Monday, September 12, 2016

Has Mongolia bottomed?

When you start seeing mainstream press getting on the bandwagon of a trend that trend is probably coming to an end. The Wall Street Journal recently had the following article about Mongolia.

Investors Flee Heavily Indebted Mongolia

I would rather read what someone who actually lives and works there has to say. Nick Cousyn is COO of BDSec which is Mongolia's largest broker dealer. His article is linked here.

The media frenzy surrounding Mongolia’s current economic crisis is akin to what was seen in 2011-2012, when newswires were filled with stories declaring the country the world’s greatest economic growth story. At the time, there seemed little that could go wrong, Mongolia was posting massive GDP growth, commodities were booming and investors were flocking to the country en masse. In retrospect, with hindsight being 20/20 and all, commodity markets during this time were topping out and the Government of Mongolia (GOM) was about to start an ill advised war with their largest investor Rio Tinto over the Oyu Tolgoi mine. 


Today, the media are in an equal but opposite frenzy, focused on Mongolia’s current economic and fiscal crisis. But in reality, Mongolia has been in a perpetual crisis which began in August 2013, when Rio Tinto halted underground construction at Oyu Tolgoi due to the GOM’s attempts to unilaterally re-negotiate the project’s Investment Agreement. For anyone who was watching, Mongolia has been running large budget deficits since 2012 and using international debt markets and Chinese swap borrowing to finance it. 

A barrage of headlines (positive or negative) regarding stocks, currencies and/or countries has long been considered a contrary indicator. This was certainly the case with Mongolia in 2011-2012, when stock prices, sentiment and Mongolia’s Tugrik were at all-time highs. This dynamic was actually studied in 2007 by a group of professors at the University of Richmond, where they aggregated headlines from stories in Business Week, Fortune and Forbes over a 20-year period. What they found (unsurprisingly) was that positive cover stories appeared following periods of strong performance, whereas negative stories followed periods of very poor returns.

All my readers know I have been a long term bull on Mongolia. This was another rule broken as I should have taken profits back in 2011. However, we are now closer to the bottom and it is now time to look for bargains as things seem to be truing around with a new government which is at least acknowledging that changes need to made. When the wheels fall completely off your cart you have no choice but to accept reality.

Read the entire article as it gives info on the potential of development of the Tavan Tolgoi coal deposit which I believe will now get fast tracked by the government desperate for revenue. 

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