In the second quarter we reported on improving conditions in Mongolia. In the third quarter we reversed all those gains and more in the worst quarter reported in many years. Apart from the strength recorded in coal prices, all indicators pointed south. Offshore stocks were punished as the rally in hard commodities subsided. The local stock market lost a massive 20% mainly due to the Tugrik weakening 15%. To stem the FX rot the Bank of Mongolia stepped in and hiked the policy rate by 4.5%, one of the highest rate hikes in the world in recent history. The policy rate is now at 15% which is again one of the highest in the world and the highest Mongolia has seen in over a decade. The move has steadied the currency and was a step in the right direction. The country’s fundamentals are weak, but with a new market-friendly government in place committed to the task of improving the economy we are slightly optimistic. We also note that that with Mongolian assets trading at or near multi-year lows, a small spark could ignite a strong re-rating.

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