Thinking about the frontier markets of Mongolia and Kazakhstan, extractive industries initially come to mind as the most likely intended destinations of capital investment by virtue of the mining projects on the drawing board that are designed to feed China.

However, ancillary businesses are attracting the attention of Asia’s private equity specialists in these extreme emerging markets.

“Mongolia is an extension of the China story, and it has got a lot of things that China needs," says Mandar Jayawant, managing director of Mongolia Opportunities Capital, speaking at the recent Asia Private Equity Forum in Hong Kong.

"Our new fund is focusing on mining services and infrastructure – the secondary services, not the actual extractive business itself. The world’s big mining companies are budgeting billions to spend in Mongolia in development of prospects there.”

His firm is approaching the first close of its initial offering, a growth capital fund. This fund will primarily focus on mining services and infrastructure.

The southern part of Mongolia, that which faces China, is logically more China-focused in its commerce and industry. It makes sense for the northern half of Mongolia to look to the markets of Russia and Japan.

Until recently, there was not much infrastructure to handle such a bold plan logistically. However, that changed in October 2010 when a rail freight service opened between Mongolia’s capital, Ulan Bator, and the Russian port of Vostochny, 4,800 kilometres away.

Even though funds might look at mining services, they need to keep an eye on commodity prices, as the decline in commodity prices during the financial crisis led Mongolia to source a $232 million loan from the IMF, which it has now repaid.

On the other side of the steppe is Kazakhstan, another country which suffered an arduous crisis but is now striving to regain momentum.

Economic development of the ‘Stans’ has also been held back by their own political maturity. Uzbekistan, for example, has a despotic system led by folk who don’t appreciate the benefit of an evolving private sector.

That perception of the Uzbeks comes from Veronica John, the president and CEO of IDFC Capital, who is in the process of setting up a global emerging market fund of funds business. She is more optimistic about Kazakhstan and she, too, likes the sectors that prosper in tandem to a flourishing commodities sector.

“Heavy equipment leasing, bonded warehouses and catering services all look interesting in Kazakhstan,” she says. “They don’t require a lot of funding and have a short payback period for the cash that is invested.”

She gave the example of LPG rail cars leased to Chevron, which were bought from the Ukraine with a four-year bank loan, but have a 15-year operational life.

She points out that, akin to Mongolia, the Kazaks have the same ambivalence about being adjacent to China, with on the one hand economic benefits but on the other hand a set of neighbourly paranoias. Evidently, when Kazaks feel under the weather, they often fear that they are breathing in the toxic fallout from a Chinese weapons test.