Royal Bank of Scotland (RBS) has launched an index and a certificate listed on the Frankfurt, Stuttgart, and the Six Swiss Exchange, that provide access to Mongolia, home to the world’s fourth-largest copper reserves and ninth-largest coal reserves, as well as substantial deposits of gold, uranium, rare earths and zinc.
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The RBS Mongolia Opportunity (TR) Index targets companies that conduct most of their business in Mongolia but are listed abroad. Constituents must generate at least 50% of their revenue in Mongolia or focus at least 50% of their business activities on the Mongolian commodities sector.
“Prices are quite high for commodities and the country itself is still very poorly developed. We are trying to generate access to its economic development,” says Kemal Bagci, director of equity derivatives and structured retail at RBS in Frankfurt.
The equities initially included in the index are listed on stock exchanges in Canada, Australia, Hong Kong and the UK, and denominated in Canadian, Australian and Hong Kong dollars and UK sterling, respectively.
“We had to create a concept that contains enough constituents to make it diversified and fulfil the liquidity criteria so that we can market it and investors can get in and out as they please,” says Bagci.
The index is calculated by Standard & Poor’s and comprises nine equities from the mining sector, which are weighted initially according to their market capitalisation at flotation, then re-weighted twice a year. New companies can be added: “if the local companies in Mongolia get bigger and more liquid, we can include them,” says Bagci.
The bank has seen demand for the index from insurance companies and asset managers, as well as retail investors.
Mongolia’s gross domestic product (GDP) of just $5.8 billion and population of three million translates into per-capita income of $3,300, placing it in the poorest quarter of world economies, according to RBS research.