Why Mongolia Is Becoming a Hot Emerging Market

Henry Truc  |

Not historically known as a hotbed for foreign investments, Mongolia has usually gotten lost in the shuffle between established up-and-coming (oxymoron) markets like Russia and China. But Mongolian stocks have been gaining quite a lot of attention as the resource-rich, underdeveloped country is attracting a lot of outside money due to its enormous potential. In fact, the best performing stocks last year were Mongolian equities, rising about 140 percent.

Citigroup (NYSE: C) even recently says that it thinks Mongolia's economy will be the fastest growing market for the next two decades, expanding about 8.7 percent annually.  While Mongolia stores an abundance of fisheries, forests, precious metals and mineral deposits, its the country's natural reserves of coal, petroleum and, not the least of all, oil that has investors excited.

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Mongolia, China and Russia

Another factor working significantly in Mongolia's favor is its close proximity to China, and to a lesser extent, other developing nations like South Korea and Russia. As China and Russia move out from the "emerging nations" label and become bonafide developed countries, their hunger for resources like metals and oil will only grow. Not to mention, a new source of oil away from the volatile Middle East could attract Western nations like the United States and those of Europe as well. It's a fundamental fact that oil is the lifeblood of a modernized economy, and any country that produces it immediately gains some level of clout. For a country that has a GDP of roughly $9.5 billion, that ramp up of growth can be pretty steep.

Resource giants like Rio Tinto (NYSE: RIO), Ivanhoe Energy (NASDAQ: IVAN), and Peabody Energy (NYSE: BTU) have already made moves to invest in the Mongolian market. The country's government is looking to issue bonds to capitalize on its new popularity. The state-owned gold and copper mining project Oyu Tolgoi--a joint venture with Rio Tinto and Ivanhoe--is garnering a lot of excitement for it's eventual IPO. Oyu Tolgoi is projected to produce somewhere in the range of $30 billion to $50 billion in revenue over the next 30 years. To top it off, the Mongolian Stock Exchange has a strategic partnership with the London Stock Exchange to promote and develop the MSE.

Investing in Mongolia

Since Mongolia's growth is still in the early stages, speculation and volatility levels are understandably high. But for investors looking to get their hands on a Mongolian play, they may be better suited in looking at emerging market ETFs like EGShares Emerging Markets Metals/Mining (NYSE: EMT), which has exposure to the country through its holdings, or stocks that have an indirect connection through their operations.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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