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ECONOMICS
Investment strategies in the developed and emerging markets Alibayeva A.1, Intykbayeva S.2 (Republic of Kazakhstan) Инвестиционные стратегии на развитых и развивающихся рынках Алибаева А. Д.1, Интыкбаева С. Ж.2 (Республика Казахстан)
'Алибаева Адина Досановна / Alibayeva Adina — главный менеджер, магистр экономики, АО «Самрук-Энерго», г. Астана;
2Интыкбаева Сауле Жумановна /Intykbayeva Saule — доктор экономических наук, профессор, Университет Нархоз, г. ААлматы, Республика Казахстан
Abstract: this article presents the results of a comparative analysis of the two portfolios of shares in companies, namely Kazakh and British, to compare the performance of investment portfolios and on this basis, attractiveness of the Kazakhstan stock market is assessed.
Аннотация: в предлагаемой статье представлены результаты проведенного сравнительного анализа двух портфелей акций компаний, a именно казахстанских и британских, с целью сравнения характеристик инвестиционных портфелей, и на этой основе дана оценка привлекательности казахстанского рынка акций.
Keywords: investments, stocks, bonds, portfolio investment, earnings per share, developed, developing, border funds and dispersion.
Ключевые слова: инвестиции, акции, облигации, портфельное инвестирование, доходность акции, развитые, развивающиеся, пограничные фонды и дисперсия.
Exchange provides savings transfer of economy subject's in the investment, bypassing the mediation of commercial banks. Through contribution in securities, the investor directly invests in the development of the enterprise.
Most investors, who are more or less inclined to risk, investing their financial resources in securities. As for other economic subjects, preferring to save their money, place them in commercial banks. Involving a wide range of investors allows to share the risks and is an indicator of economic status as a separate country, and the world economy as a whole [1].
The main objective of the investment portfolio is to improve investment conditions, giving the aggregate investment characteristics of the securities, which are unattainable with the position of one of the security taken, and are only possible when an appropriate combination. For this purpose the investment in different assets to reduce risks. In current practice, there are two types of income from the investment portfolio, due to the growth of the market value (buy price-sale price) and current payments in the form of dividends. This growth reflects the market value of the portfolio securities, and income portfolio - payments on securities (dividends / coupons).
Used by companies active strategies involve search tools and undervalued part of the restructuring the portfolio in accordance with the market situation changes. Passive strategies require a minimum of information and, consequently, low cost. The simplest strategy of this type is «buy and hold-to-maturity or certain time». Among the most popular strategies being developed include indexing.
As it is known, the stock market is an organized market of securities which are traded stocks and bonds of private companies, public debt, bills of exchange, currency and precious metals.
In world practice, there are three types of stock markets: developed, emerging and frontier. The countries with developed stock markets are USA, UK, Japan, Germany, etc [2]. Emerging markets are Russia, China, Brazil and others. Kazakhstan is the third type and the country of frontier market.
The main difference between emerging markets from developed is size of capitalization. Capitalization of emerging markets is not high than 3 % degree of total capitalization of 26 countries index [3].
On Kazakhstan Stock Exchange (KASE) listing about 70 issuers and market capitalization is $36.5 billion (30.12.2015), while on the London Stock Exchange (LSE) traded securities of over 3,000 issuers (FTSE -100 Index) and market capitalization in September 2015 was $6 trillion.
This article presents the results of a comparative analysis of the two portfolios of shares in Kazakh and British companies, to compare the performance of investment portfolios and on this basis to assess the attractiveness of the Kazakhstan stock market. In an analysis of a number of leading companies was selected for the Kazakhstan portfolio, the shares of which belong to the JSC "National Welfare Fund «Samruk-Kazyna» (see Table 1).
Company Share of JSC "NWF «Samruk-Kazyna» %
JSC «Kazkommertsbank» 9,46
JSC «Kazakhtelecom» 45,90
JSC «KazTransOil» 90 *
JSC «Mangistau Distribution Power Grid» 78,64**
JSC «EP «KazMunaiGas» 57 9***
Source: KASE data
* 90 % stocks of the JSC «KazTransOil» belong to the JSC «NC» KazMunayGas», whose shareholder is the JSC
«National Welfare Fund «Samruk-Kazyna».
** 78.64 % stocks of the JSC «MDPG» belong to the JSC «Samruk-Energo», whose shareholder is the JSC «National Welfare Fund «Samruk-Kazyna».
