Mongolia starting to bear fruit
We first highlighted Mongolia in our 2017 Outlook and revisited this theme in our 2017 mid-year review. To date, our predictions have been on point and the economy is rebounding well from its lows in 2016 and the painful restructuring that took place.
One major factor in Mongolia’s recovering is booming exports. Not only is China increasingly dependent on Mongolian coal, but Oyu Tolgoi is proving to be one of the most exciting developments in gold and copper mining for decades. With over 200 kilometers of underground tunnels and ore deposits estimated to be a similar size to Manhattan Island, the impact on government tax revenues from tapping these vast resources is expected to be substantial.
We previously wondered whether the newly elected president Battulga would be a risk to recovery, given his pro-Kremlin stance. However, his actions to date are geared towards boosting the economy, rather than hindering it. Battulga’s veto of the 2018 budget to avoid violating the terms of the IMF bailout program demonstrates his commitment to discipline, helping turn things around.
While political risks remain, Mongolia is unlikely to reverse the recovery in any meaningful way, meaning we remain upbeat on the region. So where are the opportunities for investors? Local equity markets lack sufficient liquidity and transparency to offer genuine investment opportunity. But the currency looks to be in a good position, so Tughrik bonds could offer attractive yields.