Kazakhstan Devaluation Spurs Stock Selloff That Lures Coeli

Kazakhstan’s currency devaluation has made Halyk Savings Bank attractive after its slide to a three-month low, according to Coeli Asset Management, which is starting a frontier equities fund next month.

While a weaker tenge would increase the “cost of risk” for banks with foreign-currency loans, Halyk is “well-capitalized for growth” and will probably raise its dividend payouts, said James Bannan, a money manager at Coeli, which oversees about $1 billion of assets. Halyk is the country’s second-largest lender.

The bank slid 13 percent in Almaty and 12 percent in London on Feb. 11, when Kazakhstan’s central bank lowered the tenge’s trading band by 19 percent. The KASE index of stocks listed has climbed 14 percent since then. Frontier-market assets are outperforming their more-developed peers this year, becoming a focus of investors from Blackrock Inc. to Templeton Emerging Markets Group.

“When I see the stock is down 12 percent on the first day, to me it’s a buying opportunity,” Bannan said by phone from Malmo, Sweden, yesterday. Domestic growth will probably “benefit from the devaluation,” he said. “It should be reflected in loan growth going forward.”

Halyk gained 1.1 percent to 41 tenge at 3:15 p.m. in Almaty, taking its two-day gain to 3 percent and valuing the company at 6 times estimated 12-month earnings. That compares with 11.5 times for the MSCI Frontier Markets Index, data compiled by Bloomberg show.

Cutting Recommendation

More than 1.04 million shares traded in Kazakhstan on Feb. 11, four times the six-month daily average, data compiled by Bloomberg show.

Since the devaluation, Bank of America Corp. cut its recommendation on Halyk to neutral from buy, while UralSib Capital lowered its price estimate 10 percent to $8.10 with a hold recommendation. Sberbank Investment Research decreased its estimate for the stock 8 percent to $11.10, retaining a buy recommendation.

Kazakhmys Plc, Kazakhstan’s biggest copper producer, jumped 7.3 percent today, extending its rally since the devaluation to 38 percent. A weaker local currency is “very positive” for mining and energy companies, which get revenue in dollars, according to Bannan.

KazMunaiGas Exploration Production shares traded in London rose 1.1 percent today, extending this week’s gain to 10 percent, valuing the company at five times estimated profit.

Dividend Draw

The company is a “very cheap oil and gas play with a pretty solid balance sheet,” Bannan said, adding he is “neutral” on the stock despite devaluation benefits. “Investors have been disappointed for several years in terms of extracting value” from the company, he said.

KCell, the Kazakh unit of Sweden’s TeliaSonera AB, rose 0.7 percent in London, paring this week’s loss to 13 percent. While KCell will be hurt by an increase in foreign-currency denominated capital spending, it’s worth staying in the stock given the expected 12 percent dividend yield for 2013, Renaissance Capital said Feb. 11, cutting its recommendation to hold from buy.

Kazakhstan’s economy will benefit from a weaker tenge, President Nursultan Nazarbayev said on Feb. 12. He set a growth target for this year of 6 percent to 7 percent, following a 6 percent expansion in 2013, according to his annual address to the nation on Jan. 17.

Coeli plans to start its frontier-equities fund on March 3, according to Bannan, who will co-manage it with Hans-Henrik Skov.

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