The best ways to invest in Mongolia
Until recently, Mongolia was an overlooked frontier market. But no longer. Some analysts believe the country could become the fastest-growing economy in the world over the next decade. Here's how to buy in.
Until recently, Mongolia was "an overlooked frontier", says John Polomny on Seekingalpha.com. No longer. This $5bn economy with just under three million people is thought to have the world's second-biggest reserves of copper and uranium, and the 11th biggest stock of coal. It is also next to China, which has an "insatiable" appetite for raw materials.
Last autumn saw a long-awaited agreement between the government, Ivanhoe Mines and Rio Tinto. They will develop Oyu Tolgoi, a copper and gold mine, which will start production in 2013 and could, according to the Mongolian government, operate for 30 years and produce $30bn-$50bn of revenue. Throw in further projects and it's clear why Renaissance Capital thinks Mongolia could become the fastest-growing economy in the world over the next decade.
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Mongolia has become the "newest 'in thing' in the world of investing", says the FT's David Stevenson. There is now even a Mongolian equity-tracking index, launched by Eurasia Capital, and an ETF on the index may follow. But investors should be wary. The index is "a vulnerable, young waif" skewed heavily towards exploration groups. Chris Rynning of Origo Partners reckons that many Mongolian firms will "struggle to meet their production targets" because the required infrastructure will be slower to arrive than expected. The local market, moreover, will be buffeted by "inevitable" bubbles investors rush into.
For now, then, investors should research some of the foreign firms with Mongolian operations listed in the Eurasia index, says Stevenson. Examples include Canada's Entre Gold (CN: ETG), UK-listed Central Asia Metals (LSE: CAML), and Origo Partners (LSE: OPP). Origo is a private-equity group that concentrates on China-linked opportunities and is rapidly growing its Mongolian presence. It is on a 30% discount to its net asset value.
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