Mongolian Stock Exchange: getting there slowly
Mongolia may be one of the most popular investment destinations for resources funds and miners today. But this year the Mongolian Stock Exchange index has tanked – plummeting 40 per cent from a high in February – even as investors continue to bet on the growth of this largely nomadic, resource-rich country.
So what’s going on? Last year Mongolia was touted as the best-performing stock exchange in the world, after a run-up of 121 per cent in 12 months.
It’s worth keeping in mind that the exchange, housed in a cheerful pink building on the central Sukhbaatar Square, is still tiny by global standards: open only two hours a day, it has not had an IPO in five years. During the last full trading day on Thursday, turnover was just $46,500 and only 25 stocked traded, although more than 300 are technically listed.
That means the index can easily be pushed around by movement in only a few stocks. Moreover, investors have become more risk-averse in recent months given the global macroeconomic climate, prompting falling prices for Mongolia-linked companies that are listed overseas, too.
So, there is much hanging on the Mongolian Stock Exchange’s ambitious plans to modernize through its partnership with the London Stock Exchange. The MSE hired the LSE last year to revamp its regulatory framework, hardware and software, a process that has been fraught with delays but is still under way.
This summer, hardware for a new trading system was shipped into Ulan Bator and new trading software is currently being installed. The system is supposed to be up and running by the end of November or early December – although the dates keep getting pushed back – and when the process is complete the Mongolian Stock Exchange will be running on the same trading system as the LSE. Broker training is underway, and remote trading will also be possible with the new software.
But there remain big challenges for Ulan Bator to make itself into a modern financial hub. As acting CEO Altai Khangai put it in an interview earlier this year, one challenge for the exchange is the quality of the companies that are traded there. At some point, the hundreds of companies that are listed but not actively traded will also have to be removed, an unappetizing prospect in such a small and close-knit business community.
The exchange hopes that once it has new trading systems in place – as well as a new securities law – it will attract new listings from Mongolian companies and secondary listings from global companies working in Mongolia. Those days are still some way off however. The securities law could take months or longer to be passed: it has been under consideration for six years but not been formally presented to parliament yet. It would lay out a clearer legal framework for settling trades and for dual listings, among other things.
Ulan Bator is on its way to financial modernity. But it won’t happen overnight.
So what’s going on? Last year Mongolia was touted as the best-performing stock exchange in the world, after a run-up of 121 per cent in 12 months.
It’s worth keeping in mind that the exchange, housed in a cheerful pink building on the central Sukhbaatar Square, is still tiny by global standards: open only two hours a day, it has not had an IPO in five years. During the last full trading day on Thursday, turnover was just $46,500 and only 25 stocked traded, although more than 300 are technically listed.
That means the index can easily be pushed around by movement in only a few stocks. Moreover, investors have become more risk-averse in recent months given the global macroeconomic climate, prompting falling prices for Mongolia-linked companies that are listed overseas, too.
So, there is much hanging on the Mongolian Stock Exchange’s ambitious plans to modernize through its partnership with the London Stock Exchange. The MSE hired the LSE last year to revamp its regulatory framework, hardware and software, a process that has been fraught with delays but is still under way.
This summer, hardware for a new trading system was shipped into Ulan Bator and new trading software is currently being installed. The system is supposed to be up and running by the end of November or early December – although the dates keep getting pushed back – and when the process is complete the Mongolian Stock Exchange will be running on the same trading system as the LSE. Broker training is underway, and remote trading will also be possible with the new software.
But there remain big challenges for Ulan Bator to make itself into a modern financial hub. As acting CEO Altai Khangai put it in an interview earlier this year, one challenge for the exchange is the quality of the companies that are traded there. At some point, the hundreds of companies that are listed but not actively traded will also have to be removed, an unappetizing prospect in such a small and close-knit business community.
The exchange hopes that once it has new trading systems in place – as well as a new securities law – it will attract new listings from Mongolian companies and secondary listings from global companies working in Mongolia. Those days are still some way off however. The securities law could take months or longer to be passed: it has been under consideration for six years but not been formally presented to parliament yet. It would lay out a clearer legal framework for settling trades and for dual listings, among other things.
Ulan Bator is on its way to financial modernity. But it won’t happen overnight.
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