About: bonds, Mongolia, MSE, Stock Exchange, stocks, Ulaanbaatar
You could be forgiven for thinking that the M.S.E. is an incredibly good investment, its market cap went from 318 million USD in May 2009 to 613 million USD in April 2010, the number of trading hours has gone from 1 per day to 2 and the Mongolian government is planning to privatize large scale public companies. What could go wrong?
The clearing house for the M.S.E. was Zoos bank, it went bankrupt in 2009, a new clearing house was set up recently, brokers are still all powerful and investors are at their mercy to get information or achieve trade. Brokers are poorly regulated and monitored with well known large scale scams and mismanagement yet little is done to protect investors. There are enormous transparency and management issues within the heart of the M.S.E. The Government of Mongolia has scraped most of the planned privatizations and seems to be doing a U-turn aiming for nationalization instead. The market is still largely illiquid with the exception of a few widely traded company and it is still lumbered with a high percentage of inactive companies that should be expelled from the Exchange.
The M.S.E and the Mongolian Government is acutely aware of its shortcomings and is slowly gearing up its bureaucracy to deal with it. Funds now have to go to investors accounts instead of the brokerage houses and customers are able to check their stocks and trades on a dedicated account on the M.S.E. website, this system is still far from perfect or secure but it is a slow start on the road towards becoming an internationally respected Exchange.
The M.S.E shows a lot of signs towards progress, it joined the Federation of Euro-Asia Stock exchanges in 1998 and formed a partnership in 2006 with the Korean Stock Exchange. The M.S.E. team has just returned from Frankfurt where they are learning about running an efficient exchange as well as various trips to other asian nations.The basis of the market is good, it has no restrictions on foreign investors, no limitations on investments and no restrictions on repatriation of capital.
Despite the heavy publicity it has received, it still has a very small ratio of foreign investors (but this is largely due to the wide distribution of shares to the Mongolian public during the initial wave of privatization) and only very few people trade actively. Short term gains are practically impossible, investors are forced to hold long term positions on their stocks. Bonds have only now started being publicly traded.
The future and fate of the M.S.E. will largely depend on the actions of those growing companies who have their main activities in Mongolia. How many will carry out double listings with the M.S.E. instead of simply listing abroad? The growing appetite for Mongolian firms for larger amounts of capital forces them to seek their IPO’s in Hong Kong or the LSE as the M.S.E cannot raise sufficient capital by itself. The fate of South Gobi Sands in HK was disappointing, forcing mining companies to seek more attractive markets such as Vencouver or the AIM. The LSE is also trying to get into the action by holding press conferences and events to entice Mongolian firms to list with them. Will the M.S.E. be shunned and forgotten, reserved for small firms with no international outlooks?
It is likely that the M.S.E.’s market cap will rise considerably over the next few years, it has a small base and potential for more. Many people will probably make a lot of money out of it but it is still too early to say if its a boom and bust, or rather a sustainable boom. The processes, laws, regulations and systems governing the M.S.E. are still too basic and contradictory to make it a safe investment, the management of the exchange is still in need of much training and lacks considerable investments. It is better to sit on the sidelines, keeping a close eye to see how the situation develops instead of being embroiled in its current disputes, the next couple of years will without a doubt see enormous changes to the structure of the M.S.E. If you do want to play the market, bear in mind that it has a tiny market cap so play small funds with the top indexed and trading companies.
About: bonds, Mongolia, MSE, Stock Exchange, stocks, Ulaanbaatar
