Khan Investment Management Update (23/05/2012)

May 23 (Khan Investment Management) --- If March performance was marred by volatility, April proved that volatility has no bounds and that cheap can become even cheaper. Prices fell towards the end of the month as news of UK and Spanish recessions spread and increasing fears about Europe's burgeoning debt crisis and the stability of the EU dragged global equity and commodity indexes lower. Short term share price performance is being held hostage to the marginal global investor's view of the cycle and appetite for risk. Whilst the Spanakopita may be hitting the fan in Europe, China is not broken. Commodity consumption will grow again in 2012, but from the perspective of the marginal investor, growth rates are easing.

Continued strength in the mining sector, rapidly expanding resource exports and rising Government spending all helped to grow Mongolia's GDP 16.7% yoy in Q1, 2012. In nominal terms, GDP growth rate stood at 30.2% yoy. Economic growth in the first quarter of the year is traditionally somewhat slow as activity in many sectors is subdued due to climate. In 2011, the economy expanded 9.8% in Q1, and accelerated to 17.3% yoy by the year end. We expect this trend to continue, particularly after the appointment of a new Government for a 4 year term following June elections. Regardless of the election outcome, we believe the Government will be quick to hasten growth and development in line with the previous policies set by the former coalition.

9 stocks within the portfolio fell double digit figures into negative territory. The worst performing stock (although only just) wasIvanhoe Mines Ltd (IVN:US) which fell almost 23%. Winsway Coking Coal Holdings (1733:HK) was the best performer, recovering 16% from its March nosedive.

We exited one position in full during the month, based on independent research that the company was not meeting export obligations. Many stocks within the portfolio continue to test new 52 week lows. We continue to average down and accumulate more of our high conviction positions in light of current price weakness, which we believe is driven by increasing global market correlation and marginal investor fears, and is not based on company analysis. We believe that certain stocks are trading at deep discounts to even modest estimates of value and are likely to bounce hardest on the return of rational markets.

The KMEF recently subscribed to its fourth IPO, and expects to review additional opportunities in the new issue space over the coming months – several of which are expected to provide diversification into new sectors and industries for the portfolio.

The Khan Mongolia Equity Fund performance for April was -8.37%.

The Net Asset Value as at 30 April 2012 was USD 83.59. The April Factsheet can be downloaded by registered users of the Khan Investment Management website – www.Khan-Management.com

The Mongolian Parliament recently approved a law that regulates foreign direct investment into a number of key sectors of strategic importance. The regime is not dissimilar to those enacted in other resource rich jurisdictions such as Australia and Canada, and is viewed as a positive step towards protecting sovereignty of key national interests. We also view this as a potential positive with regards to growing the bourse and expanding local ownership of Mongolian assets.

A prominent local securities dealer in Ulaanbaatar recently had their broking and dealer licences revoked by authorities due to investigations regarding stock price manipulations on the Mongolian Stock Exchange (MSE). We view this outcome positively and a further indicator that the Financial Regulatory Commission of Mongolia is committed to improving transparency and governance on the MSE.

KMEF believes that European debt crisis fears leading to irrational market correlation, combined with further pre-election uncertainty is driving current market volatility and has erroneously depressed equity prices in the short term. We foresee buying opportunities to increase our exposure to certain positions at attractive entry points over the coming weeks and maintain a strong positive view over the medium and longer term.

Interestingly, 26 years ago this month a Swedish rock bank rose to number 1 position in the charts in over 25 countries… Europe – "The Final Countdown"... fitting for this week's EU summit?

I look forward to updating you further of our developments next month.

Best regards,

Travis Hamilton

Managing Director

KHAN INVESTMENT MANAGEMENT LIMITED

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