The hottest currency play of 2010 may have been for one of Asia’s
least-recognized currencies: the Mongolian togrog, says a Wall Street Journal
Asia blog. The togrog is up 16.7% so far this year. Robert Flint of Dow Jones
Newswires reports that makes it the best-performing currency against the dollar
in 2010. As his column notes: “The currency is free-floating, and the capital
account is open,” so investors could have pocketed real returns.

But any trader who made money on the MNT’s climb would have indeed been
far-sighted and even well-traveled. “I’ve never heard of it, never seen it traded
anywhere,” said a currency strategist. “I honestly think you have to go there
to a bank and exchange it.”

Mongolia’s location, on China’s northern border, would seem to make it
the perfect supplier to sate the Chinese economy’s insatiable demand for raw
materials. Over the last year, several Mongolia resource plays have listed
shares on the Hong Kong exchange, and Mongolia’s government has made it known
that it’s looking at Hong Kong as the vehicle for listing state-owned companies
that hold the country’s key mining and
infrastructure assets. The performance of
these shares has been mixed.

Transportation is one key concern that weighs on the sector. Mongolia’s rail system doesn’t directly connect to many of the big mines,
and the gauge of its railway trunk is different from the railway gauge used in
China. That means that iron ore or
coal shipped by rail has to be unloaded at the border and reloaded onto Chinese
trains, adding to the cost.

Then there’s the regulatory risk. Recently, Mongolia’s government said it
was reviewing more than 1,700 out of about 4,000 mining licenses it has given
out for possible termination under legislation aimed at protecting the
environment. It has already suspended 254 gold-mining licenses to conform with
the law. That’s probably good for efforts to conserve and protect the vast
country’s scarce water resources, but not necessarily so good for investors
who’ve helped push the togrog up to such lofty heights.