Khan Investment Management Update (15/06/2012)
June 15, Khan Investment Management -- May was one of the worst months for equity markets in recent years. As the debt crisis in Europe intensified, few investors were in the mood to buy risk assets and instead rushed to Treasury securities - sending the 10 Year US Treasury yield to the lowest on record at 1.53% - versus the previous low of 1.55% seen in November 1945 (YES – the end of WWII!). For the month, the Dow fell 7.1%, the ASX All Ords shed 9.3%, MSCI Asia lost almost 12.5% whilst the Hang Seng tumbled over 14%. The S&P GSCI (formerly known as the Goldman Sachs Commodity Index) fell 13.72% whilst the MSE Top 20 Index was relatively unscathed falling 3.9%. The Khan Mongolia Equity Fund (KMEF) finished the month down 10.38%.
8 positions in the portfolio finished down double digit percentage points. Petro Matad (MATD:LN) was the worst performer losing 58.31%. Draig Resources Ltd (DRG:AU) lost 40%, Aspire Mining Ltd (AKM:AU) slid 38.6% and Ivanhoe Mines Ltd (IVN:US) lost a further 22.65%, closing the month at USD 9.39 – up from a 52 week low of USD 8.39 (the KMEF sold a significant portion of its IVN holding at USD 18.20 on March 12th). The best performer in the portfolio wasGobi JSC (GOV:MO), the Mongolian cashmere and garment group, which recovered 10.44% from recent lows.
At the beginning of May the KMEF portfolio consisted of 17 securities in total. Over the course of the month South Gobi Resources Ltd (1878:HK) was sold in entirety on the back of news that their offices in Ulaanbaatar were blocked by local law authorities and were being raided by agents of the Independent Authority Against Corruption. We were able to quickly and independently verify the reports, and the stock was exited in full (within 90 minutes of the initial report) at an average price of HKD 51.49 – a 3.2% discount to the previous trade of HKD 53.20. The stock is currently trading at HKD 39.90 (14 June 2012).
A position in Mongolian Mining Corporation Ltd (975:HK) was reacquired at HKD 5.30, and the Fund made a commitment to invest in its first pre-IPO capital raising – Bold Resources Limited.
A well-diversified portfolio has helped to shelter the Fund from the vicious price swings seen in many commodity stocks over the last several months. Contrary to the side-lined marginal investor, we continued to aggressively add to core positions and in the last week of May and moved the portfolio’s cash allocation from above 30% to below 10% in order to take advantage of further price weakness in key positions. We believe strongly that the importance of on-the-ground insight and information access cannot be overstated, as has been clearly demonstrated by our recent trading activity.
The Khan Mongolia Equity Fund performance for May was -10.38%.
The Net Asset Value as at 30 April 2012 was USD 74.91
The May Factsheet can be downloaded by registered users of the Khan Investment Management website – www.Khan-Management.com
Narantuguldur Siajrakh recently attended the 2nd Coaltrans Mongolia conference in Ulaanbaatar on behalf of Khan which highlighted Mongolia’s emergence as a leading coal producer with the ability to influence international coal markets in the near term. The conference also afforded Khan the opportunity to hear from and meet with senior management of a number of companies that the Fund is already invested in or is currently reviewing, providing timely insights into strategy and development progress.
Mongolia’s political situation, which has been attracting increased international attention recently, has kept many investors wary of the emerging economy. Parliamentary elections are due at the end of this month and the likely outcome remains uncertain. Much of the Mongolian economy seems to have slowed in the lead up to elections, with some business, economic, political and even personal decisions being postponed until after the June 28 polls.
Contrary to recent international media reports relating to concerns about draconian resource nationalism, risks to democracy, increasing corruption and politically motivated arrests, Khan believes that Mongolia is firmly on the way to improving market governance and transparency and is taking positive steps to investigate corruption allegations and punish those found guilty whilst aiming to further establish the country as a business friendly environment that welcomes foreign investment.
Khan believes that the next government will potentially be a coalition formed between either majority caucus (the Democratic Party or the Mongolian People’s Party) and a smaller minority caucus (either the Civil Will Green Party or Mongolia’s People’s Revolutionary Party).
However, regardless of the election outcome, Khan believes the new government will be quick to hasten growth and developmentin line with the previous policies set by the former coalition, including the privatization of promising state-owned enterprises, encouraging growth in non-mining industries, and maintaining double digit economic growth targets.
It is unlikely that we will see significant news flow coming out of Mongolia this month and the next whilst the new government is being formed and the country enjoys the Naadam festival, Mongolia’s largest national holiday, which takes place for the entire second week of July.
