Mongolia to Grow at 20% in 2012: Fund Manager

Mongolia could be the fastest growing economy in the world this year, with gross domestic product expanding 20 percent, according to Alisher Ali, Managing Partner at Silk Road Management.

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An increase in exports, government spending and major mining investments like Rio Tinto’s Oyu Tolgoi copper-gold mine will be the key drivers of growth. “You're starting from a low base so even if commodity prices go down, the increase in output will still allow Mongolia to be the fastest growing economy,” Ali told CNBC, whose firm manages a $30-million fund invested in various asset classes in Mongolia, including public and private equity and property.

He adds that a slowdown in China will not dent Mongolia’s growth trajectory because Beijing will seek long-term resource supply deals from its neighbor.

Investors are lining up for a piece of the action. Mongolian Mining Corporation’s (MMC) recent $600 million bond issue was subscribed nine times. A $580 million placement by the state-owned Development Bank of Mongolia (DBM) earlier this month attracted similar levels of interest.

“So that shows you people are very interested. They look at the example of Indonesia where you have seen successive credit rating upgrades and they expect Mongolia will go through the same process,” said Ali.

Mongolian stocks, which have fallen about 10 percent in the past year, are at levels Ali considers “oversold”. “We're already seeing the recovery in those stocks and I think this is a multi-year story.”

He expects the benchmark MSE Top 20 Index to gain 30 percent in 2012. His top stock pick is Mongolia Mining Corporation (MMC), which is the country’s largest coking coal producer with deposits located along the Chinese border.

As foreign direct investment continues to pour into Mongolia, the country’s biggest challenge will be to prevent its economy from overheating. The country’s inflation hit 11.1 percent in December.

The World Bank estimates government spending in Mongolia rose 56 percent in 2011 and is expected to increase another 32 percent this year.