Mongolia beckons BNP Paribas Security Services
BNP Paribas Securities Services anticipates a burst of new business in Mongolia as asset managers attempt to tap into its commodities growth story.
Lawrence Au (pictured), head of Asia Pacific at BNP Paribas Securities Services (BNPP SS), says Mongolia is an “exciting frontier market” with an economy forecast to grow by 8% this year.
“Mongolia is booming because of its mining industry,” he says, adding that for the first time, coal exports from Mongolia have surpassed those from Australia, traditionally considered the main source of coal for Asia.
Until now, most asset managers trying to get exposure to the Mongolian growth story had two options. One was to make private equity investments in Mongolian companies, hoping they would make an initial public offering.
The alternative was to buy in to Mongolian companies listed on stock exchanges elsewhere in Asia. These two options are about to become less attractive, Au says, because there is a long list of companies on the verge of entering Mongolia’s relatively underdeveloped stock exchange.
By the end of 2010, just 474 joint stock companies had listed on the exchange reaching a stock trading value of MNT262.5bn (€147m). Yet the Mongolian Stock Exchange (MSE) was the best performing equity market globally in 2010, with the benchmark MSE Top 20 Index gaining 138%, according to Asian investment bank Eurasia Capital.
Eurasia believes Mongolia is set to become the world’s fastest growing economy in 2012, anticipating 20% GDP growth this year. When the MSE’s floodgates open and more firms list on it, having direct access to the exchange will become essential.
Au believes BNPP SS has revolutionised asset managers’ relationship with the Mongolian market, having recently implemented a unique mandate for Hong Kong-based Harvest Global Investments.
Harvest launched the Asian Frontier Equity Fund, an emerging market fund investing in Mongolia, at the end of 2011. BNPP SS is the first custodian to have enabled an asset manager to gain direct access to the Mongolian market, Au says.
Au faced many challenges in securing direct exposure to Mongolian markets for Harvest. With the MSE still in its “infancy stage” (despite having been in operation since 1991), Au’s team had to overcome its lack of swift messaging and the fact “there is no concept of custody law. The law does not recognise the role of a custodian acting as a trust for the client”.
As a result, no banks in the region offer custody services, so Au had to find brokers that “act in good faith” instead.