The Mongolian Stock Exchange chief hailed South Korean financial companies’ engagement with its fledging stock market as a “positive catalyst” in its search for increased attention from foreign investors.

Speaking in an interview with The Korea Herald, Altai Khangai, chief executive officer of the MSE, cited the initial public offering of LendMN, Mongolia’s first financial technology company that began trading in March, as well as another upcoming IPO involving Korean investments.

Seoul-based institutional investor Rhinos Asset Management carried out a strategic acquisition of 4.5 percent of LendMN shares worth some $370,000 in the $2 million IPO deal, while Korean securities firm Mirae Asset Daewoo’s Mongolian underwriter unit led the listing procedure of the company.

Such an example of institutional capital investment played a pivotal role in the market that has sought to invite more divergence, the top market operator said in the telephone interview.

“(Rhinos Asset Management’s investment) was a positive catalyst to bring in international investors into the Mongolian market,” Khangai said, adding that the underwriter, Mirae Asset Securities Mongolia, “served as the ground” for more Asian investments.

Both firms marked the first Korean entities to be engaged in a Mongolian IPO.

LendMN is an instant lending service provider run on artificial intelligence through smartphones. After gaining regulatory approval in February, the company began trading on the tier-three market of the MSE on March 14.

Since then, LendMN has been one of the most actively traded stocks on the MSE. Each week since going public, LendMN has been picked as one of the top-five stocks with the highest weekly trading volume out of all 218 listed companies.

“The IPO of LendMN was a great addition to the MSE pool of stocks as the first fintech company to be listed on MSE.” Khangai said.

In addition, Khangai said he was pinning hopes on another IPO of a manufacturer led by local underwriter Gauli Investment Securities, involving an undisclosed amount of Korean investment. He declined to comment on details because the IPO has yet to gain financial authorities’ approval.

Korean institutional investors’ shift in focus -- from bonds to equities in Mongolia -- came as a surprise to Khangai.

“Korean investors are among the most active investors for local government bonds,” he said. “However, their participation in the equities market (had) been relatively limited.”

With a few market heavyweights holding sway, a boom in the Mongolian stock market re-emerged in 2017, after years of ups and downs since its heyday in 2011.

Leading the stock bull run in the landlocked country were partially state-owned coal miner Tavantolgoi and alcohol beverage maker APU.

If combined, the two account for nearly half of the total market cap made up of 218 constituents. The combined market cap of all MSE-listed firms came to some 2.5 trillion Mongolian tugrik ($1 billion) as of late April.

Both companies’ stock prices nearly doubled, while the MSE’s benchmark top-20 index surged over 50 percent. Total market cap topped the 2 trillion-tugrik mark in September 2017, for the first time in 5 1/2 years.

The renaissance of the market, on the other hand, exposed the stock markets’ chronic reliance on the performance of a few giants dedicated to the nontertiary sector, leaving the market susceptible to price volatility in commodity prices and the volume of resources exports to the adjacent China.

“As a country dependent on coal exports, the performance (of giants) had the most impact on the growth of the Mongolian capital market.” Khangai said.

In the long term, the market operator found it vital to boost the confidence of foreign investors through market diversification.

“We are working toward diversification of the listed companies, and LendMN (IPO) was a big step,” Khangai said. “(The LendMN IPO) may inspire other similar companies to come on to the market.”

To draw more attention from foreign investors, carrying out a trading system overhaul is crucial, he added, so that it can re-enter the Frontier Markets Watchlist of FTSE Russell.

The MSE was removed from the watchlist in September, due to a delay in compliance with the requirements in the trading system, such as adopting the T+2 settlement system, payment mechanism and global custodian presence.

“We are aware of the need to facilitate the post-trading environment for market players, both foreign and local ... in order to bring in more investors and make the standards more international,” he said.

By Son Ji-hyoung

Published Date:2018-05-08