It’s a theme we’ve harped on now for the last few months – Growth in Asia Pacific.
We’ve covered Mongolia, Indonesia, Malaysia, Singapore and China. The growth in the region is staggering, considering that all hell seems to be breaking loose elsewhere.
Now we realize that this growth isn’t happening in a vacuum, and that another ‘blip’ in the U.S.’s fragile recovery could start yet another global meltdown. But, realize that the tide has turned, and no matter what happens next you can rest assured (or not) that the ‘new’ economic prosperity will be driven by this region.
Our viewpoint was recently enforced by the Asian Development Bank, based in Manila, who this week raised its forecast for the region’s growth. The bank said it expects the 44 “developing and newly industrialized” nations of Asia to grow 8.2% this year, which is up from its prior estimate of 7.5%. This is nice growth.
The mature economies are all forecast to grow over 5% as well. China is anticipated to grow 9.6%, Hong Kong 5.8%, South Korea 6%, Taiwan 7.7%, India 8.5%, Philippines 6.2%, and Thailand 7%.
Meanwhile the West is in a race to the bottom. Reserve banks from Japan to Brazil are moving with desparation to suppress their currencies against the free-falling Greenback, and Europeans continue to protest any hint at austerity. It seems hopeless for the “Old Guard”. What to do?
Although countries like Mongolia may not be easy to buy into right now (as our friend Harris Kupperman has pointed out), they are worth keeping on your radar, with some dry powder ready to go once the opportunities open up. And it may be sooner than later, as Mongolian companies are starting to look to float outside (companies that go public in Mongolia are required to list their stock publicly on the MSE as well as their domestic market).
Just this week the final details were being worked out for the Mongolian Mining IPO. According to Bloomberg, “Mongolian Mining’s IPO will be the biggest on record by a company from the landlocked Asian nation.” They also said that, “The stock being sold represents about 20 percent of the company, according to initial terms for the transaction, which would give Mongolian Mining an estimated market capitalization of $3.5 billion.” That may not seem like a lot, however you need to realize that, on the high side, the ENTIRE Mongolian GDP is less than $10 billion per year! One company’s market cap is greater
than 1/3 of the country’s total economic output.
When you add in mega-projects like the Ivanhoe Mines/Rio Tinto Oyu Tolgoi project, which will purportedly pump something like $7 billion into Mongolia’s economy over the next few years, you see why people are so excited about this tiny country. A couple strategic projects will double the economy. Imagine that for a moment, DOUBLE the economy. Do you think this will provide opportunity in almost anything and everything in Mongolia? We do… Think Levi Strauss my friends.
It gets even better though for investors. Rumor has it that the Mongolian Stock Exchange is looking for a ‘partner’, which would be another major exchange (think NASDAQ, or a European Bourse). Mongolia knows they have a tiger by the tail, and I doubt they want to continue slogging along as they are. The temptation of global capital in the billions will just be too irresistible – for all concerned – as there are supposedly twelve major exchanges vying for this partnership. The liquidity issues Harris mentioned in his posts will soon be a thing of the past when this comes to fruition.
Meanwhile, preserving your buying power may in fact be your best strategy.
The important takeaway here is that you have to be positioned to capitalize on the sea change that is occuring. We’re certainly not suggesting taking your entire portfolio out of the US and buying Mongolian stocks (or Philippine, Indonesian or Malaysian for that matter), but prudent speculators will allocate a portion of their capital to higher risk/reward opportunities to gain exposure to the likely upside.
This might be accomplished in several ways. Our favorite, and a favorite among our Asian friends, is to buy physical gold and silver. We hate to beat a dead horse, but we’ll remind readers once again that a higher-leveraged way to play this is by buying junior mining stocks.
Live Like You Mean It,