My Mongolian adventure
I've had a cracking start to the year, with my portfolio of shares up 5.5 per cent since the beginning of January, against a fall in the FTSE All-Share index of 0.28 per cent. The largest contributor to that out-performance came from an astonishing bounce in the oil equipment sector.
The temptation is to take some profits, especially with Hamworthy (my overall gain is 190 per cent) but I'm sitting tight for now. The structural force behind these price increases is the rising oil price and based on market projections for constrained supply I don't think that any pull-back in Brent or West Texas will be that seismic. Despite the inexorable rise to dominance of liquefied and shale gas, easily accessible oil is still in short supply - so expect to see a sharp correction in spot prices only if China suddenly slows down to a sub-8 per cent growth rate.
That commodity run is also powering surging demand for industrial metals and coking coal, which is in turn feeding through into a big increase in the share price for Mongolian mining play Ivanhoe. My shares in this Canadian-listed play were up 19 per cent, off the back of a huge fund raising to finance its Oyu Tolgoi copper and gold mine. The shares are looking more than a bit expensive but again I'm sitting tight because I think the bulls have got the market to themselves.
I'd strongly recommend that all really adventurous investors keep a beady eye on Mongolia this year - this will continue to be an astonishing rollercoaster investment story, with a handful of funds mulling a listing on the Alternative Investment Market (Aim). A recent report from purveyor of all facts Mongolian - Eurasia Capital - pinpointed why so many frontier investors are getting worked up about this vast but sparsely populated country. In no particular order, they identified some big positives for 2011 (see box).
MONGOLIA FACTS
1. Mongolia had the best-performing equity market globally in 2010, surging 138 per cent by the end of the year. Yet even after that surge the entire market was valued at just $1.5bn.
2. Mongolia has 'likely become' the world's second fastest-growing economy in 2010 in terms of GDP growth rate - according to Eurasia, Mongolia achieved a 44 per cent year on year economic growth in dollar terms.
3. The Mongolian tugrik became the world's best-performing currency after the Australian dollar in 2010.
4. Mongolia achieved the highest-ever level of foreign direct investment last year hitting $1.4bn.
5. Exports surged more than 54 per cent to $2.9bn in 2010 with coal exports increasing 2.9 times in 2010.
6. Currently, there are around 5,000 expats in Mongolia. According to Eurasia, this could total a staggering 500,000 within a decade (compared to a current population of just 2.9m). Imagine the infrastructure effects of all these new people emerging unannounced.
Source: Eurasia Capital
What next?
Stepping back from all this breathless talk of bullish super cycles, I'd be cautious about committing new money to the whole 'super resource' sector story. I'm still a big fan of the picks, shovels and rigs story, but the whole sector is starting to look very expensive. That said, a few interesting stocks lurk on the edges. These include Tidewater, a big US oil services supplier, and I'm also tracking Dublin-based capital equipment giant Charter International, which looks reasonably priced and cropped up in a value-based screen run by SocGen strategist Dylan Grice, of whom I'm a big admirer.
I have suffered one huge disappointment, namely micro cap travel company Western & Oriental whose shares have slumped below 1p. Basically W&O seemed to have a solid collection of travel and events businesses that were undervalued by the market. However, they've just been sold to a director for a fraction of the book value. This was always a small, risky bet and apparently there's still a decent events and travel fulfilment business lurking in the wings - but I'm not holding my breath.
Nevertheless, I am about to buy some shares in an equally risky bet, Travelzest. The company has been the subject of a great deal of negative publicity around the director's option incentivisation scheme and the legal action between the chief executive and the rest of his family. The contrarian in me likes the core underlying business, which seems to be sailing through the choppy waters of poor discretionary consumer spending, helped in part by a Canadian business that is clearly booming. Travelzest looks chronically cheap, but then again so did W&O.
And while on the subject of cheap travel stocks it might be worth mentioning that the biggest player in the sector also looks undervalued - Tui Travel has had its fair share of controversy, including some ropey accounting, but it's a great brand with global reach and a decent trading book. Its shares pay a decent dividend - well backed by cash - and it looks like a quality business to me.
