From his window in the sail-shaped Blue Sky Tower, Dale Choi watches an army of workers paving roads and pouring concrete around Sukhbatar Square in the Mongolian capital of Ulan Bator. The glass towers are a sign of fast money flooding into the country on the back of Mongolia's booming mining sector, but it is an old, Stalin-era building on the corner of the square that captures Choi's attention. This is the Mongolian Stock Exchange, a small but growing bourse with huge potential for retail investors willing to make a bet on Mongolia. Last year the MSE Top 20 index gained 136 per cent, defining Mongolia as among the world's best performing share markets. In the first two months of this year, the MSE Top 20 soared 120 per cent. It has since seen a big pullback, but the Top 20 is still up about 38 per cent for the year. 'This is the heart of capitalism and we want it to beat strongly,' says Choi, a University of California Los Angeles-educated economist working at one of Mongolia's nascent investment banks. 'Change is happening here every day. It's the frontier, and we're at it.' Choi, a stout 25-year-old Mongolian with a scruffy goatee and moustache, is the chief investment strategist for Frontier Securities. He is one of many 'repat' Mongolians, returning home after several years abroad, to take advantage of opportunities in Ulan Bator, which he jokingly calls 'Ulan Qatar'. He suggests that I invest in MSE-listed stocks, and sends of me off with literature about his brokerage. I return a few days later to ask about investing prospects. Is the MSE a fluke, a one-year wonder? 'Most of the stocks are like penny stocks, and the exchange is like a penny exchange,' he says. 'But for a little guy on the street, it's real money. The money goes to real companies, they hire real people, and they buy real equipment. It's a functioning market economy.' On a good day, daily trading volumes reach US$75,000 and the entire exchange has a market capitalisation of just US$1.6 billion. There are more than 330 companies listed, but the Top 20 index contains about 90 per cent of the market cap for the exchange. Most of the listed companies are holdovers from a privatisation scheme set up 20 years ago, after Mongolia's peaceful transition from a command economy to a more market-oriented system. At that time, Mongolia's assets were listed on the exchange so that shares could be distributed to the public. Many were non-compliant with the rules of the exchange and so simply sat there, moribund, for years. Delisting some of these companies is just one part of a US$14.2 million project to restructure the MSE being carried out by the London Stock Exchange (LSE). The MSE will also get a new, electronic trading platform, updated securities laws, and training for brokers and regulators. 'It's like we are getting a brand new exchange,' says Khangaigiin Altai, the 30-year-old acting CEO of the exchange. 'But fortunately, we don't need to reinvent the wheel. London is bringing in its own system so the MSE will meet world standards.' Restructuring will allow liquidity to flow into the MSE. Earlier this year, the government approved a list of 15 state-owned businesses for privatisation, likely to occur next year. These include telecoms, coal mines and the MSE itself. 'The government is determined not to repeat the failures of past privatisations,' says Choi, referring to the distribution of state assets in the early 1990s, when the government distributed vouchers to the public that they could exchange for shares of companies. Most people had no idea what they owned and simply traded them away for sacks of flour or bottles of vodka. The LSE is planning an all-out education scheme to prepare the public for upcoming initial public offerings and share distributions. The most anticipated IPO for next year is that of Erdenes Tavan Tolgoi. Bill Gorman, president of the MSE, says the IPO could raise US$3 billion. Most of the shares will be floated on the Hong Kong or London exchanges, but some shares will be listed on the MSE. The government has already promised each Mongolian 536 shares of the company. Back at Frontier Securities, Choi presents me with some of his recommended stock picks. Number one, he says, is Remicon (MSE: RMC), a concrete mixing company with a US$12 million market cap. The company, founded in 2008, is undergoing restructuring and expansion, under the supervision of foreign management. 'They are raising capital and getting money from institutional investors. The company will be the top concrete producer in the country after expansion. It's a great growth story,' he says. In a country with a booming mining sector and seemingly unstoppable construction, investing in a small but growing concrete company is a logical pick. The recommendation is backed up later in the day when I visit Lee Cashell, managing partner of Asia Pacific Investment Partners. 'We are in the midst of an infrastructure boom; it's a fast growing country; Remicon is the leading concrete batching company. It's a no-brainer: it's going to go up,' says Cashell, who has been investing in Mongolia since 2002. The success of companies like Remicon, and others in the mining and construction sector, are largely dependent on the economic success of the mainland. 'Mongolia is a derivative of China,' says Eric Zurrin, director general of ResCap, a boutique corporate finance adviser. 'Investing in Mongolia is investing in Chinese growth. If you can't get comfortable with China, then Mongolia is a hard place conceptually to invest in.' Those who find it too daunting to pick individual stocks may prefer the Khan Mongolia Equity Fund, launched by Cayman Islands-based Khan Investment Management. The fund will invest in a basket of companies listed on the MSE, as well as companies that operate in Mongolia but are listed on overseas exchanges. The internationally listed firms with operations and assets in Mongolia have a combined market cap of more than US$33 billion. Those wanting to take a punt on the MSE will first need to set up an account with a local brokerage. There are more than 40 brokerages with seats on the MSE. Fees vary between 1.5 per cent and 3 per cent per trade, so it pays to shop around. More than half of the fees go to the exchange, the depository and the Mongolian market watchdog, the Financial Regulatory Commission. Online trading is not possible, but this could change after LSE completes its restructuring. It is possible to see the latest share prices on the MSE website: www.mse.mn . Technically, the account you set up is with the Mongolian Securities Clearing House & Central Depository, which acts as a securities clearing house and Share Registry for the MSE. Once the account is set up, trades must be pre-funded before they can be executed. Then it's just a matter of making stock picks and diving right in.