Stock exchange reform is inevitable and essential
Russian funds made a hoopla out of the leading RTS index giving the Chinese stock market a drubbing over the last decade, returning five times as much, or a bit more than 750%. But they go quiet when you mention Mongolia, the best performing market in the world over the last decade, up a bit more than 1,600% over the same period, says a Business News Europe analysis.
The Russians needn"t be too abashed, as the two exchanges barely warrant comparison: Moscow sees a daily turnover of some USD2 billion- USD3 billion a day and half the investors are foreign, whereas the Mongolian Stock Exchange (MSE) has a daily turnover on a good day of just USD100,000 and there are almost no foreign investors to speak of. Indeed, a businessman with a gold Visa card and a penchant for a flutter on a mining stock could move the MSE index by several points on his own.
The MSE is tiny. The entire market capitalization is a mere USD500 million. There are no global custodians in the country, making it all but impossible for foreign investors to buy shares, even if they wanted to. And the trading is subject to manipulation and razor-thin free floats.
Reform of the market has yet to start and its existence remains the legacy of the privatization process in the 1990s. Many of the companies currently listed are the end result of the voucher privatization program, where the Mongol and Russian experiences are very similar with managers walking off with their companies. Moreover, some of these companies are now defunct (but remain listed), while others that are operating don"t bother to meet the financial reporting requirements because no one has got round to enforcing the rules.
But change will come, sooner rather than later. The MSE is currently considering bids by the London Stock Exchange, Sweden"s OMX HEX and South Korea"s main exchange to provide management services for the national exchange and supply it with new trading technology. A decision on the winner is expected before the end of the year. "We are offering them technology as well as business development," says Jon Edwards, who spearheads the LSE"s business in Eastern Europe. "The market is small and the listings need to be cleaned up, but the potential is phenomenal. Mongolia could do better than Kazakhstan if they can put all the pieces in place."
The Russians needn"t be too abashed, as the two exchanges barely warrant comparison: Moscow sees a daily turnover of some USD2 billion- USD3 billion a day and half the investors are foreign, whereas the Mongolian Stock Exchange (MSE) has a daily turnover on a good day of just USD100,000 and there are almost no foreign investors to speak of. Indeed, a businessman with a gold Visa card and a penchant for a flutter on a mining stock could move the MSE index by several points on his own.
The MSE is tiny. The entire market capitalization is a mere USD500 million. There are no global custodians in the country, making it all but impossible for foreign investors to buy shares, even if they wanted to. And the trading is subject to manipulation and razor-thin free floats.
Reform of the market has yet to start and its existence remains the legacy of the privatization process in the 1990s. Many of the companies currently listed are the end result of the voucher privatization program, where the Mongol and Russian experiences are very similar with managers walking off with their companies. Moreover, some of these companies are now defunct (but remain listed), while others that are operating don"t bother to meet the financial reporting requirements because no one has got round to enforcing the rules.
But change will come, sooner rather than later. The MSE is currently considering bids by the London Stock Exchange, Sweden"s OMX HEX and South Korea"s main exchange to provide management services for the national exchange and supply it with new trading technology. A decision on the winner is expected before the end of the year. "We are offering them technology as well as business development," says Jon Edwards, who spearheads the LSE"s business in Eastern Europe. "The market is small and the listings need to be cleaned up, but the potential is phenomenal. Mongolia could do better than Kazakhstan if they can put all the pieces in place."
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