RE: Chen LinHe lives and breaths stocks, his forte is picking very undervalued companies at the right time and it's obvious he likes this deal!
PCY Mention:
MONGOLIA OUTLOOK 2011- Global Outperformer Surging Higher
Mongolia produced a truly impressive performance in 2010, leading globally as the best equity market, second fastest growing economy and the second best performing currency. Driven by strong resource-linked investments and developments, we anticipate this exemplary performance will continue through 2011.
We expect the Mongolian economy to grow up to 10% in 2011 (or 33% in US$ terms due to further estimated appreciation of the MNT against the US$) and may continue outperforming, ranking among the top three fastest growing economies. The primary growth drivers for 2011 will be the US$2.3bn capital budget (over one-third of Mongolia’s GDP in 2010)allocated by Ivanhoe Mines and Rio Tinto for Oyu Tolgoi, strong and growing investments across the mining sector as well as other asset classes, the substantial increase in government expenditures, the positive outlook for commodity prices, rising export values driven by strong Chinese demand and growth in personal income underpinned by inflows of foreign capital and the expansion in government social payments.
For the MSE-Top 20, Mongolia’s key domestic market index, we expect continued outperformance and target a conservative level of 20,000, or+40% (+60% in US$ terms), for year-end 2011. We expect the MSE to retain its title among the top three equity markets in 2011, if not the best,on re-rating the valuation of Mongolian stocks based on the strong economic outlook. Possible IPOs by leading Mongolian companies and the planned continued privatization of state-owned enterprises over 2011 and beyond will further support MSE performance in 2011. The highly-anticipated MSE management contract announcement and implementation will also potentially lend additional strength to MSE growth in 2011 if the plans come to fruition.
We remain bullish on the MNT and expect the Mongolian national currency to repeat global outperformance, being among the top three best-performing currencies in 2011. Additionally, we believe the Bank of Mongolia will have its hands full dealing with high inflation over 2011and will intervene in currency markets only to stem volatility, not theMNT’s inevitable appreciating trend. Therefore, we expect the currency may appreciate another impressive +10%, reaching MNT1,130 per US$ in2011.
Our key investment themes in 2011 are local and Mongolia-focused international stocks, private equity/pre-IPO/M&A, real estate, theMNT and corporate and government bonds. Our top picks among local equities are Tavan Tolgoi (coking coal), Mongolia Development Resources(real estate) and APU (beverages). Mongolia Mining Corp (coking coal),Prophecy Resources (thermal coal), Petro Matad (oil) and Aspire Mining(coking coal) are our top picks among the 30+ international and locally listed companies
that are members of the Silk Road Mongolia Index.
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