*** 57.9 % stocks of the JSC «EP «KazMunayGas» belong to the JSC «NC «KazMunayGaz», whose shareholder is the JSC «National Welfare Fund «Samruk-Kazyna».
Kazakhstan Stock Exchange valued at KASE index, which is weighted by market capitalization Composite index, calculated on the transaction price concluded with the most liquid company shares from KASE official list: BankCenterCredit (BCC), Kazkommertsbank (KKB), KazTransOil (KTO), Kazakhtelecom (KT), Kcell, EP KMG, KazMinerals, Halyk Savings Bank of Kazakhstan, KEGOC.
In this paper, the choice of the Kazakhstan portfolio, we have the following risk assessment used: the standard deviation and variance, and to determine the optimal portfolio structure - a method of maximizing the Sharpe ratio.
Table 2. The weighted average of stock sampling tenge
Year KKB CT CTO MDPG EP KMG KASE index
2009 665 17300 830.33 1760 22400 1768.26
2010 442 18800 830.33 1100 17700 1718.09
2011 219.35 20116 830.33 1350 13500 1105.58
2012 150 13500 827 1730 16000 969.7
2013 140.39 14650 914 2100 13950 918.01
2014 410 9601 750 2100 14050 941.86
Source: data Bloomberg
The following formula is used to calculate stock return:
R = (K2-K1 + DD) / K1, (1)
Where R-return (yield),
K1 - stock price for first year,
K2 - stock price for second year,
D - dividend per year.
Table 3. Dividends of sample stocks tenge
KKB CT CTO MDPG EP KMG
2010 0 528.73 558.42 30.9 800
2011 0 1328 173.33 41.44 1300
2012 0 187201 75 124.36 1619
2013 0 2603.92 109 213 1976
2014 0 0 121 0 2300
Source: data Bloomberg
1 Kazakhtelecom has paid the highest dividends in 2012 due to distribution profit from sale «Kcell» between holders.
2 Kazahtelekom has paid special dividend in 2013 by selling all net profit for first half year of 2013 in size 10.685
billion tenge and retained profits of last years - 18 billion tenge. Total sum of dividend is 28.7 billion tenge.
Kazakhtelecom has no plans to pay dividends for 2014, and will plan to reinvest retaines profit. Kazkommertsbank will not pay dividends on common stocks. Dividend of JSC «KazTransOil» is predicted
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increase trend despite of felling price of stocks to 733 tenge (According to the beginning of March, 2015). In this case, net profit of JSC «KazTransOil» in 2014 is 57.7 billion tenge (this rate is increased by 11 %, comparing in 2013), or KZT 150 per stock.
EP KMG adheres positively dividend history and dividend per stock is increased every year. Moreover, last profit in 2013 was 142 billion tenge, but profit of EP KMG will be 260 billion tenge (or about 3714 tenge per stock). Reason is devaluation because company take income in USD.
Using the above formula for calculating return, we will take following data presented in table 4.
Table 4. Return of sample stock companies,
KKB CT CTO MDPG EP KMG KASE
2010 -34 12 67 -36 -17 -3
2011 -50 14 21 26 -16 -36
2012 -32 60 9 37 31 -12
2013 -6 28 24 34 0 -5
2014 192 -34 -5 0 17 3
Source: Calculated by the author based on Bloomberg data
We can calculate the average return of each stock, variance and standard deviation. The variance - rate, which is used to assess the random variable with respect to its mathematical expectation. It should be noted that the variance is a measure of capital risks with investment to one stock or stock portfolio at the same time with variation and standard deviation. If we have the higher the variance or variation of an asset or portfolio return than expected return, risk level will be high. On the contrary, low values of this ratio shows that investment risk is low [4].
Standard deviation, being the indicator of variability is determined by taking the square root of the variance. In normal distribution about 68 % value are within one standard deviation from the mean value and about 95 % value are within two standard deviation from the mean value.
Table 5. Basic statistical sampling performance of shares in companies,
KKB CT CTO MDPG EP KMG KASE
Average value 14 16 23 12 3 -11
Variance 102 12 7 9 4 2
Standard deviation 101 34 27 31 21 15
Source: Calculated by the author based on Bloomberg data
From the above calculations the least risky securities is stock of EP KMG with standard deviation 21 %, except index KASE.
To determine the optimal portfolio in the practice of using several approaches:
- maximization Sharpe ratio;
- minimization risk;
- maximization income.
Sharpe ratio represents the average return, whish is obtained over risk-free rate per one volatility unit. High coefficient shows valuable securities with high return and the same time with low volatility.
