Stock exchange reform is inevitable and essential - News.MN

Stock exchange reform is inevitable and essential

Old News! Published on: 2010.10.19

Stock exchange reform is inevitable and essential

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Г. Нэргүй
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Russian
funds made a hoopla out of the leading RTS index giving the Chinese stock
market a drubbing over the last decade, returning five times as much, or a bit
more than 750%. But they go quiet when you mention Mongolia, the best
performing market in the world over the last decade, up a bit more than 1,600%
over the same period, says a
Business News Europe analysis.

The
Russians needn”t be too abashed, as the two exchanges barely warrant
comparison: Moscow sees a daily turnover of some USD2 billion- USD3 billion a
day and half the investors are foreign, whereas the Mongolian Stock Exchange
(MSE) has a daily turnover on a good day of just USD100,000 and there are
almost no foreign investors to speak of. Indeed, a businessman with a gold Visa
card and a penchant for a flutter on a mining stock could move the MSE index by
several points on his own.

The
MSE is tiny. The entire market capitalization is a mere USD500 million. There
are no global custodians in the country, making it all but impossible for
foreign investors to buy shares, even if they wanted to. And the trading is
subject to manipulation and razor-thin free floats.

Reform
of the market has yet to start and its existence remains the legacy of the
privatization process in the 1990s. Many of the companies currently listed are
the end result of the voucher privatization program, where the Mongol and
Russian experiences are very similar with managers walking off with their
companies. Moreover, some of these companies are now defunct (but remain
listed), while others that are operating don”t bother to meet the financial
reporting requirements because no one has got round to enforcing the rules.

But
change will come, sooner rather than later. The MSE is currently considering
bids by the London Stock Exchange, Sweden”s OMX HEX and South Korea”s main
exchange to provide management services for the national exchange and supply it
with new trading technology. A decision on the winner is expected before the
end of the year. “We are offering them technology as well as business
development,” says Jon Edwards, who spearheads the LSE”s business in
Eastern Europe. “The market is small and the listings need to be cleaned
up, but the potential is phenomenal. Mongolia could do better than Kazakhstan
if they can put all the pieces in place.”

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