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.
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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.