How to invest in Mongolian stocks

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We said we would tell you how to invest in Mongolian stocks in our prior post, ‘What’s the trouble with the Mongolia Stock Market?’, so here you are; a post on the very subject.

The fact box below provides a brief overview of the country.  Feel free to peruse Wikipedia for more details.

Mongolia’s stock exchange is reasonably diverse for a resource-intensive economy.  It boasts strong regulation, and strong growth potential.  It is definitely a long-term play, rather than an investment that should be expected to immediately yield results.  The market became quite overheated in 2012; however, the decline in 2013 makes the market attractive.

All investors in Mongolia must open an account with the Mongolian Securities Clearing House and Central Depository (SCHCD).  This is done for a foreign investor by their brokerage.  The benefit of having an account with a clearing house is in the event of a Jon Corzine-like situation; your money will be secure.  The good news is that in 2012, SCHCD changed its platform, implementing MillenniumIT, which is based on the technology used on the London Stock Exchange.   Settlement shifted last year from pre-funding to T+3, and price discovery has improved significantly.

The fact box below provides a brief overview of the stock exchange.

I am sure that by now, you are curious about whom to open an account with.  Below, you can see a few names that we would trust, as well as a full listing of all brokers in Mongolia.

There are a few quality firms that operate in Mongolia, and they make it relatively easy for you to open up an account.  You will need to fill out a lot of forms, provide some notarized documents (signature page, power of attorney within Mongolia for the brokerage), as well passport copies and the usual KYC and account opening documents.  Expect the whole process to take 2-3 weeks.

Resource Investment Capital

Resource Investment Capital (ResCap) is exactly the type of organization a wear frontier markets’ investor wants to see in a country.  The management is top-class, with the CEO a former investment banker for a number of bulge bracket banks, and the chairman is the former governor of the Bank of Mongolia.

ResCap’s account opening instructions can be found here.

BDSec JSC

BDSec is the largest brokerage in Mongolia, controlling 17% of all account holders in the country, and 47% of foreign account holders.  They trade over 50% of the daily volume on the Mongolian Stock Exchange, and they have been around for over 17 years.

BDSec’s account opening instructions can be found here.

You really can’t go wrong with either of these companies.  Trading costs in Mongolia are high.  Costs of entering a trade vary from 200bps to 250bps.  SCHCD alone takes 80bps.  The lesson is if you buy a company in Mongolia, you better make sure you love it, before sending that buy order.  This is not a market to day trade.  A full list of brokers in Mongolia can be found here.

Now you must be wondering where you can invest in Mongolia, below is a list of all listed companies with a market cap above $5mm

 

The companies aren’t large, but there is a decent amount of liquidity.  Many of these companies were worth double their current value last year.

 

FURTHER READING

KPMG  published a great report on Mongolia.  Read it here.

 

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