Fears in Global Recovery and Selloff in Equities. What Does It Mean for Mongolia?

Fears in Global Recovery and Selloff in Equities
What Does It Mean for Mongolia?

Global selloff on US’s Sovereign Debt. S&P’s downgrade of United States’ credit rating to “AA+” from risk free “AAA” has unleashed turmoil across the global financial markets which were volatile enough as it is. The markets have been concerned about the debt problems in some of the EU countries that have been putting pressure on the recovery of the global economy. To some extent the announcement made by the European Central Bank that it is ready to purchase Italian and Spanish bonds in an attempt to stop contagion of the sovereign debt crisis has been positively received by market participants. However, strong negative investors’ sentiment on the back of US credit rating downgrade by S&P has resulted in significant decline of stock markets and commodity prices for the last three days (August 8-10). All major US equities plunged, including S&P 500 Index -6.6%, DJIA-6.3% and Nasdaq Composite Index-5.9%. Asian markets - Shanghai Shenzhen CSI 300 Index, Hang Seng Index and Nikkei Index have declined 2.5%, 5.5% and 2.8%. We view the current panic selling as the crisis of confidence. Although history was made, not much fundamentally changed. S&P revealed nothing new about the US or global economy, in our view. Sovereign debt issues besieging the western economies have been lingering for quite some time. We believe reducing that debt has no immediate solution, but remains critical for long term well being of global economy.

Mongolian economy will maintain its strong growth. Demand for commodities will continue to set pulse of Mongolian economy. Confidence crisis in the West is unlikely to have any immediate effect on Mongolia. We do not believe the current crisis will degenerate into global downturn akin to 2008, which brought fiscal shock to Mongolia.

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