Mongolia is a large country placed right between China and Russia. It’s also the world’s most sparsely populated with just over 3 million inhabitants.

Rich natural resources, along with the region’s New Silk Road, have drawn Chinese to invest in Mongolia. The much larger neighbor needs resources such as oil and coal as it depletes its own.

Once isolated from the global economy, Mongolia has benefited from a massive amount of Chinese capital flowing in. China has in some ways overwhelmed the much smaller frontier market to its north.

The result has made Mongolia one of the fastest growing economies on the planet. Double-digit annual growth was common in the 2000s, but economic issues and inefficiency in government led to a slowdown. Mongolia had “only” 7.8% growth in 2014.

 

Small Country, Big Opportunity

Mongolia is vast country and takes up an area larger than area larger than Japan, Germany and France combined. Yet 45% of its population live in just the capital of Ulan Bator.

The city is growing by around 40,000 people per year, but infrastructure development has not kept up – something China is now helping with.

Mongolia’s commodity boom supports a rapidly growing middle class among Ulan Bator’s population of 1.3 million. Combined with thousands of Chinese foreigners in the mining sector, this has strained the city’s infrastructure.

The Soviets designed Ulan Bator to hold less than 600,000 people when they originally built it.

These problems have not gone unnoticed by the Mongolian government. It has a number of projects aimed to help Ulan Bator’s overcrowding. Perhaps the most ambitious is constructing an entirely new capital, Maidar City. It will have a location 30km from Ulan Bator and will hold 300,000 people.

Another plan involves billions of dollars worth of infrastructure enhancement in the ger districts, poorer communities in the hills of Ulan Bator. However, some doubt Mongolia’s democratic government will be able to pass the legislation.

 

How to Invest in Mongolia

Because of the massive scale of these projects, the lack of a certain timeframe, and doubts they will provide a comprehensive answer, the private sector has a large window of opportunity to offer other solutions.

Mongolia is an ideal place for innovative entrepreneurs. Those who can make life easier for Ulan Bator’s surging middle class will benefit.

For stock investors, Mongolia has an exchange of 332 listed companies and a market capitalization of around US$3 billion dollars.

As of 2011, the Mongolian Stock Exchange was the second best performing in the world. It gained over 57% during that year.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He’s an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. He’s been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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