“There won’t be a radical cut in the share of National Oil Fund assets invested in U.S. debt,” Marchenko said during a Nov. 2 interview in Almaty, the nation’s financial capital. “In theory, the share could be cut to 35 percent from 40 percent, but this must be a considered, step-by-step decision.”
The fund, managed by the central bank, may gradually reduce holdings of U.S. and euro-member assets while increasing emerging-market investments to as much as 10 percent, Marchenko said. It should explore the possibility of buying the debt of highly rated countries such as Brazil and South Korea, he said.
Kazakhstan, which holds about 3 percent of the world’s oil reserves according to BP Plc, created the National Oil Fund in 2000 to guard against declines in the price of crude. Assets rose about 10 percent to 5 trillion tenge ($33.9 billion) in the first 10 months of this year as revenue from oil industry taxes overshadowed investment losses of 161.4 billion tenge, accounts posted on the Finance Ministry’s website show.
Marchenko said the fund holds 80 percent of its assets in bonds and 20 percent in stocks. Its benchmark portfolio for bonds comprises 40 percent U.S. Treasuries with maturities of one to five years, 35 percent Eurozone debt rated AA or AAA with maturities of one to 10 years, 10 percent each of 1- to 10-year U.K. gilts and Japanese bonds, and 5 percent 1- to 10-year Australian bonds, according to the central bank.
Chinese, Indian Securities
The fund sold its positions in Greek, Spanish and Portuguese sovereign bonds, though it didn’t suffer “particular losses,” Marchenko said.
“We closed them ourselves and alerted our external managers, who backed up the decision,” he said. “Certain managers proposed leaving only German, French and Scandinavian debt. We adopted an intermediate position and cut off the extremes.”
The fund may invest in Chinese and Indian securities, “but here the question of the convertibility of these currencies arises,” Marchenko said. “The trend is that we need to look more at developing markets in countries that aren’t as strongly tied to commodities production as we are.”
Marchenko said the central bank will look at the fund’s second-half results before making any strategic investment decisions after losses in the first half.
“Stock indexes rose 8 percent at best, while income from sovereign securities is close to zero,” he said. “But this isn’t a reason to move into new, high-income instruments, since risks are higher and we could potentially increase our losses. Our task is not to lose our heads and to make no abrupt moves.”
Kazakhstan used $10 billion from the oil fund in October 2008 to support domestic banks and companies after credit markets froze and the country’s property bubble burst. The government said in January the fund will spend $8 billion a year on industrial development.
The government plans to increase the fund’s assets to $90 billion by 2020, according to an order signed by President Nursultan Nazarbayev in April.