Personal Financial Tips

Yesterday a family friend came to me for advice. He said everyone around him was discussing a possible devaluation of the tenge, and he asked what he should do and how best to protect his savings.

First, I immediately dismissed the devaluation scenario. I explained that, yes, tenge volatility has indeed become the norm lately, but volatility in itself is not a cause of devaluation. In Kazakhstan, exchange-rate swings are driven more by the regulatory environment than by macroeconomic fundamentals. What is more, with the right approach one can take advantage of the current situation and earn from it, which is exactly what banks are doing first and foremost today.

Second, I made it clear from the start that I do not give universal recommendations on personal finance: how to hold money and what to invest in always depends on one's goals, time horizon and risk appetite. Nevertheless, given our realities, there are approaches that allow you to turn the current environment to your advantage. I decided to write about them for everyone: some will find this obvious, but for others it may prove genuinely useful.

1. My debit cards always have a zero tenge balance. I use them solely for transfers and cash withdrawals. At the same time, I have five credit cards with three banks, and I pay for all cashless purchases, whether at POS terminals or online, with those credit cards. One important point: I repay the debt in full by the 25th of the following month, so as not to pay interest to the banks. As a rule, using credit cards within this period costs the customer nothing.

The financial benefit is simple: I keep my own money on deposit, and so I earn on the very amounts that I spend. On average this comes to about 1.2% a month in deposit interest. On top of that, banks are now actively offering higher cashback, roughly 2–3% of the purchase amount. If, for example, you spend KZT 500 thousand a month on a card, interest and cashback add up to about KZT 20 thousand a month. Over a year, that is around KZT 240 thousand. In my view, this is a decent addition to the family budget.

2. The tenge is indeed overvalued at the moment. If you want to hold part of your funds in US dollars, now is one of the best times to buy. In the long term, the tenge will weaken anyway, since, in macroeconomic terms, its depreciation roughly matches the inflation differential, and our inflation is about 10% higher than in the US.

The high yields on our risk-free instruments, against the backdrop of a high base rate, have led to an inflow of funds into tenge assets and to sales of foreign currency. In addition, borrowing is increasingly done in foreign currency because of substantially lower rates. All this has led to the overvaluation of the tenge. It is not the best situation for producers, but it is one of the working tools for fighting inflation. In the medium term, however, as imports grow and exports decline (and Tengizchevroil has now been at a standstill for a second week and the CPC is operating at half capacity), the exchange rate will weaken. This is a basic economic law. That is exactly why now is a good time to buy US dollars.

3. If you have decided to buy dollars, keeping them in foreign-currency bank deposits is not the best option. It amounts to losing money. By capping rates on foreign-currency deposits at 1% and setting higher reserve requirements on foreign currency, the regulator has created conditions in which holding foreign currency in banks has become unprofitable for banks and customers alike. In this situation, it is more logical to turn to the stock market.

True, for many this is still unfamiliar in terms of customer experience, but Kazakhstan has enough brokerage companies that help reinvest foreign currency in instruments with deposit-like properties. The simplest and safest option is government foreign-currency bonds of developed countries. US Treasuries, for example, yield 3–4% a year. Eurobonds of our quasi-sovereign companies and of the Ministry of Finance yield around 4–5% a year.

In terms of risk, such instruments are often more reliable than a deposit in a Kazakh bank, while the yield is substantially higher. Liquidity is also high: these securities can be sold almost instantly, with only the standard time needed for settlement and withdrawal of funds from the exchange.