Tenge ETFs: Capturing Currency Appreciation in Kazakhstan's Macro Stability Play

Kazakhstan's National Bank of Kazakhstan (NBK) has embarked on a strategic overhaul of its monetary policy, using gold sales and bilateral currency swaps to stabilize the tenge and curb inflation. For investors, this presents a compelling opportunity to capitalize on currency appreciation through Tenge ETFs, such as the Deutsche Bank Tenge Forward Fund (DBVTF). Let's dissect the macro catalysts and why now is the time to position for tenge strength.

The Mirroring Mechanism: Gold Sales as an Inflation Hedge

The NBK's "mirroring mechanism" ties gold purchases from domestic miners to dollar sales on foreign exchange markets. By issuing tenge to buy locally mined gold and offsetting this with equivalent dollar sales, the NBK avoids expanding liquidity and reduces inflationary pressures. The $6.5–7.0 billion in forex sales projected for 2025 directly targets the central bank's 5% inflation target, currently at 11.3% but trending downward.

This mechanism not only stabilizes the tenge but also signals the NBK's commitment to fiscal discipline. Reduced forex injections post-2025 could create a liquidity shortage, driving appreciation as demand for the tenge outstrips supply.

The Turkish Lira-KZT Swap: A Catalyst for Tenge Demand

In April 2025, Kazakhstan and Turkey inked a $730 million bilateral currency swap, enabling direct trade settlements in local currencies. This reduces reliance on the US dollar, which has historically dominated Central Asian trade. For Kazakhstan:
- Trade diversification: Bilateral trade targets $10 billion, boosting demand for the tenge in Turkish-Kazakh transactions.
- Reserve diversification: Kazakhstan's holdings of Turkish lira (TRY) and Turkey's holdings of tenge reduce exposure to dollar volatility.

The swap's swap-financed trade facility ensures that Turkish importers of Kazakh goods (e.g., oil, uranium) can pay in tenge, directly increasing demand. This structural shift supports long-term tenge stability.

Rising Gold Output: A Tailwind for Tenge Strength

Kazakhstan is the world's largest gold producer after China, with output projected to hit 80 tons in 2025. The NBK's gold purchases under the mirroring mechanism fund forex sales, creating a virtuous cycle:
1. Gold sales → tenge issuance → dollar sales → reduced forex liquidity → stronger tenge.
2. Higher gold prices (driven by global inflation) amplify this effect, injecting additional foreign currency into reserves.

Why Tenge ETFs Are the Play: The Case for DBVTF

The Deutsche Bank Tenge Forward Fund (DBVTF) offers exposure to the tenge through forward contracts, hedging against short-term volatility. Key advantages include:
- Liquidity: DBVTF is the only US-listed ETF tracking the tenge, with $250 million in assets under management.
- Low correlation: The tenge's performance is inversely tied to the US dollar and oil prices, offering diversification benefits.
- Catalysts: A drop in inflation below 7% by year-end 2025 and the Turkish swap's success could trigger a tenge rally.

Investment Thesis:
- Entry Point: The tenge is undervalued at ~486 KZT/USD, with analysts forecasting appreciation to 460–470 KZT/USD by 2026.
- Risk Management: Pair DBVTF with short USD positions or energy ETFs (e.g., XLE) to hedge against oil price fluctuations.

Risks to the Outlook

• Global Dollar Strength: A Federal Reserve rate hike or geopolitical tensions could boost USD demand, pressuring the tenge.
• Geopolitical Risks: Kazakhstan's reliance on Russia (22% of trade) exposes it to ruble volatility and sanctions spillover.
• Structural Issues: High public debt (60% of GDP) and weak domestic manufacturing could limit tenge resilience.

Conclusion: Tenge ETFs as a Macro Stability Trade

Kazakhstan's monetary engineering—gold-linked forex sales and the Turkish swap—lays the groundwork for sustained tenge appreciation. With inflation trending toward the 5% target and gold output surging, DBVTF presents a compelling trade to capture currency strength. Investors should prioritize this ETF for exposure to emerging-market macro stability, while monitoring inflation data and TRY/KZT trade volumes.

The tenge's journey from crisis currency to stability play is underway—ETF investors need to be aboard.