Why some economists are concerned over potential stock market bubble www.theubpost.mn

For the Mongolian Stock Exchange (MSE), 2018 has already been a wildly successful year with the highest growth in 27 years, an IPO that was oversubscribed 16.5 times over and the first ever dual-listing request on the exchange filed by a Toronto-listed company. The rapid growth of the stock market has been encouraging for not only MSE but the Mongolian economy as a whole. However, some economists have begun to raise concern over a potential bubble on the stock market.

But what is an economic bubble? The term is used a lot when explaining international financial crises such as the 2008 US market crash. Essentially, a bubble is an economic cycle which sees a rapid escalation of asset prices (stock, housing, etc.) followed by a contraction. The prices of the asset consistently increase to a large amount until investors are no longer willing to buy it, causing a massive selloff and subsequent deflation of the bubble.

The history of economic bubbles dates back to the 17th century, where a flower essentially caused the collapse of the Dutch economy. Considered to be one of the earliest documented cases of an economic bubble, the Tulip mania saw a boom in demand of tulips as the first one was imported into the Dutch Empire from the Ottoman Empire.

Demand for the flower exploded as buyers banked on the idea of selling the flowers at a higher price in the future. The expectation that the prices of tulips would continually increase created the first documented case of a speculative bubble.

Rare varieties of the tulip popped up on the market, driving prices even higher. Some people were even trading in their land or houses for rare tulips. The bubble finally burst in 1637 when a buyer failed to show up for a large purchase which acted as a wake up call that the prices of tulips were unsustainable. The bubble finally burst and led to many people to lose considerable amounts of money.

Seeing as Mongolia’s stock market is a relatively young and underdeveloped, the country’s experience with economic bubbles are mainly exclusive to foreign investment in the mining sector.

On the stock market, bubbles usually form due to a change in investor behavior, which Mongolia is currently in the process of. A large number of people have increasingly banked on the stock market, evidenced by 10,000 new accounts created in just the month of February at MSE.

Add in the fact that Erdenes Tavan Tolgoi is about to register 2.5 million Mongolians as shareholders and will likely authorize secondary market trading soon, the activation of the stock market is increasing rapidly.

The last two IPOs on MSE, ITools and LendMN, both set records for subscription. In addition to being the first information communication technology company on MSE, ITools saw their IPO oversubscribed three times over. Riding the wave of momentum, LendMN’s IPO was oversubscribed 16.5 times over, shattering ITools IPO.

The fact that LendMN offered 12.5 percent of its shares to the public to raise 2.5 billion MNT but received orders totaling over 40 billion MNT is a signal of the increased demand in the stock market.

One of the major issues that economists bring up when citing a potential bubble on the stock market is the fact that share liquidity has worsened on Mongolia’s stock market. Share liquidity is the ability to trade a substantial amount of a financial asset at close to current market prices.

On the Australian Securities Exchange Glossary, chief market analyst Michael Kemp explains that share liquidity refers to the “ease” by which shares can be traded. There are two defining characteristics for this ease, one of which is speed or how fast a stock can be sold on the secondary market.

The second is price. In order to be qualified is liquid, a stock must be able to be sold without significantly lowering the price.

The share market liquidity of stocks traded on MSE in 2017 were calculated using average daily trading volumes. The result was that stocks in 2017 had liquidity of 3.2 percent, down 0.1 percent from 2016.

In terms of market capitalization, MSE had a dramatic surge of one trillion MNT in a matter of one year. By the end of 2017, market capitalization reached 2.4 trillion MNT, a 65.6 percent increase year on year.

Despite the massive growth in numbers, the Financial Regulatory Commission (FRC) itself has raised concern over the decrease in liquidity, confirming the possibility of a bubble on the stock market.

The concentration of shares into the hands of a small group of investors has also been mentioned as an obstacle to improving share liquidity by FRC. A number of publically traded companies on MSE only trade up to five percent of their shares on MSE. FRC has tried to diversify this concentration by actively encouraging companies to trade at least 30 percent of their company on MSE.

FRC believes this will help improve the transparency and openness of a company, leading to a better share liquidity. In connection to this, And Energy and ITools both offered more than 30 percent of their company on exchange.

