-40C or +35C? When to invest in Mongolia

Major stock exchanges should not be affected by seasonality. At least that is what efficient market theory would teach.

But in Ulan Bator, even the pretty pink walls of the Mongolian bourse cannot provide protection from the clear seasonal swings in investment, according to local investment bank Mongolia International Capital Corporation.

The bank noted that based on an analysis of the past four years, the MSE is affected by seasonal factors to a “predictable degree”.

There are two phenomena that tend to affect the seasonality of demand on the MSE, MICC noted:

1. Foreign Investors: The summer months offer a window when many foreigners, both tourists and investors visit the country. MICC’s office is very busy going into September, but by November, seeing a foreign investor is uncommon, and only an investor with a very thick coat visits in January. This increased interest in the summer months, and the investments that interest turns into, possibly explains the share appreciations we have observed in our research.

2. Domestic Investors: Mongolian investors seem to have a different investment schedule than foreigners. These investors, often working in the construction, mining, and agriculture sectors, have seasonal incomes and expenses. As gains are taken in the summer and surplus cash accumulates in the winter, domestic appetite may explain the second annual rise in demand we observe in the colder months.

In the years observed, MICC noted that the MSE tended to increase in value going into September, decrease until December (you are unlikely to see foreigners when it is -40C outside), and then rise again back to its previous level by April.



Source: MICC

The seasonal cycle was disrupted in late 2008 when the global financial crisis came crashing into Mongolia, with the local market experiencing an 11-month decline from end of March 2008.

But since then, as the economy started to recover, the MSE came back to its seasonal cycle. This is how the MSE performed between September and December 2010:



Source: MICC

The Mongolian Stock Exchange was the best performing equity market globally in 2010 with the MSE Top 20 Index, the benchmark, gaining 136 per cent. It is on course to repeat its success this year, having gained 41 per cent already.

But before rushing in it is good to know when to invest.

Comments

Popular posts from this blog