Few economies have grown as quickly as the Mongolian economy in
the past few years. Unfortunately for American investors, obtaining
exposure is not as simple as buying a countryspecific ETF. Rather,
you are better off looking at developed-country miners with
Mongolian operations like Rio Tinto (
RIO
,
quote
).
[caption id="attachment_65551" align="alignright" width="300"
caption="The tangible results of Mongolia's mining boom as seen in
this building in the capital, Ulan Bator"]
[/caption]
With the exception of 2009, the Mongolian economy has performed
consistently well since the Asian financial crisis. However,
starting in 2010, growth in Mongolia absolutely exploded. This
rapid growth was catalyzed by the development of the Oyu Tolgoi
mining region.
Oyu Tolgoi is teeming with a number of minerals, including
copper, coal, molybdenum, tin, tungsten, and gold. These massive
deposits have attracted substantial foreign interest and have
resulted in the Mongolian economy averaging double-digit growth for
the past few years.
While Mongolia is soaring, all is not hunky-dory -- a number of
legitimate fears persist. First, the Mongolian economy is
traditionally based on raising livestock and other forms
agriculture. The transition from an agricultural-based economy to
one focused on mineral extraction has not always worked out well
for many countries.
Second, recent political infighting and accusations of graft
have raised concerns over regime stability going forward. In fact,
Mongolians are going to the polls this weekend to determine how the
country's
new-found commodity wealth
will be distributed as many of the
Mongolian lower classes feel they are not receiving their fair
share of the boom
. Investors should keep an eye on results in case a pro-resource
nationalization party prevails.
Third, the Mongolian stock market
has appreciated at such a quick pace
that the sustainability of this move has come into question. The
stock market has gained more than 200% over the past three years,
which could leave the Mongolian economy vulnerable to a stock
market crash.
In light of all of this, the best way to gain exposure to the
Mongolian economy is via miners like Rio Tinto and Ivanhoe Mines (
IVN
,
quote
). Trading well below its 52-week high, Ivanhoe Mines could see a
rally in the near future if talk of resource nationalization
becomes more muted and positive global market sentiment continues
on Europe moving towards actually fixing its structural
problems.