Calculation formula:
(Expected return - risk-free rate) / standard deviation.
Risk-free rate - the interest income rate of investment with zero risk. Generally for determining the risk-free rate are used the rate of government securities as the lowest risky securities [5].
In this case we used the rate of 10-year Eurobond of Ministry finance of Kazakhstan - 3.875 %.
On the basis of the following data to calculate the effective portfolio with different ratios of shares in it and the different methods of evaluation.
Table 6. The structure of the investment portfolio with the highest Sharpe ratio,
KKB CT CTO MDPG EP KMG
Weight 9 0 51 34 6
Return 14 16 23 12 3
Source: Calculated by the author based on Bloomberg data
Thus, we obtain a portfolio with the following indicators: the Sharpe ratio -2.02; return - 17.4 %; the standard deviation of - 6.7 %.
KKB CT CTO MDPG EP KMG
Weight 9 0 49 32 10
Return 14 16 23 12 3
Source: Calculated by the author based on Bloomberg data
Hence, in terms of investment, is the most attractive portfolio is with following indicators: coefficient the Sharpe ratio -1.98; return - 16.8 %; standard deviation - 6.5 %.
Table 8. The structure of the portfolio with the highest income
KKB CT CTO MDPG EP KMG
Weight 0 0 100 0 0
Return 14 16 23 12 3
Source: Calculated by the author based on Bloomberg data
We obtain a portfolio with the following investment indicators: the Sharpe ratio - 0.35; return - 23.15 %; the standard deviation - 54 %.
The analysis shows that despite the relatively high cost variability makes sense to include stock Kazakhtelekom in connection with their dividend policy. In 2012 company paid 18720 tenge and it was the highest payment of dividend. This practice suggests that company attracts and holds investors while company supports stock price in the market.
Table 9. Portfolio structure with an investment of JSC «Kazakhtelecom», 0%
KKB CT CTO MDPG EP KMG
Weight 11 5 50 33 1
Return 14 16 23 12 3
Source: Calculated by the author based on Bloomberg data
Investment portfolio characteristics: the Sharpe ratio - 2.0; return - 18 %; standard deviation - 7 %
Table 10. The structure of the portfolio with investments in risk-free asset, %
KKB CT CTO MDPG EP KMG risk-free asset
Weight 8 0 45 31 6 10
Return 14 16 23 12 3 3,88
Source: Calculated by the author based on Bloomberg data
Investment portfolio characteristics: Sharpe ratio - 2.02; return - 16 %; standard deviation - 6 %.
As we can see, according to the Kazakh participants, a portfolio with a risk-free asset figure out the minimum standard deviation. As s result, this portfolio has the lowest risk and return at 16 %.
In order to conduct a comparative analysis in the British portfolio chosen companies from the list FTSE 100: oil and gas, energetic, banking, telecommunication and mining industry. For comparison, the companies are selected from the list of the FTSE 100, listing on the LSE.
In the banking sector, HSBC is selected, which compared to Lloyds and RBS has the most optimal balance between profitability and risk. From oil industry RDS Company (Royal Dutch Shell) is selected, from the mining sector the Mexican company Fresnilo is selected, and British telecommunications company (British Telecom) and SSE (British energy company) are selected [6].
As selection criteria were the following indicators: standard deviation, which reflects how risky an investment in this stock; beta coefficient, which assesses market risk and shows volatility of securities yield relative to the market; Sharpe ratio, which shows the average return, taking over free-risk.
Tullow Oil RDS BP
Average value -16 % 8 % -2 %
Variance 4,8 % 0,8 % 1,9 %
Standard deviation 22,0 % 8,9 % 14,0 %
Beta -0,415 -0,110 0,542
Free-rate 1,80 % - -
TreynorIndex 0,432 -0,590 -0,075
Sharpe ratio -0,818 0,734 -0,289
Source: Calculated by the author based on Bloomberg data
It is clear that the RDS has a positive average value of return unlike from Tullow Oil and British Petroleum, also it has the best positive Sharpe ratio. A negative beta shows that portfolio return and market return are different. It is good for diversification. On the basis of the following portfolio was formed by the above factors:
Table 12. The investment portfolio of UK companies (penny)
RDS HSBC Fresnillo BT SSE
2010 2138.5 651.1 1668 180.8 1225
2011 2371 491.05 1527 190.9 1291
2012 2122 646.9 1847 231.1 1418
2013 2163 662.4 745.5 379.4 1370
2014 2153.5 608.6 766 401.5 1622
Source: Calculated by the author based on LSE data
On the basis of the data presented in Table 7, calculations in terms of return and risk generated by the portfolio were made, the selected companies, as reflected in the below table 8.
Table 13. Return of formed portfolio, %
RDS HSBC Fresnilo BT SSE
2010 19 -5 117 37 11
2011 16 -19 -4 10 12
2012 -6 39 23 26 17
2013 7 9 -58 69 5
2014 5 -4 3 9 25
Source: Calculated by the author based on Bloomberg data
These data indicate that the rate of return of British companies portfolio is characterized by its instability, significant fluctuations both in companies as well as time period and only two of them - Britishtelekom and SSE have positive trends in the analyzed period.
Table 14. Main risk indicators of formed portfolio, %
RDS HSBC Fresnillo BT SSE FTSE 100
Average value 8 4 16 30 14 4
Variance 0.8 3.7 32.5 4.8 0.4 0.5
Standard deviation 8.9 19.4 57 22 6.6 7.4
Source: Calculated by the author based on Bloomberg data
The analysis confirms that from the submitted portfolio, the least risky stock is stock of SSE, which has the lowest rate of standard deviation - 6.6 %.
Next, we consider what will structure of portfolio with different ratios of Sharpe factor, risk rate and high return.
If we have as a criterion - maximization of the Sharpe ratio, structure of portfolio will be show as follows:
Table 15. Portfolio with the maximum Sharpe ratio index, %
RDS HSBC Fresnilo BT SSE
Weight 28 7 0 12 53
Return 8 4 16 30 14
Source: Calculated by the author based on Bloomberg data
On the basis of the calculations, the following portfolio characteristics: the Sharpe ratio - 6.8; return -13.74 %; standard deviation - 1.7 %
Table 16. The portfolio structure with the minimum risk,
RDS HSBC Fresnilo BT SSE
Weight 39 % 13 % 0 % 7 % 41 %
Return 8 % 4 % 16 % 30 % 14 %
Source: Calculated by the author based on Bloomberg data
In the case of minimizing the risk of the following parameters are added for the portfolio: coefficient of Sharpe - 6.15; return - 11.56 %; standard deviation - 1.6 %.
Table 17. Portfolio with maximum return,
RDS HSBC Fresnilo BT SSE
Weight 0 0 0 100 0
Return 8 4 16 30 14
Source: Calculated by the author based on Bloomberg data
With a maximum return of British companies analyzed portfolio Sharpe ratio is equal to 1.3; return - 30.24 %; standard deviation - 22 %.
Table 18. Portfolio with a minimum investment limit of 5,
RDS HSBC Fresnilo BT SSE
Weight 10 5 5 20 60
Return 8 4 16 30 14
Source: Calculated by the author based on Bloomberg data
In this case, Sharpe ratio - 3.7; return - 16.3 %; standard deviation - 3.9 %.
Table 19. The structure of the portfolio with the risk-free asset,
RDS HSBC Fresnilo BT SSE risk-free asset
Weight 7 5 5 19 54 10
Return 8 4 16 30 14 1,8
Source: Calculated by the author based on Bloomberg data
With the risk-free asset the sustainability of the investment portfolio increases, Sharpe ratio is 3.47; return - 15.08 %, and standard deviation - 3.8 %, indicating a low risk in comparison with the others.
Comparing the investment portfolios of similar industry of Kazakhstan and British companies in terms of profitability, the standard deviation and Sharpe ratio can draw the following conclusions.
Kazakhstan | British
Maximizing Sharpe ratio
Sharpe ratio - 2,02 Return - 17,4 % Standard deviation - 6,7 % Sharpe ratio - 6,8 Return - 13,74 % Standard deviation - 1,7 %
Minimizing risk.
Sharpe ratio - 1,98 Return - 16,8 % Standard deviation - 6,5 % Sharpe ratio - 6,15 Return - 11,56 % Standard deviation - 1,6 %
Maximizing profitability
Sharpe ratio - 0,35 Return - 23,15 % Standard deviation - 54 % fflapna - 1,3 Return - 30,24 % Standard deviation - 22 %
The minimum investment of 5 %.
Sharpe ratio - 2,0 Return - 18 % Standard deviation - 7 % Sharpe ratio - 3,7 Return - 16,3 % Standard deviation - 3,9 %
Inclusion of risk-free asset in the portfolio.
