The Central Asian frontier has been upgraded by S&P and Moody's, scoring a long-term sovereign BB from the former for the first time in nearly two decades, up from B+ just a month ago.
The boosts come at an interesting moment for Mongolia, following the June ousting of one prime minister after political unrest, and the temporary removal - and subsequent reinstatement - of his successor.
And boosts here are notably plural: S&P only last month upgraded Mongolia to BB- and has now gone a step further in November.
State of Play: While recognizing that political uncertainty, S&P's lead analyst on the country YeeFarn Phua noted that Mongolia's sustained efforts at debt-to-GDP improvement and strong growth, particularly given its mining industry's relationship with neighboring China, would move the rating to stable. Pursuit of further scoring upside was also possible, Phua said, if increasing commodities sector growth or policymaking (or both) combined to enhance the country's external debt profile still further.
Some global investors had anticipated the decisions, including Danske Bank Asset Management, which is overweight Mongolia's lightly-traded sovereign debt.
Portfolio manager Soeren Moerch with Danske said in a note that the Danish firm would remain long following the upgrade, "a position we expect to maintain while Mongolia continues to strengthen its financial buffers and builds up its resilience." He added the boost is part of a ongoing trend in EM credit, "underscoring a broader trend of improving fundamentals that is likely to sustain additional inflows from rating-sensitive investors."
OQ View: Mongolia is very much a geoeconomic forum of the moment, given its proximity to China and its wealth of rare and critical minerals. That is struck against a backdrop of Gen Z protests that made global news - and forced a collapse of government - this summer because of a novel flashpoint: handbag corruption.
Slower overall growth this year, alongside those political questions, tempers expectations of a further boost in the near term, though now rated at BB- Mongolia is now level with emerging market South Africa (which S&P also recently upgraded), creating an interesting value proposition, given its spreads. -BM
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