Wednesday, May 29, 2013

Mongolia exchange seeks deeper ties with LSE

Mongolia’s stock exchange is seeking to attract foreign investors to its fast-growing economy with plans to broaden co-operation with the London Stock Exchange.

Altai Khangai, chief executive of MSE said it hoped to promote dual listings and create a “FTSE Mongolia” index, after Mongolia’s new securities law, approved by parliament last week, paved the way for deeper collaboration with the LSE.

Mongolia has been working for years on modernising its capital markets to help develop its $12bn economy. Driven by vast resources of coal and copper, at the height of the commodities bull run the Mongolian Stock Exchange was among the best performing exchanges in the world, recording eye-popping growth of 121 per cent in 2010.

However MSE’s Top 20 Index performed relatively poorly during the past two years as investor interest cooled in the face of slowing growth in the region. The Top 20 Index has fallen more than 20 per cent since the end of January.

Mr Altai said the new Securities Law, which takes effect on Jan 1, 2014, would “open up a new era of development in the capital markets in the country”, making it easier for international investors to invest in Mongolia.

The exchange is tiny by global standards, with a total market capitalisation of about $1.3bn. Although 328 companies are listed, most are dormant shells left over from an earlier era of privatisation, and fewer than two dozen stocks are actively traded.

MSE started working with LSE in 2011, hiring the London group to advise on installing the Milllenium trading platform. The platform became operational in July last year, but liquidity problems remain and traders warn new securities law will not resolve these issues in the near term.

“It is a step in the right direction, but doesn’t provide any immediate solutions to the lack of liquidity,” said Eric Zurrin, director at Resource Investment Capital, the second-largest broker on the MSE.

MSE hopes more domestic companies will list as liquidity improves. Tavan Tolgoi, a state-owned coal mine, intended a dual listing on the MSE and LSE, but political wrangling has delayed plans.

Bill Gorman, MSE’s former president and involved in advising on the securities law, said the delayed listing of Tavan Tolgoi had been a setback for the exchange, but he remained optimistic on the development of Mongolia’s financial system.

“It won’t be competing with London or New York, but can certainly set up a very viable market that would help Mongolian industry,” he said.

An LSE spokesman added that the passage of the securities law was the “first and most important step toward giving access to Mongolia for international investors” and that shared trading technology would make closer co-operation possible in future.

Copyright The Financial Times Limited 2013.

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