Beijing is in the process of gathering regional support for China’s New Silk Road Fund, and has set aside over US$40 billion for the construction of infrastructure projects that will connect Asia to Europe. The project is based off the original Silk Road, which stretched over 6000 kilometers from China to Europe and lasted for over a millennium.
Chinese Premier Xi Jinping is looking grow China’s presence on the world stage and a result, an increasing amount of money will go toward strengthening ties between Europe and the Asia Pacific region.
In addition to the New Silk Road, China has raised capital for the Asian Development Bank, which is composed of 21 countries in Asia, as well as the New Development Bank – a monetary fund made up of the five BRICS nations.
The idea of the Silk Road Economic Belt came to Xi Jinping while visiting four countries in Central Asia: Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan. Central Asia would be a main hub in a broader Silk Road economic belt stretching across Eurasia.
Who Will Gain Most From the New Silk Road?
Eighteen countries are listed as major parts of the Silk Road routes, but analysts say that more than 60 countries look to benefit because of transportation links through them.
For those wanting to in frontier markets, Central Asia will be the major focus. The region is the historical center of the Silk Road, and Kyrgyzstan, Kazakhstan, Tajikistan, and Uzbekistan are particularly worth looking at because of their importance to the land route.
Kazakhstan is the most developed of these four countries, and is also home to the Kazakhstan Stock Exchange (KASE). The KASE Index rose by over 10% in 2014 and has a market cap of just a bit less than US$25 billion.
The 2003 Law on Investments in Kazakhstan provides for “national treatment and non-discrimination for foreign investors”. However, there are still restrictions on foreign majority ownership for certain industries, and there are several reports of unfair judicial rulings.
The main KASE Index is comprised of 8 companies: 3 banks, 2 telecom companies, 2 oil & gas companies, and 1 mining company. The exchange has over 100 cbusinesses listed on it in total.
Kyrgyzstan is far less transparent and much more corrupt in comparison to neighboring Kazakhstan. The Kyrgyz Stock Exchange (KSE) currently has a market cap of just under US$160 million – therefore, the market is highly illiquid. With that said, the main index has almost doubled in 2014.
Recently, Foreign direct investment (FDI) into Kyrgyzstan has increased, but there are still major concerns about investing in the country. A full list of investments listed on the KSE can be found here. There are 15 stocks and 5 corporate bonds listed.
Tajikistan is the poorest of the four countries on this list, as well as the poorest country in all of Central Europe. Tajikistan’s Investment Law “guarantees the equality of foreign and local investors”, but laws are not enforced and corruption is rampant in practice.
The country registered a stock exchange in July 2013, but not many details have been released yet. It is not yet possible to trade on the exchange and opportunities for investment in Tajikistan, especially by foreigners, are few.
Uzbekistan is the largest nation in Central Asia with a population of over 30 million. Unfortunately, and as with most countries on this list, extreme amounts corruption and bureaucracy as well as steadily decreasing amounts of FDI has made this country the least safe for foreign investors on this list.
The Tashkent Stock Exchange (UZSE) has been in operation for over two decades and has 135 companies listed.
What About China Itself?
For those not wanting to invest in frontier markets, China will undoubtedly benefit too and is definitely worth investing in. China will raise the rest of the world up along with it as the country bears the fruit of its many infrastructure projects and efforts at strengthening international relations.
Opening a brokerage account in Hong Kong may be the best solution for those wanting to invest in China. The Shanghai-Hong Hong Stock Connect came into effect in late 2014 and for the first time ever, foreign individual investors can now buy stocks in China without having to resort to ETFs or companies listed in Hong Kong.