Another important factor in improving share liquidity and avoiding a bubble is not getting caught up in the volume growth on MSE. It is more important to focus on the quality of the stocks being offered on the market, said FRC.

Invitation: Invest Mongolia HK on April 12 www.mongolianbusinessdatabase.com

Frontier Securities is pleased to invite you to attend Invest Mongolia Hong Kong on April 12, 2018.

Development of robotics demand multiple professions from employee www.ubinfo.mn

Preceded from the era of electronics and information technology, the Fourth Industrial Revolution, best regarded as the digital revolution, has been cultivating almost every industry in every country since the middle of the last century. As stated by Klaus Schwab, the First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now, the Fourth Industrial Revolution is fusing the technologies that is blurring the lines between the physical, digital, and biological spheres. Amid the ever-changing world that is advancing towards automation and global interconnectivity, Mongolia is taking a step towards the inevitable transformation. Several companies have adapted innovative ideas and models that could reshape the industry; for instance, Mongol Basalt LLC’s basalt stone extraction technology and nanofibers of Best Buidan LLC. However, the policy makers, producers and innovators agree that the industrialization 4.0 will require more vocational workers and engineers. This will increase demands for professions based on mathematics, chemistry and physics, as well as educational system reform. Presently, only one-fifth of high school graduates pursue vocational education, which is highly insufficient for keeping up with the fast-changing environment.

In addition, the large use of robotics is requiring new forms of collaboration, multidisciplinary studies and hybrid professions from employees. With an aim to accelerate the public adaptation to this rapid revolution, the Vocational Education and Training Partnership (VETP), a project being implemented by the Ministry of Labour and Social Protection of Mongolia and German Federal Ministry for Economic Cooperation and Development, held a consultative forum and training yesterday. One of the key goals of the event was to sign a MoU on establishing professional council of mechatronics, one of the growing field of multidisciplinary studies that combines electronics and mechanical engineering, at the Polytechnic College of Mining Energy (PCME) in Darkhan-Uul Aimag. The signing of MoU confirmed the giant demand for mechatronic engineers as 11 national companies, such as Gobi, Erel and Oyu Tolgoi JSCs, were involved in it. “The demand for mechatronic engineers is very high because the profession will be required in every line of computer-controlled production,” highlighted one of the mechatronics teacher of PCME. In terms of either quality or quantity, the VETP project underlined that Mongolia’s training market is currently unable to satisfy the technical staff need in mineral resource sector and in the upstream and downstream industries, particularly in electrical, construction and mechanical occupations. This is driven by the lack of studies available for high schoolers that could indicate the labour market trend in the longer-term. Although professional studies are accessible for the young, they are mostly prepared for specified sectors and temporary demand.

Forty-five U.S. trade groups urge Trump to avoid tariffs against China www.reuters.com

WASHINGTON (Reuters) - Forty-five U.S. trade associations representing some of the largest companies in the country are urging President Donald Trump not to impose tariffs on China, warning it would be “particularly harmful” to the U.S. economy and consumers.

Russia election: Vladimir Putin wins by big margin www.bbc.com

Vladimir Putin will lead Russia for another six years, after securing an expected victory in the presidential election.

With most of the ballots counted, he had received about 76% of the vote, the central election commission said.

The main opposition leader, Alexei Navalny, was barred from the race.

Addressing a rally in Moscow after the early results were declared, Mr Putin said voters had "recognised the achievements of the last few years".

Speaking to reporters after his win, he laughed off a question about running again in another six years.

"What you are saying is a bit funny. Do you think that I will stay here until I'm 100 years old? No!" he said.

The scale of victory - which had been widely predicted - appears to be a marked increase in his share of the vote from 2012, when he won 64%.

Mr Putin's nearest competitor, Pavel Grudinin, had received about 12% so far, according to the central election commission.

Mr Grudinin is a millionaire communist, but the race also included a former reality television host, Ksenia Sobchak (2%), and veteran nationalist Vladimir Zhirinovsky (6%).

A state exit poll put the turnout at over 60%. Mr Putin's campaign had hoped for a large turnout, to give him the strongest possible mandate.

His campaign team said it was an "incredible victory".