Whilst most international investors remain side-lined waiting to see what happens at this weekend’s Greek elections, China continues to grow and the rest of the world keeps turning. China’s May exports, after seasonal adjustments, were up 13.8% yoy, and imports increased 8.3% yoy. Khan believes that China’s surprise rate cut combined with the publically announced decision to accelerate key investment projects indicate a determination to underpin solid growth before a once-a-decade leadership change at the top of the ruling Communist Party, due towards the end of this year.
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 fundamental 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 (more) rational markets.
I thank our investors for their continued support and I look forward to updating you further of our developments next month.
Best regards,
Travis Hamilton
Managing Director
KHAN INVESTMENT MANAGEMENT LIMITED
8 positions in the portfolio finished down double digit percentage points. Petro Matad (MATD:LN) was the worst performer losing 58.31%. Draig Resources Ltd (DRG:AU) lost 40%, Aspire Mining Ltd (AKM:AU) slid 38.6% and Ivanhoe Mines Ltd (IVN:US) lost a further 22.65%, closing the month at USD 9.39 – up from a 52 week low of USD 8.39 (the KMEF sold a significant portion of its IVN holding at USD 18.20 on March 12th). The best performer in the portfolio wasGobi JSC (GOV:MO), the Mongolian cashmere and garment group, which recovered 10.44% from recent lows.
At the beginning of May the KMEF portfolio consisted of 17 securities in total. Over the course of the month South Gobi Resources Ltd (1878:HK) was sold in entirety on the back of news that their offices in Ulaanbaatar were blocked by local law authorities and were being raided by agents of the Independent Authority Against Corruption. We were able to quickly and independently verify the reports, and the stock was exited in full (within 90 minutes of the initial report) at an average price of HKD 51.49 – a 3.2% discount to the previous trade of HKD 53.20. The stock is currently trading at HKD 39.90 (14 June 2012).
A position in Mongolian Mining Corporation Ltd (975:HK) was reacquired at HKD 5.30, and the Fund made a commitment to invest in its first pre-IPO capital raising – Bold Resources Limited.
A well-diversified portfolio has helped to shelter the Fund from the vicious price swings seen in many commodity stocks over the last several months. Contrary to the side-lined marginal investor, we continued to aggressively add to core positions and in the last week of May and moved the portfolio’s cash allocation from above 30% to below 10% in order to take advantage of further price weakness in key positions. We believe strongly that the importance of on-the-ground insight and information access cannot be overstated, as has been clearly demonstrated by our recent trading activity.
The Khan Mongolia Equity Fund performance for May was -10.38%.
The Net Asset Value as at 30 April 2012 was USD 74.91
The May Factsheet can be downloaded by registered users of the Khan Investment Management website – www.Khan-Management.com
Narantuguldur Siajrakh recently attended the 2nd Coaltrans Mongolia conference in Ulaanbaatar on behalf of Khan which highlighted Mongolia’s emergence as a leading coal producer with the ability to influence international coal markets in the near term. The conference also afforded Khan the opportunity to hear from and meet with senior management of a number of companies that the Fund is already invested in or is currently reviewing, providing timely insights into strategy and development progress.
Mongolia’s political situation, which has been attracting increased international attention recently, has kept many investors wary of the emerging economy. Parliamentary elections are due at the end of this month and the likely outcome remains uncertain. Much of the Mongolian economy seems to have slowed in the lead up to elections, with some business, economic, political and even personal decisions being postponed until after the June 28 polls.
Contrary to recent international media reports relating to concerns about draconian resource nationalism, risks to democracy, increasing corruption and politically motivated arrests, Khan believes that Mongolia is firmly on the way to improving market governance and transparency and is taking positive steps to investigate corruption allegations and punish those found guilty whilst aiming to further establish the country as a business friendly environment that welcomes foreign investment.
Khan believes that the next government will potentially be a coalition formed between either majority caucus (the Democratic Party or the Mongolian People’s Party) and a smaller minority caucus (either the Civil Will Green Party or Mongolia’s People’s Revolutionary Party).
However, regardless of the election outcome, Khan believes the new government will be quick to hasten growth and developmentin line with the previous policies set by the former coalition, including the privatization of promising state-owned enterprises, encouraging growth in non-mining industries, and maintaining double digit economic growth targets.
It is unlikely that we will see significant news flow coming out of Mongolia this month and the next whilst the new government is being formed and the country enjoys the Naadam festival, Mongolia’s largest national holiday, which takes place for the entire second week of July.
Whilst most international investors remain side-lined waiting to see what happens at this weekend’s Greek elections, China continues to grow and the rest of the world keeps turning. China’s May exports, after seasonal adjustments, were up 13.8% yoy, and imports increased 8.3% yoy. Khan believes that China’s surprise rate cut combined with the publically announced decision to accelerate key investment projects indicate a determination to underpin solid growth before a once-a-decade leadership change at the top of the ruling Communist Party, due towards the end of this year.
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 fundamental 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 (more) rational markets.
I thank our investors for their continued support and 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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