Best-Performing Mongolian Stocks Have ‘Upside,’ Harvest Says
Harvest Global Investments Ltd., a unit of China’s second-largest money manager, plans to buy more Mongolian stocks for its frontier-markets fund as rising consumption and a commodities boom spur economic growth.
“From being unknown to being mildly known, Mongolia still offers upside,” Andrew Tan, 37, deputy chief investment officer at Harvest Global, said in a telephone interview from Hong Kong on Feb. 28. “We find the government has done all the right things for the last five years in terms of opening up the market. The country has much better fundamentals.”
Mongolian stocks have rallied the past two years as investors bought shares of companies that are benefiting most from exports of commodities such as coal and copper to China. The MSE Top 20 Index (MSETOP) is the world’s best-performing index among the 93 tracked by Bloomberg with a combined 263 percent gain since the start of 2010. It climbed 0.2 percent today, erasing this year’s loss.
Tan’s Asia Frontier Equity Fund (HARASFI), which started in November and has a year-to-date return of 2.3 percent based on Bloomberg data, invests in Mongolia, Bangladesh, Vietnam, Sri Lanka and Kazakhstan. The fund has a 5 percent allocation for Mongolian stocks with “plans to increase” that amount, Tan said, declining to name specific stocks or give a timeframe. His company’s parent, Harvest Fund Management, invested more than $34 billion at the end of Dec. 2011, according its website.
“Structurally, we are positive on the market for the next three to five years,” Tan said. “Mongolia, if we look at the entire dynamics, has already overtaken Australia as one of the largest exporters of coking coal to China.” He hadn’t decided which stocks he would cut to fund the Mongolia purchases.
Economic growth in Mongolia may surge 23 percent in 2013, more than twice the pace of expansion in China, as mining projects begin production in the sparsely populated nation, the International Monetary Fund said in April. It also anticipates a 2013 startup of the Oyu Tolgoi mine, which operator Rio Tinto Group has said is one of the world’s biggest untapped copper and gold finds and potentially a source of 30 percent of Mongolia’s gross domestic product by 2020.
Mongolia’s gross domestic product per capita was estimated at $4,500 last year based on purchasing power parity, according to the CIA’s World Factbook.
“Conservative IMF projections suggest Mongolian GDP will quadruple from the current level to about US$25 billion in the next five years, while GDP per capita will exceed $8,000, Alisher Ali, managing partner at Ulan Bator-based Silk Road Management Ltd., said in an e-mail interview on Feb. 28. ‘‘A decade of rapid growth awaits Mongolia.’’
Standard & Poor’s Ratings Services on Dec. 19 revised Mongolia’s outlook to positive from stable and affirmed the landlocked nation’s sovereign ratings, citing its growth prospects as more mines begin operations.
Ali said corporate governance and a lack of liquidity are challenges for Mongolia’s stock market even as the economy grows. Mongolia was ranked 120 out of 183 countries in the Transparency International Corruption Index last year.
Market volatility is likely to increase before Mongolia’s parliamentary elections in June and amid concerns China’s economy is slowing, according to Tan.
Tan’s fund owns Mongolian stocks that are traded in the country and overseas including Sydney-traded Aspire Mining Ltd. (AKM) and domestic beverage company APU JSC (APU). Aspire Mining, which operates a mine in Mongolia that produces coking coal, has a ‘‘very experienced” management team and “better governance” because it’s listed in Australia, he said. The stock gained 6.8 percent this year, compared with a 6 percent advance for Australia’s benchmark index.
Tan likes APU because of rising incomes and a “better balance sheet” compared with other Mongolian companies. APU, which produces spirits, rose 1.2 percent today to the highest level since June 2008. It has gained 4.8 percent this year.
“One way to mitigate our risk is to invest in companies with understandable business models. That’s when we find consumer-related names such as APU are more straightforward than mining companies listed in Mongolia,” he said.
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