5. Reframing the frontier: Mongolia and Uzbekistan
Two frontier markets are making moves in opposing directions.
On one hand: Former soviet nation Uzbekistan is opening up to democracy and international markets. After its first ever international bond sale was 5.5 times oversubscribed (a $1 billion offering with just a 4.75% coupon on 5-year notes holding a BB- rating), the country is plowing forward toward capitalism after 20 years under ruler Islam Karimov.
- Uzbekistan jumped 90 places on the World Bank's ease of doing business rankings, from 166th in 2012 to 76th in 2019.
- The country's Tashkent stock exchange is growing from a $3 billion experiment with only $300 million of shares available to investors.
- Current President Shavkat Mirziyoyev and the country's Capital Markets Development Agency have been pushing for further market liberalization, including a minimum 20% float for state-owned enterprises.
- In October the Tashkent reportedly saw 180 transactions, with 69.8 million shares worth around $10.4 million sold, a record high.
Further, the Financial Times notes, "Political prisoners have been released, exchange restrictions lifted and political debate encouraged — though U.S. campaign group Freedom House still rates Uzbekistan as one of the world's least free countries."
On the other hand: Mongolia, a longtime darling of frontier market investors, is moving towards autocracy.
Anand Tumurtogoo at Foreign Policy writes, "President Khaltmaa Battulga started his career as a wrestler — and he's just forced Mongolian democracy into submission."
- At a time when the world's most sparsely populated sovereign nation has the economic wind at its back — a $5.5 billion IMF bailout package in 2017, increasing trade and a boom in its coal industry — Battulga has taken over the courts and suppressed democratic institutions, Tumurtogoo says.
- Mongolia's "democracy is in peril — swept away by a charismatic president riding public anger about widespread corruption and using it to protect his own allies against the consequences of that corruption."
The Mongolia Stock Exchange Top 20 Index has fallen 5% year to date and is 26% lower since touching all-time highs in early December.
But, but, but: While authoritarianism has traditionally scared away foreign investment, recently in places like Brazil, Egypt and Turkey, investors have embraced autocrats who embrace the market.