Frontier has revised the model portfolio based on our observations on current economic / market conditions and policy developments in Mongolia.
Our beliefs are based on following assumptions
- Based on the increase of the possibility of successful negotiation between OT and Government regarding financing of the underground mine, the share price of Turquoise Hill has been steadily outperformed compared with other mining stocks especially with Coal.
- We are still cautious about the coal price given the still dull coal business out of Mongolia to China. However, we are hoping that the reduction of the costs resulting from construction of the railroad will be beneficial to the coal sector.
- We are not optimistic about real estate sector in general given the weaker trend of the real estate price and lagging nature of the industry when the economy is deteriorating. However, we are impressed with Village Nukht developed by APIP. Therefore, we have newly added APIP and Village Nukht to the portfolio. We encourage readers to look at the project as well.
- Mining should be increase because of the favorable policies to ease investments and cheap valuation of the industry.
- Financials should be reduced because of the rapidly increasing non-performing loans. However, among the sector, the consolidation and fly to quality will be materialized more quickly than originally anticipated. Therefore, we have added weighting of Khan Bank and reduced the weighting of non-banking sector.
- Tourism should be increased because of the weaker MNT and relatively less sensitivity of the foreign tourists to the local currency.
- Out of clothing sector, the performance of Gobi Cashmere was extremely well since the begging of the year. In fact, the stock was the best performer year to date among the Mongolian Stock Exchange. Therefore, we have decided to take profit and reduced weighting even though the company keeps good momentum.
- We are more bullish on the performance of MSE indices because of the strong will of the Government to restructure the exchange and the appointment of the new leader of the MSE.
- Cash (USD) has been halved to 5% given the risk/return equation does not support the investment rationale.
Download full PDF report from the following link: