By Kate Burgess in London
For three days in June a delegation from the Mongolian Stock Exchange – one of the world’s smallest – was holed up in one of Seoul’s top hotels.
More than 400 international investors at a conference on corporate governance were debating orderly stock markets, globalisation, state-owned enterprises and sovereign wealth funds, corporate governance and shareholders’ relationship with the companies they own.
By the last session in the stuffy, badly-lit conference hall, few delegates looked more as if they would rather be riding out across a wide-open space than Rentsen Sodkhuu, the moustachioed chief executive of Mongolia’s exchange and a former chairman of the Mongolian parliament.
But he listened attentively to Gerelma Sodkhuu, one of his colleagues. The Mongolian delegation was anxious, she explained, to glean what they can from more developed markets about how to make Mongolia a well-functioning and attractive market place for international investors.
The Mongolian group is one of several invited and sponsored by the Korea Stock Exchange (KRX), which itself is keen to build up strategic alliances with fledgling exchanges from Laos to Cambodia. Mongolia signed a memorandum of understanding with KRX last year on technology and software reform.
It has also signed a memorandum of understanding with Singapore’s exchanges, “to foster a closer relationship”, and with the Hong Kong exchange.
For Mongolia, which is about four times the size of France and sandwiched between China and Russia, the need to build overseas alliances to aid the exchange’s development is becoming urgent.
The $8bn economy (on a purchasing power parity basis) ranks among the world’s poorer nations. But it has colossal mining resources and has been a big beneficiary of China’s growth and the commodities boom. In 2007 Mongolia’s economy grew 10 per cent.
Mongolia’s markets are set to expand in the next few years, say observers. They reckon that if just a few of the many projects recently set up to extract the country’s resources work out, the Mongolian economy could treble within a decade.
The result is a stream of interested companies and investors into Mongolia from China and Russia and further abroad. Ms Sodkhuu says trading by foreign owners has increased six or sevenfold in the past two years – all betting on the republic’s resources in gold, copper and oil. Some Mongolian companies have sought listings overseas.
Last month, Petro Matad, an oil exploration company with a Mongolian-Australian management team, listed on London’s Alternative Investment Market – the first Mongolian company to do so. Its market cap was about £35m ($69m). But there are almost 400 Mongolian companies listed back in Ulan Bator, the capital. More than a fifth are involved in mining, including Baranuur, Mongolia’s second-biggest company and one of the world’s top producers of anthracite. The remaining companies are largely in construction and transport.
All of which presents a steep learning curve for the directors of the exchange.
Mongolia established the stock exchange in 1991 after sloughing off Russian influence. By 1994 it had privatised 476 companies, handing the shares out in the form of vouchers to all Mongolians.
The population is now close to 3m, of whom about half still live in gers (tents) and are largely nomadic and pastoral. The idea was that all Mongolian people would have shares in the country’s wealth which they could trade. At first, the MSE was only open for trading for two hours, one day a week. Now it is open from Monday to Friday for one hour a day from 11am to midday, with investors using the internet to lodge their orders.
But the chief executive is anxious to put in place more of the checks and balances and shareholder protections for local and overseas investors that older exchanges have developed over centuries.
Ms Sodkhuu explains that few of the beneficiaries of privatisation in the early 1990s “understood the meaning of shares” or capital markets and many sold out or gave their shares away.
Over the years, share ownership has become concentrated in the hands of a few investors. “There is now 90 per cent concentration,” says Ms Sodkhuu. She does not speak of the increasing hold that Russian companies and investors have on key resources but it is clear that the exchange is keen to build out its international investor base.
Source: Financial Times