The world’s hottest stock market is within the coldest of its capitals.
In a year when a seemingly unstoppable rally has pushed equities from the U.S. to Europe into successive document highs, Mongolia’s minuscule bourse has emerged because the undisputed champion.
The MSE Top 20 Index, which tracks the most important firms within the planet’s most sparsely populated nation, has gained virtually 130% in 2021, by far the best efficiency among the many main fairness indexes tracked by Bloomberg. While a shedding streak this week has some merchants asking if the get together is coming to an finish, optimists see room for additional features.
“The Mongolian equities market has a blue sky potential, because it is growing from a very small base,” mentioned Bilguun Ankhbayar, vp of business growth at Erdene Resource Development Corp., a Canadian company that’s exploring for gold and copper within the nation.
The features are reminiscent of the outsized returns seen from meme shares and cryptocurrencies through the funding craze of the pandemic. Optimists might argue that the foundations of the Mongolian rally could also be stable.
The financial system posted a 6.3% progress rate within the first half of the year, amid an export surge of commodities together with coal and copper, the majority of which is shipped to China. The large neighbor’s insatiable starvation for uncooked supplies has been the principle driver of the rebound within the resource-rich Mongolian financial system.
Thomas Hugger, chief government officer at Asia Frontier Capital Ltd., says Hong-Kong listed Mongolian Mining Corp. is the best-performing Mongolian stock in his fund. The shares are up 225% this year.
Still, this is not a miners-only get together.
Take Apu Company Ltd., which produces vodka, beer and different drinks, and is up virtually 130% this year. Returns of such magnitude could also be an indication of confidence that consumption will proceed to thrive amongst Mongolia’s rising center class, or a warning of a bubble. The company is the most important listed on the Mongolian Stock Exchange, with a market worth of $517 million.
Ulsiin Ikh Delguur JSC, which operates a 100-year-old Soviet-era shopping center within the capital Ulaanbaatar, was up by 613% this year as of final week, when MSE Top 20 reached a document excessive. It has shed some of these features within the shedding streak this week, although it’s nonetheless up an eye-watering 315% year to this point.
This is not the primary time Mongolia’s shares have carried out so effectively. The benchmark rose 400% in 2007 after which one other 138% in 2010. It additionally posted 5 straight shedding years from 2012 to 2016.
As the worldwide financial system grapples with an unstable and uneven recovery, and with strategists in main funding banks warning about stretched valuations in fairness markets worldwide, a repeat of previous laborious landings can’t be excluded.
“We expect the index to move sideways or trend down slightly,” mentioned Hugger, who has 19% of his AFC Asia Frontier Fund invested in Mongolia, the portfolio’s greatest nation weighting. “However, we think that undervalued stocks which have not yet participated in the rally will gain ground over the next couple of months.”
Angarag Byambajav, a dealer at Mongolia International Capital Corp., says the market rally is possible fueled by a surplus of money by locals, following authorities stimulus to cushion the blow from the pandemic, and thus might not final.
“The market is bound to correct itself. In fact we think it’s already under way,” she mentioned.
© 2021 Bloomberg L.P.