"The percentage that we have just seen speaks for itself. It's a mandate which Putin needs for future decisions, and he has a lot of them to make," a spokesman told Russia's Interfax.

In some areas, free food and discounts in local shops were on offer near polling stations.

Mr Navalny was excluded from the election because of an embezzlement conviction that he said was manufactured by the Kremlin.

In his first reaction to the news, Mr Navalny indicated he had been unable to contain his anger.

"Now is the season of Lent. I took it upon myself never to get angry and not to raise my voice. Oh well, I'll try again next year," he tweeted.

During polling day, independent election monitoring group Golos reported hundreds of irregularities, including:

Voting papers found in some ballot boxes before polls opened
Observers were barred from entering some polling stations
Some people were bussed in amid suspicion of forced voting
Webcams at polling stations were obstructed by balloons and other obstacles

Videos taken from the election commission's live stream of polling stations also appeared to show some instances of officials stuffing ballots into boxes.

In Dagestan, one election official said he was prevented from doing his job by a crowd of men who blocked the ballot box.

But Ella Pamfilova, head of the Central Electoral Commission, said no serious violations had been registered yet.

After his victory was all but confirmed, Mr Putin addressed the crowds at a planned rally
"We have analysed and monitored everything we could, everything that has arrived. Thank goodness, it's all rather modest so far," she told a commission meeting while speaking about violations.

She had earlier said that anyone involved in violations would be caught.

Sunday's vote was also the first in Crimea since Russia seized the region from Ukraine. Mr Putin was scheduled to speak at a rally scheduled for the fourth anniversary of the annexation - the same day as the election.

The annexation was bitterly contested by Kiev and ratcheted up tensions between Russia and the West. Russians living in Ukraine were unable to take part in Sunday's vote because access to Russian diplomatic missions was blocked by the Kiev government.

Oil refinery feasibility study complete www.gogo.mn

The Ambassador of India to Mongolia, Suresh Babu, announced that the Indian company Engineers India Limited has completed a detailed feasibility study for the construction of a petroleum refinery that will be built on 150 hectares in Altashiree soum of Dornogobi Province.

Puting congratulates Mongolian President on his birthday www.news.mn

Russian President Vladimir Putin sent a letter of congratulation to Kh.Battulga, President of Mongolia on his 55th birthday on 3 March.

Rio Tinto's Mongolian subsidiary has filed a notice of dispute with the Mongolian government. www.afr.com

Rio Tinto and the Mongolian government could be headed for international arbitration, after the Rio subsidiary that owns the Oyu Tolgoi copper mine filed a formal notice of dispute against the developing nation.

The dispute relates to Mongolia's recent claim for $US155 million in taxes that the government believes were not paid between 2013 and 2015, and it comes after months of rising tensions between Rio and the developing nation.

Rio's exposure to the Mongolian mine comes through its 50.8 per cent stake in Canadian company Turquoise Hill Resources (TRQ), which in turn owns 66 per cent of the Mongolian company that owns the mine; Oyu Tolgoi LLC.

The latter company agreed to pay $US4.8 million of the tax claim, but filed the notice of dispute on Thursday over the remainder of the claim.

"On March 15, 2018, Oyu Tolgoi filed a notice of dispute with the Government of Mongolia under the Investment Agreement," said TRQ on Friday morning.

Dispute resolution is covered by chapter 14 of the 2009 Investment Agreement for Oyu Tolgoi, which is the seminal legal and financial contract between Rio, its subsidiaries and the Mongolian government.

"The notice of dispute filing is the first step in the process and includes a 60 working day negotiation period. If the parties are unable to reach a resolution during the 60 working day period, the dispute can be referred to international arbitration," said TRQ.

According to the 2009 investment agreement, the arbitration must take place in the London Court of International Arbitration, be conducted in English language and be in keeping with the arbitration rules of the United Nations Commission on International Trade Law.

"The arbitral award shall be final and binding on the parties," says chapter 14 of the 2009 investment agreement.

TRQ declined to record a provision for the tax claim on Friday, but noted that the sums involved would be material if forced to pay.

In a generic statement of corporate risks filed by TRQ on Friday, it conceded it may struggle to enforce the outcome of any arbitration proceeding if Mongolia chose to ignore the terms of the 2009 investment agreement.

