CLSA expects surge in Mongolia trading
In anticipation of increasing cross-border investment into Mongolia-listed securities, CLSA has agreed to become introducing broker for BDSec, the nation's biggest brokerage.
Andrew Maynard, global head of trading and execution at CLSA in Hong Kong, describes Mongolia as Asia's next frontier market of choice, with foreign institutional investors being drawn to its natural resources sector. Four of the five leading stocks listed on the domestic bourse at present are natural resources-related.
“Given the natural resources and direct foreign investment going into Mongolia, most notably from Korea, China and Australia, there is obviously ongoing speculation that the government will sell stakes in publicly held vehicles, particularly those of the coal operators,” says Maynard.
The partnership with BDSec, which covers 47% of foreign account holders and 17% of domestic account holders, is “advantageous for us to be able to talk about this country with a bit more conviction, a country that will rise in importance in years to come”, adds Maynard.
At the same time, it is also true that Mongolia has fallen down Transparency International's annual rankings of in-country corruption, standing now at 120 from over 180 nations.
With a total of 150 stocks and trading over two boards – A and B -- the Mongolia exchange’s total market capitalisation stands at $1.45 billion. Board A, on which 36 stocks are listed, accounts for 90% of market value. But secondary market trading volume remains small, at $250,000 a day, says Munkhtulga Ganbold, who works on institutional sales for BDSec in Ulaanbaatar.
BDSec already has a US representative after it clinched a partnership agreement with New York-based agency brokerage Auerbach Grayson & Co in 2007. Of the new collaboration with CLSA, Ganbold points to the brokerage's strong brand in Asia. "This arrangement will give comfort to international investors,” he says.
Several funds already invest directly into Mongolia-listed equities. Maynard notes that while companies listed on the bourse can have sizeable market caps, the turnover is still limited. At press time, the biggest market-cap stock, $430 million coking coal-maker Tavantolgoi, had seen trading volume of just 219 shares on May 31 to close at MNT10,350 ($7.90). Overall it has 52.7 million shares outstanding.
But even though trading volume is still thin at present, there are expectations that its two-hour trading window could be extended as more foreign investors participate.
While Maynard has not yet seen many institutional orders on the local bourse, he sees potential for growing interest as clients increasingly look to hold frontier-market exposure, with Mongolia, Cambodia, Vietnam and Sri Lanka standing out as favourites.
“Vietnam is a market which everybody wanted a piece of five years ago due to its burgeoning middle class and rising GDP, but [interest in] Mongolia is for a different reason," says Maynard. "Its rich in natural resources, which means that most of the companies listed there are either mines or cyclical stocks. Over time it will become a market of more significance.”