INVESTORS’ PERSPECTIVES ON MONGOLIA
As Mongolia has successfully refinanced the debt, I want to go back to study about the Investors’ perspectives on Mongolia. Below is the asset Class Outlook which Citi has recommended to their clients recently. As you see the outlook and allocation of Emerging Market Sovereign Bonds, Investment-Grade Corporate Bond and High Yield Bond which Mongolia belongs to, their outlook is positive. These positive views are shared by other banks and investors as well.
So now, let’s look at the performance of a typical fund who are involved in the emerging markets. As you see below, the one year performances of both sovereign and corporate bond are about 13-15%.
That is not bad at all! In addition, the coupon and yield to maturity that investors can enjoy on Mongolia are more attractive than average EM debts.
That is definitely one of the reasons why the bond has been sold so well.
If you turn your eyes on Mongolia specifically, still there are lots of problems.
Lower GDP growth/foreign reserves, deteriorating fiscal balance, bigger government debt and still stagnant FDI etc.
However, good news are relatively light refinancing Needs, the gradual FDI inflows driven by strong commodity prices, better mix of trade balance and room to improve the sovereign spreads to tighten.
Of course, the IMF program should have supported the investors’ sentiment.
In addition, the demand vs supply situation of Copper looks promising.
According to Citi Research, the price of copper is in uptrend given the mid-term positive demand and supply situation.
If you look at the global market, politics is becoming more and more important.
Why?
Because the recent rally in capital markets has started just after the US Election.
Also because there are lots of important political incidents going forward as you see below.
So, watch out on those political events!
Lastly, I want to share with you the portfolio of Lazard Asset management, one of the leading investors in Emerging Markets to help you to understand more about the EM debts.
Below is the quality distribution of the EM debts that Lazard owns. Lazard owns less investment grade debt and owns more B rating bonds. Remember that according to major credit rating agencies, Mongolia’s rating is B except for one which ranks Mongolia C.
As long as Mongolia keeps B or above B credit rating, most of the EM debt investors should be able to own the debt in Mongolia. However, it may be difficult for those investors to keep holding the debt in Mongolia in case the credit rating of Mongolia will deteriorate further. I do not think the situation of worsening credit rating is unlikely at this moment. But, we should keep watching on this issue.
Secondly, gross regional allocation shows who else are owned by investors.
Those are Asia, Eastern Europe, Latin America and Middle east and Africa.
It will be beneficial for Mongolia to understand the performance of those regions to attract more investors.
CONCLUSION
The positive global market and the wave to the emerging market debt should have been a reason why Mongolia has successfully financed the Government Debt.
However, Mongolia still has lots of problems.
Therefore, solving those problems one by one learning the practice of other similar nations would be effective to solve those problems.
In addition, although the global trend both on financial and commodity markets on Mongolia looks favorable at this moment.
But, please watch out on the data and news above to see if the trend still in a right direction in a future.