Prospects of impressive levels

Frontier Markets - a term many investors have come across in the past few years, but to most it remains just as they saw it first- a “term”. Frontier Markets are the new “in” thing in the business world; one could call them a new “breed” of investment opportunities where the condition of the market is somewhere below the “emerging” stage, but that is more than compensated by the huge returns that such investments earn.

A shining bright star in the sky of frontier markets is Mongolia- a small country land-locked between Russia and China that survives of off importing energy and consumables from its neighboring countries.

So why exactly Mongolia?  Why a country that is renowned to the world only due to a barbaric war chief that cause havoc through all of Asia?

The answer is simple - Mongolia may have had a rather unconventional and un-extraordinary economical past, but that was till the year 2000. Major changes initiated through government policies in the past two decades have completely altered the situation in Mongolia.

Is it still politically risky?–Yes

Is it still unstable? –Yes

But are the investments still worth the risk? -Definitely Yes!

The returns on investments in Frontier Markets in general and Mongolia specifically are such that neither a single developing nor developed country can hope to match. Over the extent of the past 5 years the situation on Mongolia has changed such drastically that not only did they become main world exporters in multiple fields (mainly coal and minerals), but they have already been entitled the position of the second fastest growing economy in the world and now have so much Foreign incoming capital that the government is currently at a loss as to what to do with it.

To be honest it sounds like a scene from a movie where the main hero who just starts martial arts becomes a champion in a mere 3 months training period. Skeptic opinions are a normal reaction to this statement, I for one was someone who didn’t believe this in the beginning, but the facts present are more than reassuring.

Let’s take the Mongolian Stock (MSE) exchange for example: Its exponential growth is measured in three digits numbers when taken into percentages. Last few years have seen an increase in the indices growth of 800-1000% depending on sources. Just in the first few months of 2011, starting from

 January, the MSE index has already doubled. Company growths are even more astounding if you look at them, for example the Gutal OJSC has grown by 1 028,93 % from January, the Mogoin gol JSC with its 473,91% growth, or the Bayanteeg JSC which also grew by 463,54 %. These are just three cases taken from the list of all available companies in the MSE.

Do these numbers leave any doubt about the proficiency of the Mongolian market?

Personally in my case, they don’t.

Of course such possibilities come with risks, like with all Frontier Markets - Mongolia has a constant unstable condition, both politically and economically. The situation is apt to change and requires careful treating when considering investing in the market.

A major risk factor for the country is the unstable government policies that sometimes change on a monthly basis. New laws that may either enforce possibilities or diminish them are constantly being taken up. Thought the last one where the government had permitted excavations in previously closed copper and coal birthplaces has played a very positive role in attracting investors.

All-in-all, Mongolia is a great choice for the more risk-seeking part of the international investors who are ready to go through a little bit of trouble and reap much larger rewards than the safer and more conventional methods.

Author: Azizbek Mukhamedov 
Analyst at FrontiersInsight.com

http://www.frontiersinsight.com/