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  • Mongolian Stocks Reach Nine Month High 15 comments
    Dec 18, 2013 12:11 PM | about stocks: MNGGF

    The MSE index has now crossed the 16,000 level and is trading at a nine month high. The index has clearly broken out to the upside so my expectation is that it will trade higher as speculation that the recent reforms announced will take hold and the negative perceptions of Mongolia as an investment destination are reversed.

    On a positive side note, the consortium of banks that lined up to finance OT phase two has extended the deadline to March 2014. If the banks are still willing to loan money to the project then I think that things are closer to being resolved then many think.

    You will note that MGG has now dropped under $2.00 per share. I think this is tax loss selling and I am hopeful for a near term bottom as we get near year end. I will looking to continue to acquire at these lower levels.

    Disclosure: I am long OTCPK:MNGGF.

    Stocks: MNGGF
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  • alpha_zeta
    , contributor
    Comments (122) | Send Message
     
    MNGGF continues down in new year not about tax-loss selling

     

    1. Mongolia is illiquid
    2. MNGFF stock is illiquid
    3. Mongolia currency continues to drop. If any revenues in form of local currency, they've declined when converted to USD
    4. USA Fed taper making dollar stronger and foreign investment is withdrawn or not proceeded with in many overseas markets
    5. "Frontier" market hype and expense - this is one quite expensive country, relative to some others. Cost/benefit payback analysis - can a potential new investor, retailer earn back more than the high cost of things in Mongolia? Many brands already present, many buildings, is it really a Frontier place?
    6. Government wanting better deal, delays on mines decisions
    7. Commodities prices downturn starting - will all projects be started/continued when those firms analyze their lower revenues in a not-cheap cost environment
    8. China growth moderator possibly slowing, shadow banking hiding facts that much infrastructure build out is unoccupied nt being used much -- overbuilt, so how much more building growth will there be in years to comes? so lower demand for commodities
    9. Less commodities/mining probably leads to less workers and less housing and businesses setting up shop (vs projections made previously) - use a lower growth rate to value companies

     

    One of those newsletter scare-monger guys saying all-well-and-good-things, travels the world, daily newsletter build subscriptions to nice articles, talks about USD decline and buying gold (ahem, prices have dropped from few years ago and USD did not disappear into oblivion).
    Anyhow, that fellow, "Simon" said (1 or 2 years ago) Mongolia interest rates are 13/14% for CDs/Term Deposits ... sure, but "Simon" forgot to consider the local currency dropping from about 1200/1300 to 1 USD to almost 1700 to 1 USD ... 500 /1200 is a big % drop - can that Simon guy calculate that %??
    Maybe some of his followers got burning badly and selling out of Mongolia. He pumps many other countries.
    11 Jan 2014, 01:37 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    MGG trades primarily in Canada.

     

    The Mongolian government has taken up many legal changes in the past six months to make the market more welcoming to foreigners and foreign investment. This was on the heels of a wave of ill-advised populist laws surrounding an election-year almost all of which have now been annulled (and it is those laws that caused the currency and Mongolian capital markets trouble in the past year).

     

    If you are interested in learning more, I will write about Mongolia from time to time on Forbes - http://onforb.es/18GUwwn

     

    I will have an interview with outgoing deputy CEO of Mongolia publishing on Monday morning (Asia time) that explains some of these legal changes.
    11 Jan 2014, 01:20 PM Reply Like
  • John Polomny
    , contributor
    Comments (573) | Send Message
     
    Author’s reply » 1. Yes, but changes have taken effect that will lead to more liquidity.
    2. Somewhat Agreed
    3. Rents are paid in MNT but negotiated in USD terms. Little to no effect.
    4. Short term yes, longer term no
    5. Not sure what your definition of expensive is and relative to what? There are companies that trade on the MSE at low double digits and one that pays double digit dividend yields.
    6. Old news DP won elections and has changed legislation to be more friendly to foreign capital.
    7. Depends on commodity and circumstances of each mine. OT has $6 billion in sunk costs. Once an operation like that starts up it does not get shutdown unless we get a complete dislocation in world economy. Is that what you expect? OT phase 2 could be delayed some but what about Shenua buying $50 billion in coal over the next ten years? What about all the smaller deal that never make it on the news.
    8. Yes, there will be an adjustment in China. Not sure how that effects thermal coal as the lights will stay on in China even if there is a recession. Copper prices will go down, how much nobody knows.
    9. Yes but recessions end and all countries go through business cycles.

     

    If you are a trader I guess you can try and time the markets and I would suggest you will not be very accurate in your calls. I have seen what has happened in other resource based countries that were starting out from a low economic level. Think Kazakhstan, Qatar. The business model of buying real estate in prime locations in the capital has proven itself time after time. It will be even more profitable in UB due to the unique geography of the city. Anyway the economy there is growing double digits and rents for MGG properties are growing by double digits as they come up for renewal. This is not reflected in the share price, it will be eventually. You either agree with the thesis or you don't.
    12 Jan 2014, 05:59 PM Reply Like
  • alpha_zeta
    , contributor
    Comments (122) | Send Message
     
    @Jon,
    (a) who can afford the high rents and purchase prices of real estate? Mongolians do not have that much money.
    (b) Why will a tsunami of foreigners relocate or retire in Mongolia? Many cheaper-valued places to live in the world, with more hours of daylight year-round, not to mention warmer.... look at countries in Asia

     

    Mongolia has / is being built with materials at high - commodity- cycle -prices of past 8 or so years. So prices are correspondingly high. Did Mongolian workers get a salary increase anywhere near to helping the average Mongolian to buy?

     

    Illiquid market.
    Can't hedge efficiently or at all.
    Are rents in MNT? Couple of years ago, government required prices to be in MNT except as otherwise permitted.

     

    Investors should be demanding a large discount for lack of liquidity (30,000 shares at $2 per share is not much volume) and sometimes much less volume than that.

     

    Surprised that some existing businesses haven't gone out of business as some businesses have very few customers.

     

    As another example: Price of merino wool, yak wool, is crazy ridiculous price in Mongolia when compared to other nations (eg. Nepal) selling wools of the same type (I am not an expert on the quality, but many tourists are not experts). However, wool clothing in retail shops is very very expensive - these prices are way out of reach for typical Mongolian people. I did not see anyone at the cash register buying, just looking around, and couple of Mongolians walked out rather quickly.

     

    There are many cheaper places in the world.
    11 Jan 2014, 02:25 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Hmm...

     

    Materials prices used for calculations for OT were from *before* the commodities boom...

     

    And... you know what... if you want to debate me further, you are welcome to comment on my articles on Forbes Asia. However, I'll leave the rest of your assertions on John Polomny's blog for him to choose to respond to or not.
    11 Jan 2014, 02:56 PM Reply Like
  • alpha_zeta
    , contributor
    Comments (122) | Send Message
     
    @Jon, i clicked the link to your page on Forbes but i see articles for only December 2013 and January 2014, with one article aout Mongolian executives ... did i miss something?

     

    I was looking for a suitable article about Mongolia for which i could comment - some facts, some opinions, some devil's advocate type discussion.

     

    Sure the Mongolian broad index has increased, and a lot. Well, so have markets worldwide as interest rates are kept low (Net Present Value aka stock price goes up as interest rates lower).

     

    Mongolia market is so thinly traded / illiquid ... prices go up & down by large amounts for relatively small volume. So percentages headlines are amazing but easily achieved ... try to sell out a relatively large position in relatively short time and price likely to decline considerably. Allocation to such markets should be in accord with risks AND lack of liquidity.

     

    GDP growth rates... well, if one starts with a low base, the percentages look very high.

     

    Mongolia does not seem, in my humble opinion, to be "Frontier" ... it's already full of gringos, foreign food restaurants, many high-rise buildings.

     

    How can native locals afford more recently/newly built properties ? let alone high prices for high-end clothes stores, etc

     

    There are many cheaper (more affordable) places to live in Asia, with larger populations (target markets), so why Mongolia??
    12 Jan 2014, 04:23 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    As I wrote above, I will have an interview with the outgoing deputy CEO of the Mongolia Stock Exchange publishing on Monday morning (Asia time) that explains some of these legal changes.
    12 Jan 2014, 05:09 AM Reply Like
  • alpha_zeta
    , contributor
    Comments (122) | Send Message
     
    oh, what is MNGGF's business model for finding tenants / renters?
    It would seem impractical to call companies abroad that do not currently have a presence.
    So, i would guess that company XYZ is discovered to be in town, exploring possibilities so MNGGF has it's ears-to-the-ground and meets with such persons.

     

    BUT, please, Mongolia has a small population and about 1 to 1.5 million people in Ulan Batar ... this is not China with 100's of towns of 1 million or more population , so the country consists of 1 moderate-smallish sized city and some cities, even further away.
    How many KFC's, McDonalds, Mango clothes, shoe stores, etc are needed in a city of 1 to 1.5 million?
    So, potential retailers need to consider that before making a commitment (and for some rather larger regional / global players , such an investment would likely be very small percentage of sales, so again maybe not worth it to that market segment.
    11 Jan 2014, 02:36 PM Reply Like
  • John Polomny
    , contributor
    Comments (573) | Send Message
     
    Author’s reply » They do not have to find tenants as most of the properties available for lease are leased up. You should listen to what the management reports. Are you suggesting that they are not able to lease their properties? Are you suggesting they are lying?

     

    "BUT, please, Mongolia has a small population and about 1 to 1.5 million people in Ulan Batar"

     

    Are you familar with the layout of UB and the unique geography of the city. When they say real state is location, location, location they were talking about UB.
    12 Jan 2014, 06:02 PM Reply Like
  • alpha_zeta
    , contributor
    Comments (122) | Send Message
     
    @John, ok, if "most" of the properties are leased up, presumably at good rates/terms... for now...then results/income should be ok...for now. Where / how else will they make additional growth? with existing cash and cash flow stream from existing leases?

     

    So they have their ears to the ground or properties are already leased ... but why is potential retailer going to prioritize its own growth plans to come to Mongolia, somewhat of a one-city-of-1+million-... Many other countries in the world have more than one city of 1+ million population. So where does an international retailer allocate it's capital -- to a place with population of say 3 or 5 million (or to a place with 1/1.5m)? For a very large retailer, it's chump change to enter Mongolia, but how much of a priority would it be when it would represent a small % of such a company's sales/profits? Secondly, how many Mongolians can afford already-high prices? Do you see them shopping at those high-end Yak & Cashmere wool clothing retailers?
    An importer to another country of the world could source Yak wool from Nepal, etc (this is not a statement about quality of one country's product vs another; hard to imagine people will not look at price). For local Mongolians, when there are alternative sources of a product / service, seems reasonable, if prices are too high/out of their reach, they would shop around.

     

    A labeling item: with so many gringos and already-high prices and very significant existing development, how is this still considered a "frontier"?

     

    As anywhere, if some area is rather developed, and if people can't afford that area, developments will begin elsewhere. This doesn;t dispute any company in any country-city having property within a city - again, who can afford high prices?
    Westerners of course can afford the prices but prices of food,etc are not such a great discount as in many other Asian countries. Sure, westerners visit, some work there, how many relocate there without working and stay there during the long,dark, winters, particularly when there are warmer, sunnier, etc places in the world? and flights to/from Mongolia sure aren;t cheap as in other parts of Asia with low cost carriers.

     

    15 Jan 2014, 12:04 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    They're looking to get into more property development. Improving up property they own; also, making properties they own taller.
    15 Jan 2014, 08:48 PM Reply Like
  • alpha_zeta
    , contributor
    Comments (122) | Send Message
     
    ok, thx Jon... I hope u see/understand my concerns from a macro perspective of any company coming to Mongolia, which has a trickle down effect to MNGGF.

     

    China is starting to slow, affecting many countries (it's not just the USA Fed Reserve "taper" causing these effects) such as Australia, Indonesia, etc. China has stock pilied natural resources so even /if when Mongolian mining comes on-line, perhaps China buts a fair amount to begin with - and does nothing with it, similar to resources they bought from Indonesia. That can only last so long.
    16 Jan 2014, 02:55 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Hi A_Z,

     

    This is an old article of mine that I think might address some of your quite valid macro concerns, or at least the article should provide a little food for thought on the numbers. http://bit.ly/AjsHT1
    16 Jan 2014, 05:26 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4073) | Send Message
     
    Here is the link to the MSE interview I just posted. I think it covers a lot of ground for those interested in facts.
    http://onforb.es/1gy9AkB
    12 Jan 2014, 07:17 PM Reply Like
  • John Polomny
    , contributor
    Comments (573) | Send Message
     
    Author’s reply » Very good info that answers quite a few questions posed in this comment thread. I think the stage is being set for the proverbial "tsunami of money" to hit this market. Because the big dogs really cannot enter in mass yet it really gives the smaller investor time to get positioned and ride the liquidity wave that looks to hit Mongolia.
    12 Jan 2014, 10:10 PM Reply Like
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