I am an investor from Singapore and I love the work you are doing. Thank you. Regarding Kaspi, I am also on the fence. But to your point on what happens to Kaspi if all sanctions are lifted and that russian deposits flow out, Kaspi has put out a statement(you must have seen this) that only a small percentage of deposits are foreign.
Only 2.8% of our customer account balances come from non-residents of
Kazakhstan
As of 2Q2024 only 2.8% of our total customer accounts were held by non-residents.
Only 4.5% of our total customer accounts growth has come from non-residents between the
start of 2022 and end of the first half 2024.
Non-residents are all foreign nationals without a Kazakh permanent residence permit.
Only 0.3% of our Marketplace GMV comes from purchases by non-residents
Merchants connected to our marketplace must have a legally registered business entity in
Kazakhstan. Our ability to identify consumers and merchants distinguishes us from most
major marketplace businesses around the world. Both a consumer and a merchant have
bank accounts with us. When a marketplace transaction happens the flow of money is from
a consumer’s bank account with us to a merchant’s bank account with us.
During the first half of 2024, only 0.3% of our Marketplace Gross Merchandise Value (GMV)
came from purchases by non-residents. We deliver orders only within Kazakhstan.
My concern is the depreciation of the Kazakh currency relative to the USD as this could cause reported numbers in USD to decrease. This can only be counteracted with growth and an enormous amount of growth similar to what Meli did in Latin America.
Currency risk always exists when investing cross border. Since Kazakhstan is resource rich, that ought to underpin the currency to an extent. Additionally, while the USD has been very strong in recent years, Trumpian economics is damaging the economy, it will be inflationary and in the first quarter of this year, the USD has weakened against major currencies.
In any event, currency risk can be hedged.
In relation to the statement put out by Kaspi, one needs to be careful about statistics. They can be framed to meet whatever needs you may have. Playing devil's advocate, imagine I collected $1 in deposits from 99 Kazak nationals and $100 from 1 Russian. I could say that only 1% of my customer accounts are Russian, but that would hide the fact that more than 50% of my deposits are Russian.
I'm not saying this is the case, but Russian deposits will be far larger than those held by people in Kazakhstan.
The other thing that stopped me investing in Kaspi is that I reached out to their IR people on several occasions with a small number of legitimate questions. I chased them but they have never responded. Not even an acknowledgement. I don't like that. If a company refuses to engage with investors, I don't want to be an investor in that company.
It doesn't make it a bad investment, but in terms of opportunity cost, there are better/safer homes for the money I manage. It is all about risk adjusted returns and I just haven't been able to get comfortable with Kaspi on that basis so far.
Curious you don't have a position James, especially given how this company seems to exhibit many of the golden threads you speak of in your book which I loved fabrics of success. I have heard your opinions on most everything related to investing except portfolio concentration and construction given you don't own Kaspi and I haven't had the pleasure of hearing from you on these fronts
Calvin, Thank you for your question. I am actually writing a piece on portfolio concentration at the moment which will be published in the next month, so look out for that.
In relation to Kaspi, I have a few unanswered questions which I have fired across to their IR team and chased once, but not had any response back. This is something I don't like.
- I asked them whether their government services earns them any revenue, or whether it is purely a means of attracting users to the platform in the hope that they will engage in revenue generating activities (shopping, banking, etc.)
- I asked about the move into Turkey. The company that they have acquired appears to be purely an e-commerce and grocery business, so I asked if they intended to replicate the 'super-app' model in Turkey by introducing banking, government services, etc.
My thinking is that if they want to replicate their success in Turkey, they need the same model... but Kazakhstan started with finance and banking, while Turkey is starting with ecommerce. There is also the legal and regulatory situation to deal with in Turkey if they want to offer finance and banking services for example, which could be problematic.
These questions are legitimate and should be easy to answer. But so far I have had nothing back.
There are also the allegations made in the Culper Research report which introduce an element of uncertainty into the equation. There is no doubt that Kaspi would have been a beneficiary of Russian flows of cash caused by sanctions on Russia. So Kaspi bank has seen boom times in terms of deposit growth and corresponding NIM earnings. But what happens if the Ukraine war is drawn to an end and all sanctions are lifted? Will that money flow out of Kaspi? If so, what will be the impact to the business?
As you correctly say, at the moment it is in the 'too hard' pile.
Munger used to say that investing is all about opportunity cost, so the question for me is whether it makes sense for me to reallocate capital from the great investments I already hold and move it to Kaspi. Currently it doesn't, but that doesn't mean that it isn't a good investment for someone else to make and perhaps in time I may regret missing this opportunity. Such is the life of an investor! I hope that this answers your question.
Above and beyond as always! Looking forward to that piece on concentration. I agree the questions you asked to IR do seem pretty prominent and not that hard to answer. I love how you tied in opportunity cost, always something that needs to be considered. Cheers James hope you have a great day
Hi James,
I came across your (excellent) article - quite intriguing company I was not yet familiar with.
Have you received some answers from their IR team yet?
Unfortunately not. I chased at least three times and received nothing but radio silence.
I've given up.
There are plenty more fish in the sea.
