ORKEN Invest Managing Director Damir SEISEBAYEV:
"RECENTLY I HAVE BEEN HEARING RUMORS ABOUT SPLIT-UP OF THE EUROZONE AND ABOUT THE END OF THE WORLD"
Russian President Dmitry MEDVEDEV told journalists a few days ago that he was concerned more about the global economy and, in particular, the crisis of the Eurozone than by the unrests in Kazakhstan. In his opinion, the situation in the global markets has Уa much more powerful effect on our countries, our domestic economies and our people.Damir SEISEBAYEV, the managing director of JSC ORKEN Invest, told Interfax-Kazakhstan how the Kazakh economy responds to the crisis that is shaking the West and shared his ideas as to whether the Eurozone will split up and what drastic events may happen in the world in 2012.
- Many experts think that the crises in Europe will last for another six months or even longer. What do you think?
- Unfortunately, some of the economic indicators do suggest that the Eurozone may once again go into a recession. In October the industrial output in the Eurozone declined by 0.1% after a 2% fall in September. The purchasing managers index (PMI) has been below 50 for over four months, which demonstrates a slowdown in the business activities. The consumer confidence index has reached its lowest level since August 2009. The Italian economy shrank 0.2% in the 3rd quarter as compared to the previous three months, which means that the country is probably already in recession?
A soft and short recession may hit the Eurozone early next year. It is almost impossible to predict all future political decisions but those that have already been taken are quite crucial and aimed at preventing the debt crisis from spreading. The European leaders made a number of very important decisions at their last summit in Brussels, including the strengthening of fiscal discipline. The summit also agreed to provide an extra 150 billion euro to the IMF through bilateral loans. A few days ago the European Central Bank allotted 489.2 billion euro in the first of two three-year refinancing operations at 1%, thus reducing the risk of a liquidity-driven banking crisis in Europe.
- Do you think this will suffice to overcome the crisis?
- No. The European countries should be able to support the long-term growth in order to resolve the situation. They will need to stabilize the debt-to-GDP ratio, which is currently at 85.3%, or 60% above the level that was set by the Maastricht Agreement. In my opinion, the European crisis will not lead to a global recession, which means that the global economy will continue to grow in 2012, though at a slower rate than in 2011. I agree with some of the economists that say that the European crisis will peak in the middle of the next year.
- How will the Eurozone crisis, if it lasts longer, affect KazakhstanТs economy?
- It will adversely affect not only the financial markets but will slow down the growth of the global economy, which may lead to a global financial crisis. The demand for exports will decline, which will hit the Chinese economy because the Eurozone is the largest market for Chinese producers. The commodity prices will fall and, consequently, the economies that export raw materials will face problems. Of course, such a scenario will have a negative impact on the Kazakh economy, slowing down its growth. In the worst case scenario Kazakhstan will encounter a balance of payments deficit, the foreign investments will leave the country and the national currency may have to be devaluated. However, I think that this scenario is unlikely. Kazakhstan is well prepared for a crisis: our international reserves have reached $75 billion and the debts of the banking system have been reduced. If there is a global financial crisis, similar to the previous one, Kazakhstan will be able to withstand it.
- Do you think the collapse of the Eurozone is inevitable? If yes, what advice would you give to the investors.
- There have recently been rumors about split-up of the Eurozone. Moreover, some people take seriously the Mayan prophecy about the end of the world... If seriously, the risks do exist. I mean the collapse of the Eurozone, of course. This would be the worst-case scenario, when all European countries would have to come back to their national currencies. Of course, the collapse of the Eurozone would benefit such peripheral countries as Greece, which could devalue its national currency in order to raise the competitiveness of its economy. However, this could only be possible through default, which would make borrowing impossible. Besides, the split-up of the Eurozone would be disadvantageous to the European biggest economies, Germany and France: their national currency would become too strong, exports fall and their economic indicators worsen. The markets would have lots of difficulties. The collapse of the Eurozone would lead to the worldТs worst recession and, of course, would not help the European countries to solve their problems. I think everything will be done not to let it happen. What else can you recommend in this scenario? Only to return to the natural economy.
- Let us go back to the market economy ... Lately, KazakhstanТs assets have been becoming less popular with the local investors. Why? Will long-term investments in the Kazakh assets be profitable next year?
- Lack of financial instruments and low liquidity in the conditions of economic instability are the main problems that have made the market less attractive. Perhaps, only Eurobonds are still in demand. As far as KazakhstanТs stock market is concerned, the shares of Kazakh issuers, no matter how promising they are in terms of potential growth in their price, are not attractive, in my opinion, because the basic indicators do not influence the share prices as the global stock markets are volatile Ц the liquidity of shares is low and, consequently, the risks are high. Hopes are pinned on the УpeopleТsФ IPO, but I am convinced that this is not a panacea, because it will not resolve the fundamental problems.
- How can the fundamental problems be resolved?
- The Eurasian Economic Union is supposed to come into existence starting January 1, 2015. If alone, we are unable to overcome the problems arising from the lack of financial instruments and investors, so why shouldnТt we create a common stock exchange with the other countries participating in the Eurasian Union? In the future the issuers could float their shares on this stock exchange but not in London or Hong Kong. This would stimulate the interest of the foreign investors and our pension accumulation funds could purchase Russian securities.
- What investment instruments do you think will be most popular next year?
- The U.S. stock market is currently most attractive in terms of investments. Their issuers are strong enough, they have lived through more than one crisis. It is noteworthy that the price dynamics can be explained with the basic factors. If globally, the funds are flowing from the developing economies to the U.S. stock market. The economic experts do not think that the U.S. economy will go into recession. In my opinion, the most attractive shares are those issued by the food producers and utility services providers. Their prices are not influenced b y the European crisis. For instance, the prices for McDonalds shares have been growing for years. There are a lot of attractive shares in this sector that have a high issuer credit rating and that could be very attractive for pension organizations. The shares of gold producers and alternative energy companies would only become attractive in case of an armed conflict in Iran.
- Do you think the situation in the Middle East will escalate? How can this affect the oil prices?
- The situation is worsening: the UN Security Council imposed sanctions on Iran over nuclear fears. I think that an armed conflict in Iran is quite possible, involving the U.S. and Israel. Some experts reckon it may happen in the middle of 2012. I would not like to jump at conclusions but the situation looks quite serious. In the event of hostilities, the oil prices could rise to $140-150, thus posing greater risks to the global economy.
- Thank for the interview!
й 2011 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited
© 2018 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited