Trump Has Caused A Coal-Powered Stock Rally In Mongolia

37

Mongolian Stocks Have Skyrocketed in 2017

From February 2009 to February 2011, the Mongolian stock exchange’s Top 20 Index went through an incredible boom period where the index went from 4625 at the low up to 32955 at the frothy peaks. This 612% move over two years was driven during a commodities boom that brought speculators en masse to the market. Unfortunately, the boom period soon busted and from the all-time peak in February 2011, the market went into a 5 year downturn into the end of 2016. It is a time we have covered in the past on our site here.

We’ve remained bullish on Mongolia’s prospects since that post in 2013, and earlier this year, we touched on what needed to be done to make us believe in the country again. At the time in April, the market was already up 15% and so we were cautiously optimistic about its prospects.

Since then the market has exploded and since the beginning of July, the Mongolian Top 20 Index is up 71% and at 5 year highs:

What the hell is going on?

There are two main factors driving the move.

First, at the end of May, the IMF and its partners announced a $5.5 billion financing package for Mongolia. This news acted as a floor to the market, stabilizing it from years of bear markets. The package was to be a key part of the government’s Economic Recovery Plan and was welcomed by investors around the country.

If the IMF deal stabilized the market, it has been China’s renewed demand for coal that has driven the Mongolian market to new heights. With China co-operating with the US on new sanctions on North Korea, they have stopped most imports of coal from the Koreans. This has led to surging imports of coal from Mongolia. Mongolian coal exports have caused long traffic jams at the border, which you can see here.

So in a way, by pushing for harsher sanctions on Kim Jung Un’s regime, Trump has crashed the North Korean coal market but jump started the Mongolian one. Maybe not what he intended, but at least he’s brought back coal jobs somewhere? Welcome to 2017…

The Big Winner: Tavantolgoi

The main winner of this coal frenzy has been Tavantolgoi (TTL), the second largest stock on the index by weighting, and the main coal producer in Mongolia. A year ago, the stock was trading at 2385, and it currently sits at 9410 for a gain of just under 300%. It’s mainly government owned, and they own one of the largest coal mines in the world. They were also one of the main stocks involved in the boom bust cycle the last time around so tread cautiously.

Is This Sustainable?

It is worth pointing out that outside of Tavantolgoi, Mongolian stocks have been rather tame and mainly the result of the two biggest stocks on the index (worth over 50% of the weighting on the index) moving higher. APU Company, a beverage company that is the largest on the index, has doubled on the year, but many other stocks on the index are trading sideways on the year. A broad market rally this is not.

It is hard to be extremely bullish on the long-term prospects of coal with China’s extremely ambitious environmental goals in the future, but there’s no reason that the current rally cannot continue for a bit longer (as bubbles do).

 

Leave a Reply