Why Mongolia Offers Strong Investment Upside
“We believe we’re at the bottom there. We’re keen on consumer goods and industrial companies.”
So said Thomas Hugger, CEO of the AFC Asia Frontier Capital Fund, while referring to the investment opportunities in Mongolia at the moment.
I agree with him. The country offers significant upside.
Since I spoke at the opening of the Mongolian Stock Exchange in 1991, I’ve kept a keen eye on the country’s fortunes, plus those of its market.
And unbeknownst to many investors, this is an emerging market that’s truly worthy of its name.
Political Shift Set to Fuel the Next Bull Market
If you’re looking for a current catalyst, the recent parliamentary elections in Mongolia resulted in a massive 85% majority win by the opposition MPP party.
This will likely fuel a rebound in Mongolia’s economy and stock market.
As with many elections, the economy was a key issue. In 2015, Mongolia’s GDP growth dribbled in at 0.4% – a far cry from the outstanding 17.5% chalked up in 2011.
If the MPP’s pro-growth campaign agenda is enacted, foreign investment should surge and Mongolia’s economy could regain its place as the fastest growing economy in the world.
That being said, the Mongolia Stock Exchange isn’t for the faint-hearted. But if you can tolerate the ebbs and flows of an emerging market, keep in mind that those who positioned themselves before the last sharp rebound in Mongolia were rewarded with returns of 121% in 2010, and 58% in 2011.
Since all great bull markets begin with significant economic or political reform, it could happen again.
But where do you invest?
Mining is Good… But This Area is Better
When most investors think of Mongolia, their minds turn towards the mining industry. And with good reason, too.
- Around 20% of the 200-plus companies listed on its stock exchange are involved in mining.
- Mongolia’s top 10 mines alone are sitting on $2.75 trillion of coal, copper, gold, uranium and rare earths.
- Mongolia’s Oyu Tolgoi gold and copper mine, located on the Mongolia-China border, is back on track. The deposits there reportedly contain 79 billion pounds of copper and 45 million ounces of gold. Australia’s Rio Tinto has already spent $7 billion to prepare the mine for operations.
But remember the quote from Thomas Hugger at the top?
He’s on to something when he recommends looking towards the more stable, lower-risk areas of the economy such as consumer goods stocks.
And it doesn’t get any more basic than food – and a bakery company, in particular.
Talkh Chikher JSC (TCK) is one of Mongolia’s leading manufacturing companies. It boasts a 60% share of the bread market, and 20% share in pastry products in Mongolia’s capital of Ulaanbaatar
It’s considered a “blue chip” Mongolian firm, having been included in the Mongolian Stock Exchange’s Top 20 index since it was formed in the 1990s.
To boost productivity and expand into new products, Talkh has invested in the most modern European equipment – a strategy that’s led to double-digit increases in revenue and profits.
The best part? Talkh shares are trading at just seven times expected 2016 earnings – about one-third of the average S&P 500 stock.
But I recommend a safer, more diversified approach…
Look Beyond This Simple ETF
While many investors will look to an ETF like the Global X Central Asia & Mongolia Index (AZIA), its liquidity is poor and 75% of its total assets are in its top 10 holdings. Too risky.
The best way to get exposure to Mongolian stocks that offer a blend of quality, growth, and value is through the previously mentioned AFC Asia Frontier Capital Fund.
With fully half of its population under the age of 30, Mongolia’s has a strong demographic tailwind that should propel the country ahead. And in addition to positive political change, pro-growth economic policies, rising foreign investment, and a pickup in mining activity, there are some compelling growth catalysts.
An uptrend in Mongolia’s stock market is already developing. I suggest you take action by investing in Mongolia.