Kazakhstan is becoming a "pure China play," supporting the country's economic growth and bolstering the equity market as links increase with the world's fastest growing major economy, according to Troika Dialog.

"Kazakhstan is building major new oil, gas, rail and road links to China, and has a pipeline in place that will be capable of sending a quarter of its oil exports to China," Troika's Chief Strategist Kingsmill Bond wrote in a report to investors today. Closer ties will lead to more Chinese investment in Kazakh companies and listings in Hong Kong as early as this year, encouraging higher valuations for the central Asian nation's equity market.

Kazakh stocks are "cheap" compared with other emerging markets and companies stand to benefit from a pickup in demand for natural resources, according to Troika, Russia's oldest investment bank. Kazakhstan accounts for 3 percent of the world's raw materials, Troika said.

Emerging-market stocks rallied last year as the global economic recovery spurred gains in oil and metals prices, boosting earnings prospects for producers. Even after the 131 percent surge in Kazakhstan's KASE index in the past year, the gauge is valued at 10.8 times estimated earnings, according to data compiled by Bloomberg. That's less than the 13.4 multiple for the MSCI Emerging Markets Index of 22 developing countries.

Kazakhmys Plc, the country's largest copper producer, mining company Eurasian Natural Resources Corp. and gas producer KazMunaiGas Exploration Production trade at a discount of at least 25 percent to global peers in emerging markets, according to Troika. Halyk Savings Bank is valued at a 20 discount, the investment bank said.

"Kazakhstan is set to double oil production over the next decade" and increase output for other commodities, Troika said. "This should provide strong macroeconomic underpinning and a foundation for growth."

Jan. 19 (Bloomberg)


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