Beijing gathering regional support for China’s New Silk Road. They set aside over US$40 billion to build infrastructure projects which 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. As a result, an increasing amount of capital will go toward strengthening ties between Europe and the Asia Pacific region.

In addition to the New Silk Road, China raised capital for the Asian Development Bank which comprises 21 countries in Asia. China also started 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.

 

China's New Silk Road Will Boost Frontier Markets

A map of the two main trade routes: the Silk Road Land Route and the Silk Road Maritime Route.

 

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 will benefit because of transportation links through them.

Central Asia is the major focus for anyone wanting to invest in frontier markets. The region is the historical center of the Silk Road. Kyrgyzstan, Kazakhstan, Tajikistan, and Uzbekistan are particularly worth looking at because of their importance to the land route.

 

Kazakhstan

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’s still restrictions on foreign majority ownership for certain industries. Reports of unfair judicial rulings aren’t uncommon either.

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

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. The market is highly illiquid because of this. 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.

 

Tajikistan

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 nation’s stock exchange launched in July 2013, but not many details are clear yet. Trading on the exchange is not yet possible. As a result, opportunities for investment in Tajikistan, especially by foreigners, are few.

 

Uzbekistan

Uzbekistan is the largest nation in Central Asia with a population of over 30 million. Unfortunately, extreme amounts corruption and bureaucracy makes this country the least safe for foreign investors on this list. Steadily decreasing amounts of FDI are worrisome for Uzbekistan as well.

The Tashkent Stock Exchange (UZSE) has operated for over two decades and 135 companies are listed.

 

What About Investing in China Itself?

For those not wanting to invest in frontier markets, China will undoubtedly benefit too. China will raise the rest of the world along with it as the country bears the fruit of its many infrastructure projects. Efforts toward strengthening international relations should also lead to greater Chinese influence in the Asia-Pacific region.

Opening a brokerage account in Hong Kong might be the best solution for those wanting to invest in China. The Shanghai-Hong Hong Stock Connect came into effect in late 2014.

For the first time ever, foreign investors can now buy stocks in China without having to resort to ETFs.

About Liana Lie

Liana Lie has been an equity analyst in the greater China area for over 20 years. She is also a specialist in retail, office and residential, real estate in Hong Kong and Shanghai.

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