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John Polomny is an individual investor and speculator seeking unique, overlooked, and well researched opportunities and speculations from all over the world.
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  • Has The Mongolian Stock Market Finally Bottomed? 15 comments
    Dec 8, 2013 10:27 AM

    Not many seem to have been watching but it appears that the MSE 20 index has put in a bottom and has been moving higher recently. Many, although it has been debated, view that markets are discounting mechanisms and look out six months to year in advance. Is the bottom and recent strength in the market an indication that we can expect further positive news flow from Mongolia? That is my view. I have been of the opinion that both the parliamentary elections and the recent presidential election caused significant amount of uncertainty in the market. This uncertainty was further clouded by the OT project being used as a political football during the recent elections. Nevertheless the DP party now controls most of the government and it is undeniable that positive change is happening. Yes there has been and will always be MP's from the opposition party that throw bombs out about nationalization and renegotiation of the OT agreement but the bottom line is that the government knows that everyone is watching this one deal. My view, and it appears that the market is sniffing this out, is that resolution is coming sooner rather later. OT is the end all be all issue that everyone is focusing on whether we like it or not. With foreign reserves shrinking ,depreciation of the currency becoming an issue, along with shrinking of FDI the only two choices are for the GOM to get with the program and get perceptions changed by acting positively or get ready for another IMF bailout. The market appears to be saying it will be the former rather than the later. Even with all this turmoil many of the companies on the MSE have been delivering increased revenues and earnings. This is a really cheap market and any change in perception, even at the margin, will lead to a big move higher in my view.

    Mongolia OT dispute resolved by early 2014

    http://video.cnbc.com/gallery/?video=3000220997&play=1

    CEO of MSE talks about reforms that will spur market

    http://video.cnbc.com/gallery/?video=3000219091&play=1

    Themes: Mongolia
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Comments (15)
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  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    Thanks for the info on Mongolia!

     

    I was following Jon Springer for awhile, but he seems to have lost interest in the sector; I can't blame him, the share prices of TRQ and MNGGF continue to fall to new lows. I'm buying at these levels and will double up if it falls another 50%. I think the outcome is inevitable for OT to workout in the long run and MNGGF is now two years further into its development and experience in its real-estate projects.

     

    It's now 2014.. is there a date for a vote or meeting on the brinkmanship surrounding OT?
    1 Jan, 10:59 PM Reply Like
  • John Polomny
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » I think Jon had some personal issues last year. He has not lost interest in the sector (emerging markets). He is now a writer for Forbes. Put his name in the search on SA and you will find links to his new posts.

     

    As far as TRQ, I agree that the situation gets resolved. Regardless this is a trophy asset and in a couple of years people will be kicking themselves they did not buy it at these levels. 50+ year reserve of copper. I mean c'mon. I think we will see something happen by March as that is when the financing package for the phase 2 expansion expires. MNGGF continues to execute on their plan, rents and values keep going up. It just needs to get recognized by the market. I keep nibbling away. I did see that BDSEC put out new research today where they say Mongolian real GDP will increase 15%+ in 2014. If that happens then I would expect anything Mongolian to move.
    2 Jan, 08:19 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Hi nolanfyfe,

     

    As John mentioned, I had some health and personal issues for most of 2013 (Feb to Nov). I am now contributing work about emerging markets across Asia to Forbes Asia's website, including Mongolia.

     

    My coverage on Mongolia on that site has already started here:
    http://onforb.es/1eZ065k

     

    I will have an interview with Deputy CEO of the Mongolia Stock Exchange up by the 10th, I should think.

     

    If you hit "follow" next to my name on the Forbes article, you can get updates daily or weekly when I publish new work to see if it is of interest.

     

    Mongolia has made a lot of positive legal changes recently, but I think it is going to take some work to prove to the global market that these changes are stable. Maybe I'll be wrong and they'll be embraced immediately, but there has been some cyclical legal behavior in Mongolia going back to 2006 if I have my dates right. (Actually, that's a decent idea for an article...)
    2 Jan, 06:29 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    One other curve ball to watch for is when the settlement with Khan Resources is announced. There is the potential for it to be big enough (a few hundred million dollars) to give the government a bit of a ding at a time when finances are tight.

     

    UN arbitration court already ruled in favor of Khan last year (and I missed out on the opportunity to cover the hearings in Paris due to illness... there's one trip to Paris written off as a business expense down the drain).
    2 Jan, 06:33 PM Reply Like
  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    I did some more research and found a post from Jon in 2011 stating:

     

    "It was widely believed by local competitors that Mongolia Growth Group, when recently trading in the $4.60 - $5.10 range, was trading at about 5 times book value. However, due to the pace of real estate price growth and progress along other business lines, their price to book is closer to the order of 3 times book value (if trading in that $4.60 - $5.10 price range) as detailed in the company's recent newsletter. Book value is believed to be about $1.50 based on increases in real estate prices. Validating this valuation, an October 5, 2011, an article by Make A Difference Investment Solutions noted property prices in the city center were up 55% in the prior 6 months."

