INVESTMENTS IN EQUITIES AND STOCKS MARKET: RISKS, CHALLENGES, SUBSEQUENT TRENDS D.GanOchir [email protected]Any conclusions, opinions mentioned in this report express only the position of researcher and will not banded as Mongol Bank position. “Foreign investments – Risks and challenges: Methods of solution” meeting
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19.04.2013 Investment in stocks and equities in Mongolia risks, challenges and trends, D. Gan-Ochir
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Any conclusions, opinions mentioned in this report express only the position of researcher and will not banded as Mongol Bank position.
“Foreign investments – Risks and challenges: Methods of solution” meeting
Scope • D.Gan-‐Ochir 2006, ‘Influence of monetary policy to capital market’ research work, ECONOMY: Theory and practice journal, 2006-12.
• D.Gan-‐Ochir, B.Lkhagvajav and D.Batnyam 2008, ‘Monetary Policy and Bond Market: A Case of Mongolia ’research work <http://www.unescap.org/pdd/projects/bondmkt/12_Mongolia_monetary_policy_bond.pdf>.
D.Gan-‐Ochir 2008, ‘Mongolian capital market model (MSMM): Influence of World financial crisis to economy, capital market’ research work <http://www.eri.mn/index.php/en/l?task=view&catid=49&id=21>
• D.Gan-Ochir 2009, ‘Capital flows and their implications for central bank policies in Mongolia’ research work <http://seacen.org/gui/pdf/publications/research_proj/2009/rp76/6-chap5.pdf>.
• D.Gan-Ochir, G.Borkhuu & D.Tsenddorj2012, ‘Financial Contagion and Volatile Capital Flows’ research work <http://www.eri.mn/index.php/en/l?task=view&catid=49&id=732>.
Plan
⋅ Capital flow in financial system
⋅ Theory trends: Proven documents
⋅ Equities and stock market
⋅ Current situation ⋅ Risks, challenges ⋅ Subsequent trends
⋅ Issues to be considered at equities and stock market development
Will participate in Government security trade through banks
Will organize Government securities auctions
In a basis of trade information will keep Government securities owners
Foreign investment procedure in domestic bond, equities market
International financial market
Foreign investors
Domestic banks
Foreign currency swap market Domestic
banks Domestic broker, dealer companies
Government bond market
Mongolian capital market
USD
LIBOR USD
USD ₮ ₮
LIBOR
PR<i<RP
₮ ₮
Government securities interest хүү (12.0%, 1 year)
₮
Government securities, Government
bonds
Companies securities, bonds ₮
Equities, bonds interest
Will conclude executive agent contract
Will give sale, purchase order Mongolian rating
Moody’s: B1
S&P:BB-‐
Fitch:B+
Are foreign investors will be interested in domestic Government bonds?
5 years: 4.125%+3.2%(45₮)=>7.5%
10 years: 5.125%+3.2%(45₮)=> 8.5%
Long-‐term, stabile structure of housing financing Mongol Bank (Finance
intermediator)
Commercial bank
Owners of old housing
New housing payment
Co-‐owner of new housing
State owned organizations in
mortgage secondary market
(SOOMSM)
Capital market Government Investors (SIF etc.)
Source Advance payment
Remainder
Old housing: Credit security
New housing: Credit security
Mortgage loan
Mortgage credit line
Government m
edium-‐
term bonds
At the first stage of development – Government guarantees for
SOOMSM equities
(7) M
ortgage loan
Source
Source
Equities secured by mortgage loan
Equities secured by mortgage loan
Source
(1) (2)
(2)
(2)
(3)
(3)
(3)
(1)
(4)
(5) (6) (6)
(6) (6)
(7) (7)
Mortgage secondary market
Financial structure of purchasing new housing in a basis of old housing
(4) New mortgage loan
Mongol Bank, Government and banks will conclude trilateral contract: Bank will transfer new loan pack, received from Mongol Bank and issued in a basis of Government bond source to the SOOMSM.
Some necessary works
⋅ Government has to activate secondary securities market
⋅ Give possibility to organize human benchmark or effectiveness curve ⋅ Will be formed possibilities to use in implementation of monetary policy
⋅ Organize institutional investors based on pension fund
⋅ Main investor in financial system ⋅ Will be organized long-‐term sources
⋅ Support financial organizations in mortgage secondary market
⋅ Issue MBS of become one of the main supplier of equities ⋅ Will be created long-‐term sources
ISSUES TO BE CONSIDERED AT EQUITIES AND STOCK MARKET DEVELOPMENT
Basic conditions of market development
⋅ Constant sale of Government equities, bonds according to determined schedule, make information transparent
⋅ Will be formed market benchmarks ⋅ Will be developed company bond & derivative market ⋅ Search for bank or foreign sources by companies will be lowered
⋅ Development of market of shares
⋅ Number of registered major companies are low (6 major companies: 5 million $)
⋅ Improvement of assessment process ⋅ Create true, open state of company profit, income ⋅ Improve activity and capability of capital market intermediator’s ⋅ Increase investors knowledge and trust
⋅ Extend base of institutional investors: Joined investment fund, pension fund, insurance companies
⋅ Stabile demand for long-‐term equities and stocks
Questions to be considered during market development
⋅ Improvement of legal environment ⋅ Updated revision of Equity market law ⋅ Adjust in accordance with International capital market principles
⋅ Create legal system oriented to power of the companies and improvement of openness ⋅ Recording, audit standards: Increase trust to companies
⋅ Give consideration to improve capabilities and potentials of capital market participants ⋅ Discuss market difficulties, take information about and implement new products and cervices
⋅ Correct definition of subsequent reforms ⋅ Prepare documents including challenges, solutions and cooperation in the way of capital market development