Sharpe ratio - 2,02 Return - 16 % Standard deviation - 6 % Sharpe ratio - 3,47 Return - 15,08 % Standard deviation - 3,8 %
Source: compiled by the author
If we compare the portfolios for each approach, British portfolio will show the best ratios. For instance, in case of maximizing the Sharpe ratio, British portfolio is 6.8, verily in time Kazakh portfolio is 2.02. Results of the analysis confirmed that British portfolio is more effective in comparison with Kazakhstan. When we include the risk-free asset in the portfolio to reduce risk and standard deviation of British portfolio is low than Kazakhstan portfolio, 3.8 % and 6 %, respectively.
According to the riskiness of the portfolio Kazakh portfolio is more risky, but implies higher return than British. For example, while minimizing risk, portfolio return of Kazakh portfolio is 16.8 %, and British portfolio is 11.56 %. In our opinion, the most optimal portfolio is a British portfolio with high Sharpe ratio, acceptable return at 13.7 % and low risk at 1.7 %.
The calculations lead to the following conclusions with regard to the investment attractiveness of the realities of the analyzed stock markets.
The Kazakhstan market is more sensitive to macroeconomic changes due to the presence on the market of a small number of investors and any change leads to a sharp change in investor behavior. Moreover, the economic situation is unstable in Kazakhstan in recent years, can serve as an example of the devaluation in 2014 and 2015. At the same time, there is no confidence in the current rate of tenge is expected to further fluctuations in the national currency, due to lower world oil prices. Significant influence devaluation had on the large Kazakhstan companies, which attracted funding in foreign currency. Financial sustainability of many companies faltered due to the devaluation, which in turn was aimed at supporting the industrial and oil sectors. However, against the background of low oil prices, the question remains whether the devaluation gave the desired result [7]?
Within the framework of monetary policy in Kazakhstan contradicts international practices pursued a policy of credit restriction in times of crisis, rather than the fact that a policy of cheap money. The rate of the National Bank of Kazakhstan is 16 %, while the base rate in the US is 0.25 %. Rise in price of money, reduced access to debt financing, lower oil prices and a general crisis on the world stage do not contribute to the strengthening of the Kazakh market [8].
Talking about the volatility of the market, it should be noted that unlike the Kazakhstan, the British market is less susceptible to sharp fluctuations.
7/100
6,500 1 TSE 100 Index
6,000
5,500
5,000 ........................ ■
Novia -1.70% 2011 +9.29% 2012 +10.52% 2013 -2.72% 2014 -6.56% 2015
Fig. 1. FTSE100 Index trend Source: LSE data
Of course, it is worth to take into consideration the number of issuers in Kazakhstan market compared with UK. Around 70 of issuers are located in our securities market, while the UK market in more than forty times. In addition, frontier markets are considered to be more stable and volatile in comparison with developed and developing markets. That is, if the shares of any of Kazakhstan companies are starting to rise or fall, the trend will be immediately reflected on KASE index. The index reflects the fluctuations of the market immediately, as because of the small number of issuers, it is sensitive to the slightest changes occurring in the economy and in the financial sector, in particular. For instance, expectations of devaluation of tenge at the end of 2014 and during 2015. panic brought on the market shares drop by 20 %. Company's stock of «KazTransOil» fell more than doubled from 1299 to 600 tenge. And this stock is the main indicator of the mood of the majority of private investors.
Under the circumstances of the global financial instability it is difficult to compare the stock markets of countries with different levels of economic development. The fast growing financial sector is increasing and an impact on the stock market, which has become more complicated in recent years. A large number of new instruments, hedging techniques and structuring of transactions are appeared, impact of globalization is increased, and a lot of information is available.
References
1. Essentials of Investments, Zvi Bodie, Alex Kane, Alan J. Marcus.Published by McGraw-Hill, 2008.
2. Sharp W., Alexander G., Bailey J. Investments, 1998.
3. The stock portfolio. Book issuer, investor, shareholder. / Ed. A. V. Petrakov, 2007.
4. CFA Institute, Corporate Finance and Portfolio Management, 2013.
5. [Electronic resource]: There is almost no any the stock market in Kazakhstan. Access mode: www.forbes.kz.
6. [Electronic resource]: What would happen to Kazakhstan companies shares in the event of devaluation of tenge». Access mode: www.forbes.kz.
7. Kasimov Yu. F. Introduction to the theory of optimal portfolio of securities. M.: «Ankil», 2011.
