Interview: D. Achit-Erdene

How do you assess the Mongolian Stock Exchange’s (MSE) performance in 2010 and first half of 2011?

ACHIT-ERDENE: The MSE Top 20 Index companies occupy over 90% of the MSE’s total market. These top 20 grew 138% in 2010, dramatically outperforming stock markets globally. The top five companies, each of which experienced growth rates ranging from 200-519%, made up the bulk of this contribution. Four of the top five are domestic coal producers, which reflects investors’ belief in the mining sector’s potential.

In 2011, the growth wasn’t as impressive as 2010. In February there was a brief bubble that the market quickly corrected in March. As of November 28 the top 20 had seen growth of 43% since the beginning of 2011. At a time when global equity markets are slumping, this is still impressive. The bull market continues because investor sentiment remains positive.

What major reforms are planned under the London Stock Exchange Group (LSEG) and MSE partnership?

ACHIT-ERDENE: The LSEG and the MSE signed a Master Service Agreement in April 2011. To make the MSE more modern and efficient, the two are working together to install an integrated trading system created by Millennium IT, which is a member of the LSEG. The mid-December launch of the system was preceded by successful tests of the necessary hardware and support software that had been installed at the MSE.

What steps is the MSE taking to strengthen good governance and promote transparency?

ACHIT-ERDENE: The MSE has recently submitted a new securities market law to the Ministry of Justice. Along with this law, new rules and regulations were being drafted at the close of 2011. The biggest difficulty for Mongolian investors has been the lack of information that investors elsewhere often take for granted. This shortage was created by insufficient disclosure requirements or the inadequate implementation of them. This will have to change. The new listing rules, which have already been drafted, are based on the good practice established in LSEG’s admission and disclosure rules.

What can be done to increase awareness of and interest in the capital markets?

ACHIT-ERDENE: People will participate in the capital markets more when they better understand how they work. We learned from speaking with brokerage clients that many Mongolians with significant savings are interested in investing but feel uneasy because they cannot easily find quality information on investment ideas.

Which industries will drive growth in 2012 and why?

ACHIT-ERDENE: Mongolia’s boom is a product of opening its mining sector to the world. As expected, mining has been a key pillar of the economy since 2007. As a corollary to this, whatever happens to commodity prices will have a stronger effect on Mongolia’s growth. With $5bn and $2bn invested in the Oyu Tolgoi and Tavan Tolgoi mines, respectively, mining will continue to drive growth in 2012. Another sector that has expanded in recent years is real estate. Building material and construction companies grew rapidly over the last few years to fulfil the demand for new housing in Ulaanbaatar, the population of which almost doubled in the last 10 years. The banking sector also saw rapid expansion, as many Mongolians were able to get mortgages for the first time. Thus, factors influencing real estate will also have an impact on the country’s economy.

In which ways will the market flotation of Erdenes Tavan Tolgoi impact the exchange?

ACHIT-ERDENE: Every Mongolian citizen will receive 536 shares of the mine and will have to open a brokerage account to trade or sell them. We hope this gets them trading other stocks as well. Mongolians will learn a lot about the market from owning shares. Furthermore, having the mine listing simultaneously on the LSEG and Hong Kong Stock Exchange will raise the standard of disclosure for other public companies in Mongolia.