ULAANBAATAR -- Mongolia has long been a force on the world's resource markets, due to its ample deposits of coal, copper and gold. These days, though, it is the country's stock market that is turning heads.
The MSE Top 20 Index, the national benchmark, soared 132.7% last year, by far the world's best performance, as the Mongolia Stock Exchange, set up shortly after the end of one-party communist rule, marked its 30th anniversary.
"I used to invest in the S&P 500 and this is the first time I have bought into the MSE. I couldn't ignore how much growth it had, I had to enter," said Ulaanbaatar entrepreneur Tseesuren Oyuntungalag.
Last year, he invested 30 million tugrik ($11,420) in shares of egg producer Tumen Shuvuut, dairy company Suu and Mandal Insurance, along with two local mutual funds, after reviewing information from his broker.
Oyuntungalag's three stock picks ranked among the Top 20's best five performers, all of which at least doubled in value in 2021. Tumen Shuvuut topped them all as its price quadrupled.
Mongolia made it through most of 2020 unscathed by COVID outbreaks. But last year, lockdowns and pandemic-related disruptions to cross-border trade with China amid an election campaign prompted the government to dole out aid to citizens, including utility bill waivers and cash handouts.
"Some people had more disposable income because of government subsidies during the lockdowns which really pushed a lot of people to start investing in stocks," said Achit-Erdene Darambazar, founder and chairman of investment bank Mongolia International Capital.
While reducing import competition for domestic consumer goods producers, the trade interruptions also pushed inflation close to 10% even as bank deposit rates fell. This spurred residents to look for higher returns on their money elsewhere.
"More than 500 billion tugrik entered the stock market," estimated securities market veteran Ulaankhuu Nanjid, now chief investment officer at software company ICT Group.
Factory worker Janjinjamts Batsuuri, 24, invested in stocks for the first time in 2021, nearly doubling his money after buying shares of Tumen Shuvuut, Mandal Insurance and drinks producer APU. "I don't have plans to sell them any time soon," he said.
Foreign investors played little role in last year's rally, accounting for just 1.3% of trades during the third quarter, the most recent period included in Mongolia Financial Regulatory Commission data.
Many foreign investors gave up on Mongolia in recent years as sluggish commodity prices and policy uncertainty took the shine off the country. FTSE Russell dropped Mongolia from the candidate list for its global frontier market share indexes and at least three Mongolia-focused offshore stock funds shut down.
Domestic Mongolian food producers have benefited from reduced competition due to trade disruptions. (Photo by Byamba-Ochir Byambadorj).
The Hong Kong-based Asia Frontier Fund, however, doubled down, giving Mongolia the highest weighting of the 15 markets where it invests, with stakes in top cashmere producer Gobi, APU, leather company Darkhan Nekhii and baked goods maker Talkh Chikher.
"Many investors have asked us in the past year why we have a relatively higher weight in Mongolia," Asia Frontier Capital Chief Executive Thomas Hugger wrote in a client update last month. "The 2021 performance of the Mongolian stock market has provided the answer to those queries."
Chastened, FTSE Russell in September restored Mongolia to its frontier market watch list.
Trading volumes on the MSE, now home to 179 stocks according to its website, soared last year from 2020 levels.
New trading account openings, however, plunged from levels seen in the previous two years when more than 1 million were set up in the nation of 3.4 million people as the government prepared to list coal group Erdenes Tavan Tolgoi on the MSE and offshore markets. Most residents had received shares in the company for free in 2012, but still have no way to monetize them after the initial public offering plan was shelved again.
Other IPOs, though, have begun to capture public interest. Central Express, local franchisee for South Korean convenience store chain CU, completed the country's largest ever IPO, raising 40.1 billion tugrik from Asia Frontier Capital and local investors.
More than 1 million securities accounts were set up in the nation of 3.4 million in 2019-2020 as the government prepared to list coal group Erdenes Tavan Tolgoi, before putting the plan on hold. (Photo by Byamba-Ochir Byambadorj).
Many Mongolians are now preparing funds for debut share sales by the country's major commercial banks, who are required to go public under a new law to diversify their shareholding. They are expected to raise a combined 500 to 600 billion tugrik.
Accountant Gansukh Ganbold is planning to take part in the bank IPOs, expected to start this summer, after pocketing gains last year from buying and selling APU and Tumen Shuvuut. He has held on to shares in Ard Financial Group, part of a web of companies that includes Top 20 high-performers Ard Credit and Ard Insurance.
Said ICT's Nanjid, "Expectations for the bank IPOs are very high domestically."
Securities company InvesCore Capital signed up twice as many new clients last year as in 2020, according to senior broker Azbayar Javkhlan.
"Likely more people will start trading in 2022 following news of the stock market's 2021 growth," she said. "So 2022 will probably be a great year for growth."
Source: https://asia.nikkei.com/Spotlight/Market-Spotlight/Mongolia-stock-market-turns-heads-with-133-gain