On Tuesday, Standard & Poor's Ratings Services said that
it lowered its ratings outlook on Mongolia to Negative from
Stable while affirming the central Asian country's BB- long-term
and B- short-term sovereign credit ratings. Those are both junk
The one ETF that could be vulnerable to S&P's now dour
view of Mongolia is the newly minted Global X Central Asia &
Mongolia Index ETF (NYSE:
), which debuted earlier this month. AZIA is the one ETF
currently on the market with noteworthy exposure to
commodities-rich Mongolia. The fund allocates 13.96 percent of
its weight to the country, making Mongolia the ETF's
third-largest country exposure behind Kazakhstan and Russia,
according to Global X data
AZIA has not traded yet on Wednesday, but the new ETF has
gained two percent in the past week. The ETF is the first to give
significant allocations to Kazakhstan (46.1 percent), Mongolia
and Turkmenistan (5.9 percent). AZIA is also the only ETF with
any decent exposure to Kyrgyzstan and Tajikistan.
In other words, AZIA's country profile is such that it is fair
to say this ETF perhaps best suited for the adventurous investor.
And it could be Mongolia that provides plenty of adventure.
"We revised the outlook on Mongolia to negative to reflect our
opinion that higher policy risk has increased the chances of a
downgrade to more than one-in-three for the country over the next
six to 18 months ,"
S&P, according to the UB Post
. "Mongolia's fiscal and external profiles could deteriorate
materially over the next year or two in the absence of a
significant improvement in policymaking regarding government
borrowing, public spending, and the business environment."
S&P also said it could downgrade Mongolia if the
government there increases borrowing or the country's mining
sector continues to slump. On the other hand, it could be the
mining the sector that is the source of the bulk of future
foreign direct investment into Mongolia in the future.
Mongolia's Tavan Tolgoi coal mine is one of the largest in the
world and has a nearby, loyal customer in the form of China. In
fact, when Tavan Tolgoi fell on financial hardship in 2011, it
was Aluminum Corporation of China (NYSE:
that came to the rescue
Naysayers will coal is not the place to be for investors these
days. A look at the chart of the Market Vectors Coal
indicates as much
. However, Mongolia's Gobi desert is home to an abundance of
other deposits such as copper, gold and silver. Australian mining
giant Rio Tinto (NYSE:
) has invested there.
There is a rub with that scenario, too. Prices for all three
of those metals have been under siege this month. So have the
the offer exposure to major producers of those
Obviously, AZIA is about much more than Mongolia, but with
sliding metals prices and the potential for sovereign debt
downgrade, the ETF will need Kazakhstan to carry the load if
For more on ETFs, click
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