One of the final hurdles for investors in the nascent Uzbek stock market was overcome earlier this week when Tashkent broker Avesta Investment Group traded shares for a foreign investor and repatriated the proceeds.

Previously, it was impossible for portfolio investors to get money out of the country. Capital controls made trading in the local stock market uninteresting for foreign investors. To improve the investment climate changes were lately made to relevant law, and since March 2 repatriation has been possible when it comes to shares, bonds, other types of securities and private equity.

The successful test trade was done for frontier markets investor Asia Frontier Capital (AFC) which has had exposure to Uzbek stocks via its AFC Asia Frontier Fund since August 2018, and will launch a dedicated Uzbekistan fund at the end of March.

Through broker Avesta, AFC converted USD into UZS (Uzbekistani som), bought shares in UZS, sold the shares in UZS with a profit, and received the payment in USD in a bank account in Hong Kong.

Interest heating up
Interest in Uzbekistan from financial market investors is heating up, helped by the country's successful first sovereign bond issuance last month. Frontier markets-focused investment banks Renaissance Capital and VTB Capital published research reports on Uzbekistan recently. And London-based Sturgeon Capital organised an investor trip in February that was well attended.

Fund manager and founder of AFC Thomas Hugger said interest in the new-law fund is strong. “We receive inquiries from investors about our AFC Uzbekistan Fund every day,” he said on a call from Hong Kong, where the fund is based. With the assistance of Avesta they are organising their own trip for portfolio investors early May. Hugger added that he got an excellent response and cannot accept more participants.

Karen Srapionov of Avesta agreed with Hugger’s take on things. “We see interest from a number of investors for whom the repatriation issue was the main problem and they are now considering investments in Uzbekistan,” he said from Tashkent. He added that clients that had positions from 2006 were now checking for exit opportunities.

One last handicap is the limit on buying shares in banks, for which a central bank approval procedure is still in place. It is hoped these limits will also be eliminated this year.

Srapionov explained that for the time being if an investor wants to invest a substantial sum in a bank he can get a central bank approval if he gets support from the selling bank. As the banking sector represents a large part of the market cap on the local stock exchange and banking stocks are, relatively speaking, the most liquid stocks, a development there would be most welcome.