     

    In theory it should be easy to find the book value of a real estate company, but they have recently sold the insurance part and have raised more funds since 2011 if i'm not mistaken. I heard in a recent interview Harris did: http://bit.ly/KpJvKD that he recently bought more shares on the depressed stock price. He must think its current value around $2 is near book or at least extremely undervalued.
    4 Jan, 08:21 AM Reply Like
  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    John, all things point to a bright 2014 if they can just turn that mine on consistently. Is there a way to buy the index MSE without going to Mongolia? I've been looking around everywhere for an ETF, but no one seems to have made one yet. I am living in Seoul, so maybe I should stop over and open an account :). I like MNGGF's business plan of buying real-estate and catching the boom through the increase in purchasing power of Mongolians. I have read a few reports, but having trouble figuring out what price MNGGF went public at in 2011; In a report from Summus Capital Corp. which turned into MNGGF, there seems to be shares bought by Kupperman at $1.36. I'm wondering what the original IPO price of shares were at when the shares were listed. I'm trying to get an idea of what the market is valuing them at now vs 2011. It seems like a hard company to evaluate, but I love the story.

     

    Jon, I checked out your Forbes article and am not following you. I appreciate the time you take to cover a sector which gets little love in the main stream media. Like John stated above: once the Mongolia growth story catches on with the public, it should draw in funds quickly which will pump the shares of anything with Mongolia exposure. I'm hoping that RIO gives TRQ a fair deal when its all said and done.
    4 Jan, 08:22 AM Reply Like
  • John Polomny
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » You can open a brokerage account in Mongolia without traveling there. Check out BDSEC, Eurasia, Rescap. Rescap runs a Mongolia focused fund I believe. I think the min is $100k. MGG had several offerings one was lower than the current price and two above this price, although I cannot recall the exact amounts. As long as there is not a psychotic break down in the markets like 2008 the Mongolia story will pay off big in my view. Patience is required which is difficult I know. OT phase one is operating just fine and they are putting 100k tonnes per day through the concentrator. Remember that is not the only thing happening. Shenua agreed to buy $50 B in coal over the next ten years. Sinopec is going to build a huge coal to gas plant, and etc...Not just an OT story but that gets all the headlines now.
    4 Jan, 11:50 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Van Eck registered an ETF for Mongolia in 2011 but never activated it. I am curious if they will this year.

     

    Custodian agreement situation changed January 1st. This change makes ETFs covering Mongolia now possible. However, no bank has yet set up the custodian accounts, so this will need a bit of time (this legal change was pending for years, and then suddenly passed in a flurry of laws in 2013).

     

    On my list of public companies doing business in Mongolia, there is section titled "investment funds" in bold that lists all the investment funds available for Mongolia I knew of as of late 2012 here: http://bit.ly/Hk2BxO

     

    The changes in custodian laws that will make ETF investing eventually possible should also make setting up a brokerage account with a local brokerage an easier process.

     

    Thanks for following me on Forbes Nolan.
    5 Jan, 04:02 AM Reply Like
  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    John,
    I'm going to get going on an account through BDSEC as it looks like the best way to get some smaller funds in on the local market. Does the TOP20 have just an index you can buy like SPX/SPY? I don't want to try and pick winners on the exchange, but rather just go long the index.

     

    OT is stealing the headlines yep, but like you said they have other projects that will add to GDP over the coming years. I'm trying to research and make sense of what MNGGF has (assets, liabilities) and is developing to add revenue to make a better estimate of how to value their company at this stage. I know that it is a longterm play with most people stating a 5 year minimum holding period. I'm happy they have decided to get out of the insurance business as that just added to the confusion for me.
    5 Jan, 12:18 PM Reply Like
  • John Polomny
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » There is no way to buy the index per se. If you stick with the large caps you will be ok. BDSEC has excellent market analysis and can advise you. If you are able a trip to Mongolia to talk with people directly will be very valuable.
    5 Jan, 01:33 PM Reply Like
  • John Polomny
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » One other comment. Now that custodian agreements can be setup I am expecting to see institutional money begin to move in. Mark Mobious stated that the lack of custodian agreements kept him from investing. In addition there is discussion on getting Mongolia included in various indexes. This would also result in money moving into the market. The window of opportunity to buy at cheap levels is coming to an end in my view.
    5 Jan, 01:38 PM Reply Like
  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    I'm going to spread some money over the MSE:TOP20. As the market volume grows BDSEC will be in a good position to capitalize on trading fees.
    6 Jan, 01:21 AM Reply Like
  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    I've been reading and searching about Mongolia ETFs for awhile, but still waiting for one to begin trading. This does appear to be the calm before the storm in Mongolia as investors and funds rush back in. I might have drank the Mongolian milk vodka/cool-aid ;) but I don't see any scenarios where the per capita GDP doesn't go through the roof in the coming years.
    6 Jan, 01:53 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    GDP growth does not guarantee market returns.
    6 Jan, 03:46 AM Reply Like
  • nolanfyfe
    , contributor
    Comments (12) | Send Message
     
    Its true that all markets won't rise just because GDP goes up, but someone is getting richer and its our job to decipher the beneficiaries and allocate our money accordingly. That is one reason I like real estate in this situation, rather than the mining as I've seen the damage done to TRQ shares. I have a small position in there, but don't want to add to it until they show signs of a turnaround.
    6 Jan, 09:38 PM Reply Like
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