In the 4th quarter the MSE Top 20 Index continued to trend higher, but at the end of the year, most stocks corrected after two quarters of strong returns. The strongest performer in the portfolio was Suu JSC, rallying by +50% on the back of strong growth prospects. Suu is Mongolia´s largest dairy producer and they are expanding their product line in order to meet local demand.
Mongolia managed to turn the ship around in 2017, registering a strong rebound in economic growth after 3 years of stagnating GDP growth. The policy rate was cut several times during the year, coming down from 15% a year earlier to 11%, further boosting the economy. The trade balance improved greatly as core exports such as coal and copper strengthened. Also, coal exports rose by almost 30% as neighbouring China was hungry for energy. Against this improved backdrop, Mongolian equities managed to post their first positive year since 2011. Trading volumes rose by around 60% compared to 2015. As we have argued previously, small stock markets like Mongolia can experience large swings, and indeed the 70% move in USD terms was the biggest gain registered across all the stock markets tracked by Bloomberg in 2017. Most of the contribution to the index performance came from a few blue-chip companies such as Tavan Tolgoi, APU, Gobi and Mongol Post. However, most cyclical companies did not perform particularly well in 2017, but as the bull market matures we expect a catch-up phase which could occur in 2018 as the domestic economy recovers.