The Mongols Ride to New Highs

09/09/2010 12:01 am EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

What sort of market conquers fears and cows doubters by galloping 44% higher in three weeks? The one serving the descendants of Genghis Khan, of course.

On August 17th, the MSE Top 20 Index, representing the cream of the equity crop in Ulan Bator, Mongolia, closed at 10,188. That was already good for a 67% windfall so far this year, although it was well off the 2007 record above 13,000.

Fast forward to Tuesday, when the MSE closed at 14,676. Not even the khans moved this fast. 

The Ulan Bator exchange trades for 90 minutes a day out of a former movie theater, eking out daily turnover in the neighborhood of $70,000. Although the benchmark index is up more than tenfold in four years, its total market capitalization hasn’t quite topped $1 billion, making it cheaper than Jack in the Box (Nasdaq: JACK) or Buckle (NYSE: BKE).

It’s a market suitable only for well-informed insiders and the craziest speculators, which may be part of its rogue charm. Beyond the vicarious thrill, Mongol mania shows what gets people excited these days. Mongolia’s sitting on a supposed treasure trove of untapped mineral riches, next door to mineral-craving China. 

Mongolia’s gold, copper, coal, and uranium are the envy of China, Russia, other Asian powers, and many Western miners. Their collective heavy breathing has turned the Mongol capital into a hotbed of international intrigue. Russia seems to have the upper hand on uranium, while Australia’s Rio Tinto (NYSE: RTP) and Canada’s Ivanhoe Mines (NYSE: IVN) have tussled over a big gold-and-copper project.

Coal could be another big earner, what with Chinese imports of the fuel up 53% year over year. Coal-mining stocks have starred this week in Ulan Bator, several rising by the 15% daily limit. The rally comes ahead of a landmark Hong Kong initial public offering by a Mongolian coal producer: Mongolian Mining plans to raise $700 million, equivalent to 13% of its home country’s gross domestic product.

The rising price of metals and many foodstuffs continued to fuel takeover battles in the West. Goldcorp (NYSE: GG) outbid Eldorado Gold (NYSE: EGO) for Andean Resources (OTC: ANDPF.PK) and its Argentina hoard. China asked its companies to look for ways to scuttle BHP Billiton’s (NYSE: BHP) bid for Potash Corp. of Saskatchewan (NYSE: POT). It’s worried about the rising price of imported fertilizer. With Shanghai stocks at summer highs and Mumbai reclaiming levels last seen in early 2008, hardly anyone believes commodities have peaked. 

The boom seems likely to outlast Australia’s new minority Labor government and its unresolved plans for a windfall tax on miners’ profits, although Tuesday’s sellers of mining shares were not inclined to wait.

At least they had a choice, unlike depositors in a leading Afghan bank brought into disrepute by revelations of corruption reaching high into the Kabul government. Captain Renault from Casablanca would be suitably shocked, shocked. If only Afghanistan could give strip mining a chance, instead of majoring in opiates and dabbling in Dubai real estate.

European banks are back under a microscope amid jitters about the ability of Ireland and Greece to pay heavy debts. The head of the European Central Bank was called upon to reject fresh calls for a Greek exit from the European Monetary Union or a euro devaluation. German factory orders slackened unexpectedly. Transport strikes hit France and the London subway, with more labor protests in the works.

Yet somehow many listed companies are not simply surviving but thriving. All the austerity in the world isn’t likely to pinch the prospects of a steadily profitable UK linens supplier recommended by John Snowden.

And it would take another recession to question Paul Goodwin’s rationale for buying into a Hong Kong jeweler and a Latin American auctions site.

Another recession will surely come, eventually. But not before the Mongols mine much gold and coal.

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