Is Capital Market a Development Gateway?

1. Is capital market a
development
gateway?

2. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Current situation of Mongolian financial
market
• Financial sector accounts for 4.7 percent of GDP, of which
banking sector accounts for 4.0 percent, while remaining
0.7 percent comprises of other financial sectors.
/“Development of Financial market” National forum/
• Bank loans- the sole source of funding
• Limited liquidity - when banks stop giving loans in times
of economic difficulty

3. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
According to the 2015 performance
result /in bln. MNT/
*BDSec LLC, Binse JSC, Erchim bond, MMC Holding
Source: Bank of Mongolia, MSE
11,695.7
546.4 510.3 20.4
0
4000
8000
12000
Outstanding
bank loans
Trade on
MSE
Government
securities on
primary
market
Capital
raised on
MSE*
0
4000
8000
12000
0 1
Outstanding bank loans Trade on MSE

4. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Trade structure /in bln. MNT/
Source: MSE
12.3%
87.7%
Share trade
Other trade
24.2 30.5 42.636.2
515.9
304.6
0
200
400
600
2014.12 2015.12 2016.12
Trade structure /in bln. MNT/
Share trade Other trade

5. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Comparison of Mongolian financial
market development with other
countries
144
148
144
140
100
110
120
130
140
150
2012-2013 2013-2014 2014-2015 2015-2016
Pillar 8: Financial market development
127
129
125124
Source: The Global Competitiveness Report

6. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Stock exchanges
No. Country Name
Established
year
Market cap
1 Mongolia
Mongolian Stock
Exchange
1991 USD 0.7 billion
2 Vietnam
Ho Chi Minh City
Stock Exchange
2000 USD 51.0 billion
3 Taiwan
Taiwan Stock
Exchange
1961 USD 742.5 billion
4 Singapore
Singapore Stock
Exchange
1999 USD 665.0 billion
5 Poland
Warsaw Stock
Exchange
1991 USD 283 billion
6 Myanmar
Yangon Stock
Exchange /Хуучнаар
Myanmar Securities
Exchange Centre/
1996 USD 19.2 billion
7 Philippine
Philippine Stock
Exchange
1992 USD 255.1 billion

7. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Importance of capital market in overcoming
Mongolian economic difficulty
• It decreases systematic risk of financial market and
shares risk.
• It improves liquidity of financial market.
• It attracts foreign investment.
Foreign investors tend to prefer investing in regulated
market, because certain risks are prevented.
More variety of investment is offered.
Amount of investment can vary.
• It properly distributes capital sources using local
resources.
• It encourages wealth distribution.

8. The Government policy on using
capital market opportunities

9. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
I. Attractive tax condition
Exemption of certain taxes:
1. Tax on capital gains;
2. Tax on dividends;
3. Tax on interest of corporate bonds
(fixed income)

10. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Dividend tax
30.85
74.25 79.1
11.4
52.2
7.4
0
30
60
90
2010 2011 2012 2013 2014 2015
Total amount of dividend
/in bln. MNT/
3.09
7.43
7.91
1.14
5.22
0.74
0
3
6
9
2010 2011 2012 2013 2014 2015
Dividend tax/ in bln. MNT/
Source: MSE

11. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Tax on dividend
• List of countries that have no withholding taxes on
dividends:
• Brazil
• India
• Malaysia
• Singapore
• Vietnam
• United Arab Emirates
• Hong Kong
• China /P, Red Chips/ etc.
Source: Research of NYSE

12. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Why some countries do not
withhold taxation on capital
gains?
• There is no certain method for tax calculation.
• There is a change in currency value (NPV).
• Stock rate will not increase. Consequently, market cap will not
increase as well, which is a main indicator if capital market.
• It will lead to hidden payment methods.
• List of countries that have no withholding taxes on currency exchange
gains:
•Belgium
•Czech
•South Korea
•Luxembourg
•Netherlands
•Slovenia
•New Zealand
•Switzerland
•Turkey
•Hong Kong
•Vietnam
•China etc.

13. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
Taxation on interest of corporate bonds
/in bln. MNT/
MNT
Foreign
currency
Interest income 2,655.4 681.6
Income tax 266.5 68.2
Source: Bank of Mongolia
Bond interest is same as deposit
interest.
Bond issuer pays interest to bond
holders after fixed period of time.
0.22
0.32
0.38
0.54
0.60 0.60
0.06 0.08 0.11 0.12 0.16 0.16
0.0
0.2
0.4
0.6
0.8
2010 2011 2012 2013 2014 2015
Interest of deposits
/in trln. MNT/
Deposits in local currency /11%/
Deposits in foreign currency /8%/

14. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
II. Privatization on capital
market
1. Privatization process will become open
and transparent.
2. Operation of privatized company will be
open and transparent.
3. In particular, operation of utility
companies including thermal power
stations and distribution companies, will
be open and transparent.
4. Wealth distribution.

15. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
III. To conduct Government
funding on capital market
• Conducting funding of Chinggis bond, DBM and
special funds of the Government by MSE, has
following advantages:
1. The Government funding will become open and
transparent.
2. The Government funding risk will decrease. /Every
public company goes through legal and capital
assessment, audit review, while underwriting
company provides a guarantee./
3. The Government funding will go to the companies
that are open and transparent to public, as well as
share their profit with public.

16. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
IV. To promote public companies with
policy
• To provide public companies privilege
in the Government funded tender.
• To provide them with tax incentives.

17. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
V. Foster local institutional investors
Mongolia Poland
•Pink and blue vouchers were
distributed.
•Institutional investors were not
prepared.
•15 Government funds were
established.
•Today, Warsaw Stock Exchange is
considered as the second largest stock
exchange in Europe after London
exchange and 5th largest based on the
IPO issuance. East European
companies prefer issuing IPO on
Warsaw Stock Exchange.
•Instead of distributing cash, fund should be established.
•Condition which allows IPO issuing companies to raise capital from funds, instead
of individuals ought to be formed.
•Potential: Savings and credit cooperatives, non banking financial institutions,
insurance funds

18. MONGOLIAN ASSOCIATION OF SECURITIES DEALERS
VI. To implement policy aimed at improving the skill
of professional participants of the market
VII. To widen the financial knowledge of public and
prepare national investors

19. Thank you for your
attention!