Dear James,
I am an investor from Singapore and I love the work you are doing. Thank you. Regarding Kaspi, I am also on the fence. But to your point on what happens to Kaspi if all sanctions are lifted and that russian deposits flow out, Kaspi has put out a statement(you must have seen this) that only a small percentage of deposits are foreign.
Only 2.8% of our customer account balances come from non-residents of
Kazakhstan
As of 2Q2024 only 2.8% of our total customer accounts were held by non-residents.
Only 4.5% of our total customer accounts growth has come from non-residents between the
start of 2022 and end of the first half 2024.
Non-residents are all foreign nationals without a Kazakh permanent residence permit.
Only 0.3% of our Marketplace GMV comes from purchases by non-residents
Merchants connected to our marketplace must have a legally registered business entity in
Kazakhstan. Our ability to identify consumers and merchants distinguishes us from most
major marketplace businesses around the world. Both a consumer and a merchant have
bank accounts with us. When a marketplace transaction happens the flow of money is from
a consumer’s bank account with us to a merchant’s bank account with us.
During the first half of 2024, only 0.3% of our Marketplace Gross Merchandise Value (GMV)
came from purchases by non-residents. We deliver orders only within Kazakhstan.
https://ir.kaspi.kz/media/Kaspi.kz_Responds_to_Investor_Questions.pdf
My concern is the depreciation of the Kazakh currency relative to the USD as this could cause reported numbers in USD to decrease. This can only be counteracted with growth and an enormous amount of growth similar to what Meli did in Latin America.
Thanks for everything James! Blessings, Kingsley
Thank you for your kind words.
Currency risk always exists when investing cross border. Since Kazakhstan is resource rich, that ought to underpin the currency to an extent. Additionally, while the USD has been very strong in recent years, Trumpian economics is damaging the economy, it will be inflationary and in the first quarter of this year, the USD has weakened against major currencies.
In any event, currency risk can be hedged.
In relation to the statement put out by Kaspi, one needs to be careful about statistics. They can be framed to meet whatever needs you may have. Playing devil's advocate, imagine I collected $1 in deposits from 99 Kazak nationals and $100 from 1 Russian. I could say that only 1% of my customer accounts are Russian, but that would hide the fact that more than 50% of my deposits are Russian.
I'm not saying this is the case, but Russian deposits will be far larger than those held by people in Kazakhstan.
The other thing that stopped me investing in Kaspi is that I reached out to their IR people on several occasions with a small number of legitimate questions. I chased them but they have never responded. Not even an acknowledgement. I don't like that. If a company refuses to engage with investors, I don't want to be an investor in that company.
It doesn't make it a bad investment, but in terms of opportunity cost, there are better/safer homes for the money I manage. It is all about risk adjusted returns and I just haven't been able to get comfortable with Kaspi on that basis so far.
I hope that helps.
Curious you don't have a position James, especially given how this company seems to exhibit many of the golden threads you speak of in your book which I loved fabrics of success. I have heard your opinions on most everything related to investing except portfolio concentration and construction given you don't own Kaspi and I haven't had the pleasure of hearing from you on these fronts
Calvin, Thank you for your question. I am actually writing a piece on portfolio concentration at the moment which will be published in the next month, so look out for that.
In relation to Kaspi, I have a few unanswered questions which I have fired across to their IR team and chased once, but not had any response back. This is something I don't like.
- I asked them whether their government services earns them any revenue, or whether it is purely a means of attracting users to the platform in the hope that they will engage in revenue generating activities (shopping, banking, etc.)
- I asked about the move into Turkey. The company that they have acquired appears to be purely an e-commerce and grocery business, so I asked if they intended to replicate the 'super-app' model in Turkey by introducing banking, government services, etc.
My thinking is that if they want to replicate their success in Turkey, they need the same model... but Kazakhstan started with finance and banking, while Turkey is starting with ecommerce. There is also the legal and regulatory situation to deal with in Turkey if they want to offer finance and banking services for example, which could be problematic.
These questions are legitimate and should be easy to answer. But so far I have had nothing back.
There are also the allegations made in the Culper Research report which introduce an element of uncertainty into the equation. There is no doubt that Kaspi would have been a beneficiary of Russian flows of cash caused by sanctions on Russia. So Kaspi bank has seen boom times in terms of deposit growth and corresponding NIM earnings. But what happens if the Ukraine war is drawn to an end and all sanctions are lifted? Will that money flow out of Kaspi? If so, what will be the impact to the business?
As you correctly say, at the moment it is in the 'too hard' pile.
Munger used to say that investing is all about opportunity cost, so the question for me is whether it makes sense for me to reallocate capital from the great investments I already hold and move it to Kaspi. Currently it doesn't, but that doesn't mean that it isn't a good investment for someone else to make and perhaps in time I may regret missing this opportunity. Such is the life of an investor! I hope that this answers your question.
Above and beyond as always! Looking forward to that piece on concentration. I agree the questions you asked to IR do seem pretty prominent and not that hard to answer. I love how you tied in opportunity cost, always something that needs to be considered. Cheers James hope you have a great day
use of the handy Buffett too hard pile?