At the Mongolia Today – Opportunity To Reality event hosted on the 20th March in Hong Kong by professional services firm PwC, the passage of the new Mongolian Securities Law, which has been under consideration for some time, was the focal point of the day.
The law contains a number of key provisions which will enhance the openness and efficiency of the Mongolian Stock Exchange and the ability of foreign investors to dual list, trade, and open up the depository receipt market.
Mongolia is a rapidly growing economy, seeing growth of 17.5% in 2011, and over 12% growth in 2012, on a nominal GDP of $9.9 billion in 2012. With the economy increasingly opening up to foreign investment, reform of the capital markets and the mining and agriculture sectors have been high on the agenda. With commercially viable quantities of more than 80 elements on the periodic table available for mining, Mongolia has taken giant leaps up the international ladder of commodities producers. However, the market is in desperate need of capital.
“I think this roundtable proved to be very useful. It provided the regulators with an opportunity to get together in search for an optimal mechanism of how to collaborate and what essentially needs to be accomplished to expand the market and continue promoting foreign institutional investors participation in Mongolia. Obviously, the amount of work that needs to be done in order to support the new initiatives is immense. Nevertheless, those initiatives certainly must be put in practice in order to be fully successful in reaching our end goals. We’re not reinventing the wheel. We are taking the wheel and applying all necessary adjustments to make it much more “polished” in tune with local standards. We need more liquidity, thus, more inward investment. As I understand, Mongolia has already come on the radar of a number of global investors, and, provided that we make necessary amendments in our legislation to promote opening of our market to foreign investors and foster investor confidence, and strike the right balance between domestic and foreign investors’ interests, we may truly become the next remarkable story of dynamic growth and development.”
Saruul Bulgan Director General, Securities Department, Financial Regulatory Commission of Mongolia
“This is the first time that the regulator, exchange, and foreign and national banks have got together to discuss the new business that is due to enter Mongolia in the second half of 2013. The major takeaways from this session were that all parties involved in this business understand the requirements and needs of international investors because the custodian business is there to invite and drive international investment into Mongolia – investment that is very much needed in Mongolia. This has been an excellent starting point for future collaboration between the parties.”
Andrew Economides, Head of Market Development, Mongolian Stock Exchange “It was a well-organised event and it was very interesting to bring together the Mongolian and the international players. At the moment, one of the major things missing from the Mongolian market is the post-trading infrastructure. We are working on bringing that infrastructure to the market. However, as the market is so new and the people involved in the market lack experience, it is very important for the international players involved to be on our side and to help the market moving forward. It’s also important for foreign institutions to consult with local institutions and the regulators in order for the latter to utilise international experience and expertise. I’m very happy to see that the Mongolian stakeholders, the regulators, the facilitators and the banks, are very keen to listen to what the international community has to say. So I think that all these factors will lead to a positive move forward when the right infrastructure is in place.”
The day itself was split into two segments, first a roundtable, attended by key Mongolian stakeholders, including the stock exchange, the regulator, the central bank, major domestic banks, and foreign banks and brokers looking to enter the market. The conversation was a frank exchange of views, covering what the domestic market wants and needs, and what the foreign banks want and need from the Mongolian regulator and exchange.
The one word summary of the roundtable would be liquidity. The creation of liquidity, and the protection of liquidity providers were key concerns for all parties.The second, larger, part of the day focused on custody and the importance of the relationship between local banks and foreign investors in providing custody services. The balance of protecting Mongolian interests and the wish-lists of foreign banks will be an ongoing debate, but the open discussion at the event was at least good natured.