Kazakh tenge soars as foreigners pile into government debt

{"text":[[{"start":0.5,"text":"Kazakhstan’s tenge has become the best-performing currency in Europe and Asia this year, as international investors buy the Central Asian nation’s domestic debt despite recent Ukrainian drone attacks that disrupted oil exports through Russia."}],[{"start":1,"text":"The tenge has gained 9.7 per cent against the US dollar so far in 2026, surpassing all but a handful of Latin American and African currencies, as double-digit interest rates in Central Asia’s largest economy have drawn in foreign asset managers."}],[{"start":1.5,"text":"“It’s a really strong fundamental story . . . people want to diversify their portfolios,” said Jetro Siekkinen, head of emerging markets fixed income at LGT Capital Partners, noting that Kazakh bonds have become easier to buy and trade."}],[{"start":2,"text":"Kazakhstan’s currency has strengthened as foreign holdings of tenge-denominated government bonds have risen to $5bn, or just under a tenth of the total, as of June, compared with about $2bn a year ago."}],[{"start":2.5,"text":"Investors have also been drawn in by Kazakhstan’s high interest rates relative to many other economies, despite recent cuts. The central bank reduced its base rate to 16.75 per cent in July, the second cut in two months from a recent peak of 18 per cent, after annual inflation fell from about 13 per cent last September to about 10 per cent in June."}],[{"start":3,"text":"This month, Ukraine halted attacks on shipping at a Russian Black Sea terminal that is a major export gateway for the country’s oil, following a request from US vice-president JD Vance, Ukrainian officials told the FT."}],[{"start":3.5,"text":"The increasingly intense attacks caused chaos at the terminal in July, threatening the endpoint of a route that handles most of Kazakhstan’s oil exports."}],[{"start":4,"text":"While Kazakhstan’s currency is often seen as a beneficiary of higher oil prices, the tenge’s rise this year “is mostly related to capital flows rather than trade flows”, said Dmitry Dolgin, chief economist for Russia and CIS countries at ING."}],[{"start":null,"text":"

"}],[{"start":4.5,"text":"Inflows have accelerated since Kazakhstan set out plans in April to connect its domestic government bonds to Euroclear, the international clearing system, which makes it easier to trade securities."}],[{"start":8.44,"text":"“The most active inflows have been in recent months,” Dolgin said, as officials have made far more market information available and the central bank has kept rates much higher than inflation. “All of that is contributing to higher interest by foreign investors in the domestic market.”"}],[{"start":25.48,"text":"“We have seen quite a bit of pick-up this year” in foreign holdings of Kazakh bonds, Siekkinen said. “Euroclear access will most likely increase the attraction.”"}],[{"start":35.6,"text":"As an oil exporter with ties to the Russian economy, Kazakhstan is also seen by some investors as an energy-producing alternative to Russia, which became an international bond pariah after its 2022 invasion of Ukraine."}],[{"start":49.6,"text":"But Clemens Grafe, co-head of CEEMEA Economics at Goldman Sachs, said the country’s appeal to foreign capital was not as a play on oil prices."}],[{"start":58.48,"text":"“Most [Kazakh] oil is produced by foreign companies, so when the oil price goes up most of that extra oil income goes into these foreign oil companies or . . . into foreign assets held in the oil fund, rather than the Kazakh economy,” he said."}],[{"start":73.88,"text":"Kazakhstan also has an investment-grade credit rating, unlike countries such as Egypt and Nigeria whose currencies offer double-digit yields but put off investors who cannot hold junk-rated assets."}],[{"start":85.68,"text":"Kazakhstan is ultimately aiming for inclusion in a JPMorgan benchmark, known as the GBI-EM, that covers domestic currency bonds across big emerging markets."}],[{"start":95.32,"text":"The US bank is also working on an index just for frontier markets, where Kazakhstan’s bonds would make up 8 per cent if they were included, the central bank said in July."}],[{"start":105.08,"text":"Foreign direct investment, which rebounded to $6.3bn in the first quarter, has provided additional support for the currency. The government has looked to become a transit hub for goods moving from China to Europe as an alternative source of income other than oil."}],[{"start":119.6,"text":"“They’re putting a lot of money, and a lot of it foreign-funded, into transport infrastructure,” said Grafe."}],[{"start":125.64,"text":"“Kazakhstan is benefiting from China’s transit of goods into Europe,” said Ruchir Desai, a fund manager at Asia Frontier Capital who invests in the country’s equity markets."}],[{"start":135.24,"text":"China and the US are increasingly vying for influence in Kazakhstan. Desai said that Washington sees “China making investments in Kazakhstan and Uzbekistan. The US wants to have a foothold in the region.”"}],[{"start":148.42,"text":"In August, Kazakhstan signed a $10bn deal with Nvidia and Firebirds to build data centres in the country."}],[{"start":154.48,"text":"“They are landlocked between China and Russia. They don’t want to be beholden to either of them so they’re inviting more capital,” said Max Hopkins, a research analyst at Citic CLSA."}],[{"start":168.78,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787125536_3411.mp3"}