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Mongolian investment pitch met with skepticism
Central Asia | analysis | 11:33, 04 November 2016 | 8819

AKIPRESS.COM - Not long ago, Mongolia was a darling of global investors, enjoying the highest economic growth in Asia. Now the economy is undergoing restructuring and belt tightening, notices Nikkei Asian Review.

While negotiations with the International Monetary Fund continue back home, officials came to Hong Kong this week to woo investors to reignite interest in the mineral-rich country, but they were met with an unhappy and unenthusiastic audience.

With the recently appointed central bank governor canceling his participation to deal with the IMF delegation, the newly re-appointed head of the Mongolian Stock Exchange acted as the lead promoter of investment into the cash-strapped economy.

"We will make it more practical to attract more foreign capital to the Mongolian market," said Altai Khangai, who previously left the exchange in January 2014. He pledged on Tuesday the bourse would be "much more user-friendly" at an annual Hong Kong forum dedicated to investment to the Central Asian country.

Suffering from a serious shortfall in capital, the country requires foreign direct investment as well as portfolio investment. By attracting foreign participation, Altai stressed the exchange's goals of facilitating funding for local businesses by providing an alternative to bank loans and acting as a "sufficient privatization tool for government-owned assets." He also seeks more foreign enterprises to add secondary listings on his exchange to "gain bonds with Mongolia."

The stock market's capitalization peaked in 2011 as commodity prices surged, but it has since shrunk almost in half. Trading volumes last year were only about a fifth of their high in 2012. Altai told the Nikkei Asian Review on the sidelines of the event, "What the country needs is money right now."

Altai's sales pitch however met with some grumbles. "I am very angry about this," said Thomas Hugger, chief executive and fund manager of Asia Frontier Capital, who raised his recent experience of being blocked from trading for about two months. The Hong Kong-based fund manager who mainly invests in so-called frontier economies such as Vietnam, Pakistan and Bangladesh was neither able to buy nor sell any shares as the local stock broker that it uses was suddenly suspended from trading. Though this was said to be the result of an investigation by the local regulator, Hugger's $17 million fund, of which about 11% is held in Mongolian assets, suffered from the opportunity loss for two months.

On top of that, claims addressed to the regulator and the exchange were ignored, Hugger said.

Altai, who was not at the exchange during the episode, accepted Hugger's complaint. He vowed to "carefully examine" the case.

Investor confidence will be hard to regain. Under the previous Democratic Party-led government which was defeated in elections in June, a series of policy blunders led to a rapid draining of foreign capital, exacerbated by a crash in global prices for coal and copper, export commodities that the economy is highly reliant on. The extended dispute, which was only resolved this year, with metals producer Rio Tinto over further development of Oyu Tolgoi, the world's largest untapped copper and gold mine, symbolized damaged investor confidence.

As the new Mongolian People's Party-led government seeks to mend fences with the outside world, wariness is not easily wiped away. Speaking on a panel about the investment environment, Chris Bradley, director of structured commodity financer Rimu Resources, said that the main risk going forward is still the "predictability of the government." A veteran of Mongolia and the annual gathering in Hong Kong, he said that the conference used to be 10 times bigger.

This was echoed by Erik Versavel, chief representative in Mongolia for ING, at a separate panel on the banking sector on Wednesday. He summed it up by saying the "international financial community at this point wants to see establishment of trust in policy and in financial discipline."

Others tried to temper expectations that the resolution of the stalemate over Oyu Tolgoi would bring in foreign investment. "I think expectation that Oyu Tolgoi would solve all economic problems should not be the case," warned Tuyen Nguyen, resident representative in Mongolia of the International Finance Corp. He said that economic stabilization measures and other major mining projects need to be in place to lay the groundwork for fresh investment. "Mongolia for the next foreseeable future is at an investment stage. They need FDI to develop its infrastructure," he said.

But the stock exchange's Altai said that there is hope for change. "Mongolia as a country has learned a lesson. Maybe based on that, proper decisions will be made."

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