When I unexpectedly received an invitation to the 1991 opening of the Mongolian Stock Exchange, I thought, "Why not?"
After all, this was the new frontier. I was expecting a real “Wild West,” since the country had just broken free from Russia to form a fledgling democracy.
But I got more adventure than I bargained for. In fact, I was lucky to get out of there alive.
The first challenge was handling the tumblers of vodka. Mongolia has the honor of being the highest per-capita imbiber of vodka in the world.
Now, I like a martini or two. But as the dozens of toasts with pints of vodka and calls of “bottoms up” went on late into the evening of my arrival in the capital of Ulan Bator, I nearly drowned in the stuff.
The second day, we went by Jeep deep into the rugged steppe for a traditional Mongolian barbecue, capped by races to the top of mountains and a midnight Mongolian wrestling match on some cliffs.
I managed to win the race in my Nikes, but a slip here or there during the cliff wrestling would have led to my unfortunate demise.
3 Million Mongolians
About half of Mongolia's population of 3 million lives in Ulan Bator. To put things in perspective, the country is two times the size of Texas — but the Texas economy is 100 times larger. That creates a massive growth potential.
Mongolia is sitting on a treasure trove of resources. Its top ten mines alone, holding coal, copper, gold, uranium, and rare earths, are worth $2.75 trillion.
This makes every Mongolian a resource millionaire — if the country can get its act together and get this stuff out of the ground and to global markets. Corruption and red tape are major issues, and inflation tops 20% as the gold rush mentality takes hold.
Still, the willing buyers are certainly there. Billions in new capital pumped into the economy is fueling a stunning 15%-plus increase in the country’s GDP each year. And KFC, Louis Vuitton, Versace, and IMAX have opened for business.
Surprisingly, Mongolia beats out China, Vietnam, Philippines, Brazil, and India in the World Bank's "ease of doing business" survey.
But the Mongolia Stock Exchange is not for the faint of heart. The brave have been rewarded with returns of 121% in 2010 and 58% in 2011, but in 2012, it pulled back 19%. Over the last year, it has rebounded 9%.
There are 332 companies listed worth about $3.2 billion in total. About one-fifth of these companies are in the mining sector, and the exchange is only open from 11 a.m. to 2 p.m. each day.
And even if you can stomach the uncertainty, there are only a few ways you can participate in this frontier opportunity.
A Shot of Mongolia
Temasek, Singapore’s investment arm, took a 5.5% stake in Canada’s Ivanhoe Mines, which has a 66% share of Mongolia’s Oyu Tolgoi gold and copper mine located on the Mongolia-China border.
The Oyu Tolgoi deposits reportedly contain 79 billion pounds of copper and 45 million ounces of gold. Australia's Rio Tinto (NYSE: RIO) has already spent $7 billion to prepare the mine for operations.
There is also an ETF you should keep an eye on. Launched in April 2013, the Global X Central Asia & Mongolia Index ETF (NYSE: AZIA) tracks the performance of 22 securities from the various nations that have exposure to the central Asia and Mongolia region.
This ETF needs to boost its trading liquidity, and about 75% of its total assets are in its top ten holdings.
A small shot of Mongolia could lead to some handsome profits.
Until next time,
Carl Delfeld for Wealth Daily