"To the extent that the government of Mongolia does not observe the terms and conditions of the investment agreement and the underground plan, there may be limitations on the company's ability to enforce the terms of the investment agreement and the underground plan against the government of Mongolia, which is a sovereign nation, regardless of the outcome of any arbitration proceeding," said TRQ.

"If the terms of the investment agreement and or the underground plan cannot be enforced effectively, the company could be deprived of substantial rights and benefits arising from its investment in Oyu Tolgoi with little or no recourse against the government of Mongolia for fair and reasonable compensation."

The dispute comes almost four years after TRQ filed a similar notice of dispute against the Mongolian government over the government's claim for $US130 million in unpaid taxes.

Mongolia settled on that occasion for a $US30 million payment.

Rio, TRQ and Oyu Tolgoi have had a rough start to 2018, with copper exports being interrupted by a blockade at the Chinese border.

Mongolia also tore up a power supply agreement in February, which had allowed Oyu Tolgoi to source power from China. Rio must now find a way to source power for the mine from within Mongolia within four years, in a change that could add to the costs of the project.

First production of copper concentrate from Oyu Tolgoi's open pit came in 2013, but most of the mine's value lies in a giant underground expansion that is now under way and is expected to deliver copper from about 2021.

That expansion is expected to cost $US5.3 billion and will make Oyu Tolgoi the world's third biggest copper producer by 2025, when the underground mine reaches peak production rates.

Turquoise Hill announces financial results and review of operations for 2017 www.turquisehill.com

Turquoise Hill Resources today announced its financial results for the year ended December 31, 2017. All figures are in
U.S. dollars unless otherwise stated.
HIGHLIGHTS
Full year 2017
• Oyu Tolgoi achieved an All Injury Frequency Rate of 0.27 per 200,000 hours worked for the year ended December 31,
2017.
• Underground lateral development made good progress during 2017 completing 6.1 equivalent kilometres for the year
which was in-line with the 2016 Technical Report expectations.
• Since the re-start of development in January 2016, a total of 7.7 equivalent kilometres has been completed, which is
on plan.
• Shaft 2 sinking was completed in January 2018 with fit out expected to occur over 2018.
• Shaft 5 had approximately 100 metres remaining at the end of 2017 and sinking is expected to be complete in Q1’18.
• During 2017, total underground expansion spend was $835.7 million, meeting guidance and resulting in total
underground project spend since January 1, 2016 of approximately $1.1 billion.
• Production from first draw bell remains planned for mid-2020 and sustainable first production in 2021.
• During 2017, Oyu Tolgoi set operational records for total material mined and concentrator throughput.
• Copper production of 157,400 tonnes and gold production of 114,000 ounces in 2017 met the Company’s guidance.
• Oyu Tolgoi recorded revenue of $939.8 million in 2017 compared with $1,203.3 million in 2016 reflecting lower sales
volumes partially offset by higher copper prices.
• For 2017, the Company recorded income of $110.9 million and net income attributable to owners of Turquoise Hill of
$181.2 million or $0.09 per share.
• Turquoise Hill generated cash flow from operating activities before interest and tax of $325.8 million in 2017, with net
cash generated from operating activities of $118.0 million.
• For 2017, Oyu Tolgoi’s cost of sales was $2.32 per pound of copper sold, C1 cash costs were $1.92 per pound of
copper produced and all-in sustaining costs were $2.39 per pound of copper produced1
.
• Operating cash costs1 of $711.6 million in 2017 beat the Company’s guidance.
• Of the $4.2 billion project finance facility proceeds deposited with Rio Tinto in June 2016, approximately $1.0 billion
has been redrawn as of December 31, 2017 with approximately $3.2 billion available.
• Turquoise Hill’s cash and cash equivalents at December 31, 2017 were approximately $1.4 billion.

Please review the full report at www.turquoisehill.com

Mongolia needs more capital investment on education, World Bank says www.montsame.mn

Ulaanbaatar /MONTSAME/ The Mongolian Government spends a relatively high amount of money on education compared to other countries in the East Asia Pacific, says a new World Bank report released today.