The Mongolian Stock Exchange: its evolution and potential

Oliver Nicoll
Author Oliver Nicoll

May 09, 2018 / Economics, Business

        We’ve written about the Mongolian Stock Exchange (MSE) and the remarkable returns it delivered in 2017. Though small and thinly traded, it provides a barometer of investor interest in the country since it is one of the simplest means to gain exposure to the industrial base of the country. 

The Korean Herald recently reported on the ‘positive catalyst’ that investors from Seoul were having on the MSE. Here we pick out the three key themes from this analysis, and the potential for further interaction. 


  • Increased divergence

In order for the MSE to truly evolve and to support the development of Mongolian businesses, it requires greater participation from international investors- particularly institutions.  Altai Khangai, the CEO of the MSE, told the Korean Herald, one recent transaction showed this trend was beginning to occur.  Lend MN, a financial technology firm, began trading in March, and Rhino Asset Management (based in Seoul), purchased 4.5% of its share capital for a consideration of US$370,000. Mirae Asset Securities was used to underwrite the transaction and served to bring in more Asian investors. For too long, the exchange has been dominated only a handful of large companies, heavily dependent on the behaviour of commodities. Increased plurality is to be welcomed, and is in keeping with the stated aims of the IMF in creating a diversified economy.  The inclusion of companies such as Lend MN, may also encourage other new ventures to list, if there is a feeling of increased demand.


  • Moving from bonds to equity

In the latter part of last year, Mongolian government sovereign debt issuance, was oversubscribed and traded at much lower yields than in recent years. Khangai notes his surprise at increased interest in equities, as well as bonds. In 2017, the MSE was one of the best performing stock markets in the world, with unprecedented increases in the value of stocks. Tavantolgoi- the part state owned coal producer- and APU, a drinks manufacturer, saw significant appreciation. In the case of the former, it may indicate investor appetite for quasi government exposure with potential private upside. With smaller cap equity companies, it shows a vote of confidence in the underlying business model and potential for growth in a market. This, together with belief in the creditworthiness of the sovereign, is an indication of the positive image Mongolia is beginning to project.


  • A return to the Russell Frontier Markets watch list

Since 2012, Mongolia featured on the Russell Frontier Markets watch list, however, it was removed in September 2017, due to failure to implement agreed compliance measures. Whilst there is hope of its reintroduction, the complexity of implementing the system, means it is unlikely in the near term. From a liquidity perspective, it could make a significant contribution to the continued development of the MSE. For emerging and frontier market equities investors, the Russell Index, enables easier analysis of the performance of equities. This transparency makes it simpler to measure price changes and total returns. The officers of the MSE- as well as politicians- should do all in their power to ensure Mongolia takes its place again.


At the Mongolia-London Business Forum last year, much attention was paid to the potential of the MSE, through the application of international best standards and the potential to pair with other exchanges. In the first instance, the key to its development will be ensuring an increase in international participation. This will be delivered through governance, but also a greater variety of stocks in growth companies- not simply state sponsored enterprises. If this can be achieved, then there is the potential for dynamic SMEs to access more competitively priced funding, which will assist in ensuring Mongolia is better placed to brave economic storms of the future.  


At APIP, we’re readying ourselves for a very busy summer 2018. We’ve now completed the Olympic, continue presales on the Circus, and have a series of consultancy instructions. If you want to hear more about our services, why not book a meeting with one of our team? In the meantime, enjoy our latest quarterly economic update and the sunshine.


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