Mongolia Outlook 2010: Global Outperformer or Start of Multi-Year Bull Market

We believe that the Mongolian economy has bottomed out and is expected to grow rapidly over 8% in 2010 thanks to launch of major mining projects and strong inflows of foreign direct investments (FDI).  Various estimates suggest that Mongolia’s economy may grow 30-35% per year after the Oyu Tolgoi mine starts operation in 2013. Encouraged by the go-ahead in the Oyu Tolgoi project and the Government’s strongly stated interest in speeding up other major deals, foreign investors are already snapping up smaller companies with assets in Mongolia. The quest for resources by larger foreign companies will likely boost M&A activities that would further boost the economic expansion in Mongolia.

In our view, the banking sector in Mongolia still remains vulnerable, due to the lingering effects on the global economic crisis on the Mongolian economy primarily through escalating non-performing loans and the lack of funds for recapitalization. In our view, the Mongolian banks may face further stress and even failures on increasing NPLs this year unless the central bank takes immediate effective actions. We expect MNT to appreciate up to 10% against the USD by the end of 2010 on the base of expectations that the Mongolian economy will receive substantial foreign investments and export revenues will surge due to projected increases in international prices for the major Mongolian export commodities. 

In our view, in 2010 MSE Top 20 Index will gain +76% reaching 11,000 level, catapulting Mongolia into the world’s top three best performing markets.  Mongolia will likely to become the best performing equity market in Asia in 2010.  The overall improved business environment in Mongolia, the launch of Oyu Tolgoi, the selection of the foreign partner(s) for Tavan Tolgoi, the Government initiatives to establish and list the “national champions” internationally and locally and to reform the Mongolian stock exchange as well as growing interest of international investors in the Mongolian stocks and resources would be main catalysts for the expected rally in 2010.

We firmly believe that 2010 will herald the start of multi-year bull market for Mongolian equities and assets.  In coming years, Mongolia will emerge as the star performer among equities globally. We advise investors to seek actively the exposure to the Mongolian equities and assets as we believe the earlier investors will be richly rewarded over the coming years.

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