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Posted on 09 July 2012.
Mongolia is a land-locked country to the north of China that shares a long common border with the fast growing economy to the south. Mongolia is heavily influenced economically by China and has a similar high economic growth rate, which makes buying a Mongolia Exchange Traded Fund (Mongolia ETF) an enticing way to cash in on the high growth rate of the region in and around China. Like Chinese ETFs, Mongolia related ETFs are currently trading in troughs, due to the general “slowdown” in that part of the world.
Why invest in Mongolia? Because Mongolia is currently the fastest growing economy in the world. Mongolia’s economy is predicted to grow at nearly 15% in 2012, which is twice as fast as their higher profile neighbor China. The 15% growth rate for Mongolia in 2012 is actually a slowdown from the over 17% growth rate that the Mongolian government reported in 2011. Such high growth rates provide ample opportunities forinvestment gains.
Mongolia’s economy has traditionally been agriculture and livestock based, and is just starting to make the transition to recovering abundant natural resources, such as coal, to export to their commodity hungry neighbor China. Mongolia’s fast growing economy and strong economic connection to their fast growing neighbor China, makes a Mongolian ETF particularly appealing to investors that want to gain exposure to the fast growing Chinese economy and greater China region.
The Risks Of Investing In Mongolia
There are currently no Mongolia ETFs trading in the United States; however, a company that is known for issuing country specific ETFs filed for a Mongolia ETF in 2011. In the meantime, playing a Mongolia ETF requires proxy investments in ETFs that have significant exposure to stocks listed on the stock exchange in Mongolia. These include, but are not limited to: MSCI Hong Kong Small Cap Index Fund China Equities (EWHS), MSCI Pacific Ex-Japan Index Fund Asia Pacific Equities (EPP), Vanguard MSCI Pacific ETF (VPL), Market Vectors Coal ETF (KOL), and PowerShares Global Coal Portfolio (PKOL).
The main risks associated with buying a Mongolia related ETF is that Mongolia’s quick economic growth slows further in 2012 due to the slowdown in neighboring China and Mongolia’s economic numbers, as reported by the Mongolian government, are found to be inaccurate. The growth slowing risk is the same for all developing world countries, not just Mongolia. In all developing world countries, economic numbers are subject to revision, so this risk must be accepted. Mongolia’s economy may lead world economic growth for years to come, and as a result, a Mongolian ETF may outperform other emerging market ETFs.
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