria for withdrawing surplus pension savings, together with the abolition of the government guarantee that pension savings would retain their value after inflation, have given people more reason to transfer their savings to private asset managers.

The Capital Market Development Program calls for improvements in the management of pension assets. Since September 7, contributors have been permitted to transfer up to 100% of their pension savings to private investment portfolio managers. Over the last 12 months, every private manager has delivered a higher return than the Unified Accumulative Pension Fund, which suggests that they invest in higher-yielding securities. Alongside the growing role of private investment portfolio managers, the National Bank will revise its investment strategy based on contributors’ life cycles. Younger contributors will be able to pursue a more aggressive investment approach, while older contributors will be able to choose a more conservative one.

The authorities also plan to stimulate demand by developing exchange infrastructure and connecting Kazakhstani securities to international custody and settlement systems, which is important for foreign investors. For retail investors, the development of collective investment vehicles is essential, including money-market, real estate, bond, index, and sector ETFs. Picking individual securities for a portfolio is hard for the average person. Buying ETFs provides exposure to a broad range of securities, diversifying risk and eliminating the need for retail investors to monitor the performance of individual assets.

Demand could also receive a boost from the planned introduction of short selling. Investors currently profit from rising asset prices and income in the form of stock dividends and bond coupon payments. Short selling allows them to profit when prices fall. In a short sale, securities are sold first and then repurchased after their price declines. Importantly, the authorities intend to introduce the mechanism through the lending of temporarily available securities. Requiring borrowed securities to cover these sales would reduce the risk of uncontrolled speculation while increasing market liquidity.

Kazakhstan’s capital market is dominated by large companies and the quasi-state sector. Expanding private-sector participation is therefore one of the key objectives of the capital-market reform. To increase the supply of securities, the authorities plan to simplify the procedures for IPOs and debt offerings, which are currently lengthy and expensive and therefore affordable only for large companies. The Capital Market Development Program calls for more flexible conditions for midsize companies, the digitalization of procedures, and support from “listing sponsors,” whose role will be to make issuers more attractive by improving their corporate governance and transparency.

An important economic question is why private companies are currently in no hurry to go public. The complexity of the process is not the only reason. For a business owner, an IPO means disclosing information, changing corporate-governance practices, bringing in a large number of minority shareholders, communicating continuously with them, and incurring additional expenses. Simplifying regulation is therefore not enough – private companies must also see an economic rationale for going public.

Raising equity or debt capital in the market must offer companies advantages over borrowing from banks. Tax incentives could also increase stock-market liquidity, as the authorities are considering a temporary reduction in the corporate tax rate for public companies that maintain a specified free float. In my view, tying economic incentives specifically to maintaining free float would be far more effective in increasing liquidity than merely encouraging companies to conduct IPOs.

The proposed initiatives could address a structural problem in the capital market and help connect the domestic savings of households and institutional investors with businesses’ need for long-term financing. The principal outcome of the reforms should be a substantial increase in the capital market’s role in financing Kazakhstan’s economy.