Mongolia is quickly becoming one of the world’s most
promising economies. This frontier
market in resource rich Central Asia is expected to grow by 20-23% in 2012 with
strong prospects to continue this growth trend.
Only Iraq has a comparable 20-year growth forecast.
Mongolia’s
vast territory borders the world’s premier emerging market, China. This territory is only 17% explored for
commodities despite the abundance of coal, copper, gold, uranium, and iron
discovered in these areas. China’s proximity and growing demand for such
natural resources puts Mongolia in an ideal position. Consequently, many analysts are expecting a
large mining boom over the next decade in Mongolia.
The
country’s stock market is open to foreign investors but much like its vast
resource rich territory, this market remains underexplored by investors. Mongolia’s equity market was the strongest
performing in the world in 2010, increasing 174% from the prior year. It continued this trend into 2011, during
which it was the world’s second best performing equity market. The Mongolian Stock Exchange (MSE) has a
combined market capitalization of $2.3 billion dollars. The Exchange has made a deal with the London
Stock Exchange Group to modernize the MSE to make it meet world standards.
Like all
frontier markets, Mongolia serves as a hedge against global market
movements. It has a very low correlation
with both developed and emerging markets.
In addition to its proximity to China, Mongolia stands to satisfy demand
for natural resources in Russia, South Korea, and Japan. Note the heterogeneity of its four largest
trading partners. Regardless of the
global macroeconomic environment, the four major developed and emerging
economies on its border will have a need for Mongolia’s resources.
Mongolia
presents investors with a relatively young, highly educated population. Forty percent of the country is under 20
years of age and 98% of the country is literate. Many of these young people will work near one
of Mongolia’s 6,000 rare earth mineral deposits.
MSE Top 20 Index |
There is,
as with all frontier markets, a considerable amount of risk involved with
investing in Mongolia. Mongolia is
currently dependent upon China for its exports.
Additionally, political concerns add risk to any investment. Although Mongolia is a Parliamentary
Republic, developing countries have a propensity towards populism and
nationalism. Nationalization remains an
unfortunate risk. However, the Mongolian
government specifically has demonstrated a desire to modernize and become a
reliable member of the global economy.
Investors
interested in exploring the possibility of investing in Mongolia should consult
with their financial advisor to discuss risks and potential returns. AVC Advisory can help interested investors
find an appropriate, well-diversified Mongolian investment fund to invest
in.
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