The temptation is to take some profits, especially with Hamworthy (my overall gain is 190 per cent) but I'm sitting tight for now. The structural force behind these price increases is the rising oil price and based on market projections for constrained supply I don't think that any pull-back in Brent or West Texas will be that seismic. Despite the inexorable rise to dominance of liquefied and shale gas, easily accessible oil is still in short supply - so expect to see a sharp correction in spot prices only if China suddenly slows down to a sub-8 per cent growth rate.
That commodity run is also powering surging demand for industrial metals and coking coal, which is in turn feeding through into a big increase in the share price for Mongolian mining play Ivanhoe. My shares in this Canadian-listed play were up 19 per cent, off the back of a huge fund raising to finance its Oyu Tolgoi copper and gold mine. The shares are looking more than a bit expensive but again I'm sitting tight because I think the bulls have got the market to themselves.
I'd strongly recommend that all really adventurous investors keep a beady eye on Mongolia this year - this will continue to be an astonishing rollercoaster investment story, with a handful of funds mulling a listing on the Alternative Investment Market (Aim). A recent report from purveyor of all facts Mongolian - Eurasia Capital - pinpointed why so many frontier investors are getting worked up about this vast but sparsely populated country. In no particular order, they identified some big positives for 2011 (see box).
MONGOLIA FACTS
1. Mongolia had the best-performing equity market globally in 2010, surging 138 per cent by the end of the year. Yet even after that surge the entire market was valued at just $1.5bn.
2. Mongolia has 'likely become' the world's second fastest-growing economy in 2010 in terms of GDP growth rate - according to Eurasia, Mongolia achieved a 44 per cent year on year economic growth in dollar terms.
3. The Mongolian tugrik became the world's best-performing currency after the Australian dollar in 2010.
4. Mongolia achieved the highest-ever level of foreign direct investment last year hitting $1.4bn.
5. Exports surged more than 54 per cent to $2.9bn in 2010 with coal exports increasing 2.9 times in 2010.
6. Currently, there are around 5,000 expats in Mongolia. According to Eurasia, this could total a staggering 500,000 within a decade (compared to a current population of just 2.9m). Imagine the infrastructure effects of all these new people emerging unannounced.
Source: Eurasia Capital
What next?
Stepping back from all this breathless talk of bullish super cycles, I'd be cautious about committing new money to the whole 'super resource' sector story. I'm still a big fan of the picks, shovels and rigs story, but the whole sector is starting to look very expensive. That said, a few interesting stocks lurk on the edges. These include Tidewater, a big US oil services supplier, and I'm also tracking Dublin-based capital equipment giant Charter International, which looks reasonably priced and cropped up in a value-based screen run by SocGen strategist Dylan Grice, of whom I'm a big admirer.
I have suffered one huge disappointment, namely micro cap travel company Western & Oriental whose shares have slumped below 1p. Basically W&O seemed to have a solid collection of travel and events businesses that were undervalued by the market. However, they've just been sold to a director for a fraction of the book value. This was always a small, risky bet and apparently there's still a decent events and travel fulfilment business lurking in the wings - but I'm not holding my breath.
Nevertheless, I am about to buy some shares in an equally risky bet, Travelzest. The company has been the subject of a great deal of negative publicity around the director's option incentivisation scheme and the legal action between the chief executive and the rest of his family. The contrarian in me likes the core underlying business, which seems to be sailing through the choppy waters of poor discretionary consumer spending, helped in part by a Canadian business that is clearly booming. Travelzest looks chronically cheap, but then again so did W&O.
And while on the subject of cheap travel stocks it might be worth mentioning that the biggest player in the sector also looks undervalued - Tui Travel has had its fair share of controversy, including some ropey accounting, but it's a great brand with global reach and a decent trading book. Its shares pay a decent dividend - well backed by cash - and it looks like a quality business to me.
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