Steppes Ahead

Mongolia looks for a piece of the emerging-markets action.
Laura CameronMay 5, 2008

Last month, a standing-room-only crowd packed a posh London hotel for a conference about an unlikely topic: Mongolian capital markets. A year ago, notes J Peter Morrow, CEO of Ulaanbaatar-based Khan Bank, such a gathering “would have been somewhere between irrelevant and fatuous.” Now, however, western investors are growing increasingly interested in the Mongol growth story.

Throughout the conference, bankers, corporate executives and government officials sought to frame the country’s prospects in relation to the emerging-market darlings on its doorstep, Russia and China. The majority of Mongolia’s foreign investment in recent years has been in the mining industry, but tapping the country’s vast mineral wealth comes at a steep price. In 2006, the government responded to protests about exploitation of natural resources by introducing a 70% windfall tax on copper and gold that sold above a certain price. The state also passed a law that gives it the right to acquire up to a 50% stake in any “strategic” mineral deposits.

Despite these hurdles, Mongolia’s GDP grew at a brisk 10% last year, and the Asian Development Bank predicts similar expansion in 2008 and 2009. Morrow also notes that banks in the country are implementing Basel II, and many companies are adopting a corporate governance model based on the UK’s Combined Code.

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Still, the country remains uncharted territory for all but the bravest investors, whose ranks are nonetheless growing. As Morrow jokes, “I used to say that there is nothing wrong with the Mongolian Stock Exchange, except there are no issuers and no buyers.”