Dear Investors and Friends,
As part of our continuing on the ground research, Thomas Hugger, CEO of Asia Frontier Capital and Fund Manager of the AFC Asia Frontier Fund, traveled to Mongolia recently. Photos are by Asia Frontier Capital.
As usual, I planned my yearly trip to Mongolia for the month of September when the historical average daily high temperature in Ulaanbaatar, or in short “UB”, is +16 degrees Celsius and the daily average low temperature is +1 degree, compared with a range of +7 to −8 degrees in October and −14 to −27 degrees in December and January. Bear in mind that Ulaanbaatar is regarded as the “coldest capital city in the world”. Luckily, the weather forecast for the time of my trip was excellent with daily sunshine and high temperatures of up to +25 degrees!
Travelling during the months of July and August to Mongolia for business is also not advisable since in mid-summer the traditional Mongolian festival “Naadam” is held (since the time of Chinggis Khan). Naadam means “games” in the Mongolian language and these games consist of Mongolian wrestling, horse racing and archery "the three games of men" and are held all over the country and thus many of the inhabitants of UB travel to the countryside where they or their ancestors are from to attend the local Naadam and to visit their families.
Packing my luggage for this trip is also kind of special since the temperature in Hong Kong in September is about +32 degrees during the day and thus I had to pack my winter suit and also my winter coat which I normally only use for my trips to Mongolia, Switzerland and Uzbekistan. For a change, this year my winter coat was a needless item and was never used since the temperature in Ulaanbaatar was between +15 and +25 degrees during the day, and one evening I even had a delicious dinner outside at 7pm which is very unusual for end of September.
Travelling from my home in the New Territories to the Hong Kong Airport by car/taxi is normally a matter of 45 minutes, unless like two years ago a severe typhoon is hitting Hong Kong which can make the trip by road an adventure. However, this year I had to leave my home much earlier since radical pro-democracy supporters were planning to disrupt transport links to the airport, including trains, buses and further blocking the only road leading to the airport. Luckily, my flight was departing around 1pm and since the disruptions organized by the protestors normally only start by 2pm and last until midnight, I arrived with no problems at the airport.
The 4½ hour flight was on a MIAT Mongolian Airlines B737-800 jet which had an entertainment system installed but for some reason there was no programming (?) and was therefore boring and uneventful. Before landing at Chinggis Khaan International Airport we flew directly above the “New Ulaanbaatar International Airport” (NUBIA) which was constructed with Japanese assistance via a loan of USD 600 mln in January 2017 but until today this new airport, located 50 kilometers south of Ulaanbaatar, is yet to handle a single flight. Its targeted opening is now deferred to 2020 but nobody really knows for sure when. Even a duty-free company the AFC Asia Frontier Fund has successfully invested into some time ago, and which has a keen interest to tender for one of the duty-free shop spaces at the new airport, is still eagerly waiting for the opening which will potentially be a major boost to its business.
From the old airport an 18-kilometer drive will take visitors towards the business and government district of UB during which one can easily get a quick snapshot of the state of the Mongolian economy and especially the construction sector in Mongolia. After leaving the airport area, the road leads uphill to a plateau with a nice view over the Ulaanbaatar valley. Driving towards UB's city centre, one has to pass through a new residential district which was built during the past 10 years on land which was previously steppe. About 5 years ago (when the economy was doing well) I counted over 20 construction cranes and 2 years ago this number had fallen to about 8 (most of them at unfinished constructions sites) and needless to say, the general economy was not doing well then either. This time however, as I quickly counted the number of construction cranes on the horizon, I identified 15, most of which were on construction sites with large amounts of activity as work continued on Sunday in order to finish the major building structures before the harsh winter in Mongolia sets in, making it impossible to pour any concrete. My quick take on the construction sector was confirmed during the week when meeting with the leading concrete company in Ulaanbaatar which (finally) is showing early signs of a turnaround after about 3 years of a very difficult and hostile business environment. The turnaround in the sector was further confirmed by a company, whose shopping mall is exclusively hosting construction material related and hardware shops, is fully leased out and is now considering expanding its facilities in order to have more shops to rent out.
My crane observation was “re-confirmed” yet again when I visited, in the evening, “Sukhbaatar Square” which is basically the center of UB and is surrounded by the Government Palace, State Ballet and Opera House, various banks, hotels, a new shopping center, government offices and most importantly (for me) the beautiful building of the Mongolian Stock Exchange (MSE) which was previously a theatre during the Soviet era. As you can see from my photo below, various new high-rise buildings are starting to sprout up (UB's skyline is slowly but surely becoming like any other Asian capital city) and even the unfinished skeleton of a building, which has been dormant for nearly six years (building furthest left), is showing signs of construction activity.