Interview: D. Angar

What efforts are under way to develop Mongolia’s capital markets and make the MSE function better?

D. ANGAR: For Mongolia to reach its full potential, it needs to develop its capital markets. One of the principal ways of doing so is to build a viable, functioning stock exchange. For too long, the public and private sectors have considered the MSE ineffective, with low trading volumes and antiquated technology. We are therefore working to reform the exchange to make it more appealing to domestic and foreign investors. Our near-term action plan has six main tenets: fixing the remaining software issues that are preventing the partnership with the London Stock Exchange (LSE) from bearing fruit; increasing overall liquidity on the exchange by building necessary trading infrastructure; introducing new products like commodity futures; increasing transparency in the market; implementing a more accurate way of tracking the MSE’s performance; and encouraging more listings. My first goal as head of the MSE is to bring MillenniumIT – high-quality software used by some of the world’s most advanced exchanges – in line with our own operating platform.

How are you working to increase liquidity on the exchange and introduce new investment products?

ANGAR: To get fresh money into the system and increase trading volumes, the MSE needs to be more liquid. We are therefore working on building up the exchange’s trading infrastructure so that it can support more complex, international needs. The recent securities market law gives us many of the tools needed to develop these systems. For instance, we are working on a global custodian mechanism that meets world standards of reliability and are helping support local banks in their efforts to develop the necessary framework for such complex transactions. We are also looking at introducing new products that will help increase overall liquidity. Sophisticated investors need risk management tools to hedge their exposures; without them, no major institutional investors will actively trade on the exchange. Hence we are planning to develop foreign exchange options for all the major currencies so that international investors can know for certain that they will be able to swap MNT-held stock for their own currencies in set amounts should they wish to exit the market quickly.

Commodity futures also need to be developed. We are a major mining country and should have a system in place that permits the trading of gold, copper, coal and iron ore futures on our exchange. By allowing for these instruments, local mining companies will feel more comfortable listing on the MSE, and the industry itself will be able to develop in a more sustainable manner. Right now, domestic mining companies are managing their financial positions like they did in the 19th century. When coal prices are up companies make money, but when they are down many go bankrupt. If more firms could hedge swings in commodity prices, they would be more insulated against downturns.

What is the outlook for initial public offerings (IPOs) over the coming year?

ANGAR: The new securities market law allows for easier double-listing of stocks on other exchanges through a system of depository receipts. In theory, therefore, many companies currently listed in Hong Kong or Toronto with significant Mongolian operations can also list on the MSE. In addition, any Mongolian company can also list on the LSE through the partnership.

The planned privatisations of many state-owned institutions should also bring more companies onto the MSE over the next year. A list of privatisation targets has been released, and the government is currently working out how to follow through. As a result, by next year we should see a number of new IPOs.

Finally, companies that own strategic mining deposits are required by law to list at least 10% of their shares on the MSE. While this has yet to be enforced, I believe it is at last time to do so, and will push to add more of these companies onto the exchange, which will provide a major boost for Mongolia’s capital markets.