Swedish fund manager FMG expects strong growth in Mongolian stocks even though the country faces the uncertainty of parliamentary election this summer.
Rising demand for natural resources such as coal and oil is expected to fuel both economies and put more money in the pockets of consumers, FMG’s principal fund manager Johan Kahm told Reuters in Singapore on Monday.
“Mongolia is a leveraged play on China… Any growth over 5-6 percent is still going to be good for the steel industry,” said Kahm, whose boutique firm manages some $200 million in frontier market funds.
Mongolia, which borders China, sits on vast quantities of untapped minerals including copper and uranium, and is home to large untapped deposits of coking coal that is needed to produce steel in the world’s fastest-growing large economy.
FMG launched a fund at the end of last year to invest in companies listed on the Mongolian stock exchange. The fund currently has $1 million and hopes to grow to about $25 million over the next two years, he said.
His top picks among Mongolian stocks include APU, an alcohol and beverage firm. The Mongolian Stock Exchange was the world’s second-best performing market after Venezuela last year.
“We’d rather own the consumer (stocks) than mining. The exposure to mining will see wide price swings. But the domestic companies are growing very fast,” he said.
About 60 percent of its portfolio is invested in consumer-related stocks, while the rest are mining firms, he added.
Kahm said FMG is also keen on investing in the initial public offering of Mongolia’s state-owned Erdenes Tavan Tolgoi, owner of one of the world’s largest coking coal deposits.