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Since an economic transformation in the 1990s, Mongolia’s capital markets have struggled with fundamental problems. The government is working to improve corporate governance and develop the corporate bond market, among other initiatives.


The Emerging Asia Pacific Capital Markets: Mongolia

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Overview

The Mongolian Stock Exchange was established in 1991, primarily to assist with the privatization of state-owned entities in the early stages of transition from a Soviet-led centrally planned economy to a market economy.

At the end of 2019, 200 companies were listed on the MSE with 54 licensed brokerage firms. Total equity market capitalization was US$984 million — approximately 73% of GDP — and the annual equity trading volume was US$79.5 million. The low trading activity is considered to result from heavy concentration of shares, generally poor corporate governance, and lack of institutional investor base.

Mongolia’s fixed-income market consists mostly of government bonds. The latest government bonds issued had maturities of one to three years and coupon rates of 14%–18%, attracting both local and international investors.

To speed development of the Mongolian capital market, the government, often with help from international organizations, has been taking measures to improve governance practices of listed companies, develop the corporate bond market, introduce an institutional investor base, and list major state-owned mining companies. The timing for developing the capital market is also appropriate, because interest rates are on a downward trend in the past several years, pushing investors to seek higher returns that can no longer be gained from term deposits at banks.

This article is from "The Emerging Asia Pacific Capital Markets: Challenges and Opportunities," published by CFA Institute Research Foundation.

About the Authors

Bayarsaikhan Davaadorj
Bayarsaikhan Davaadorj CFA

Bayarsaikhan Davaadorj, CFA, is founder of Long Term Partners of Mongolia, an investment advisory firm. Previously, he worked as an equity trader at Deutsche Bank and as an investment officer at International Finance Corporation (World Bank Group). Mr. Davaadorj has also been a consultant for the Asian Development Bank, the Japan International Cooperation Agency, and the European Bank for Reconstruction and Development. He is co-founder and served as chair of the Mongolian Society of Financial Analysts.

Bujinlkham Boldbaatar

Bujinlkham Boldbaatar is an analyst at Long Term Partners of Mongolia LLC.