FRONTIER MARKETS SHINE IN OCTOBER

In USD, the fund rose 1.8% during October (EUR:+4.8%), compared to the MSCI FMxGCC Net TR (USD), which fell 0.6% (EUR:+2.3%), and the MSCI EM Net TR (USD), which fell 4.4% (EUR: -1.7%). In absolute return, it was primarily Pakistan (+1.7% portfolio contribution), Sri Lanka (+0.7% portfolio contribution), and Egypt (+0.4% portfolio contribution) that contributed positively. Among negative contributions, it was mainly Vietnam (-0.5% portfolio contribution) and Bangladesh (-0.4% portfolio contribution) that contributed negatively. Relative to our benchmark, it was primarily our overweight in Pakistan (+1.3% portfolio contribution relative to the benchmark), stock selection in Vietnam (+1.0% portfolio contribution relative to the benchmark), and overweight in Sri Lanka (+0.5% portfolio contribution relative to the benchmark). Negative contributions versus the benchmark were mainly received from a lack of holdings in Iceland (-0.5% portfolio contribution relative to the benchmark) and Kenya (-0.3% portfolio contribution relative to the benchmark).

The biggest single contribution came from Pakistani IT company Systems Ltd (7% of the portfolio), which rose 22% after a quarterly report that beat expectations. The stronger rupee and start-up costs in connection with the company’s expansion abroad (primarily Saudi Arabia and Egypt) have weighed on the company’s margins in the past year. Rising resource utilization in the new offices, combined with the company ending some local contracts with low profitability meant the trend broke, while revenue growth remained strong (28% in USD). The second largest contribution was received from Egyptian dairy and juice producer Juhayna Foods (3% of the fund). The stock rose 21% after Arla, a Danish-Swedish dairy giant, made an acquisition bid for a local cheese producer. The biggest negative contribution came from Vietnamese industrial conglomerate REE Corp (7% of the fund), which fell 7% in a weak Vietnamese market.

IMPORTANT MARKET EVENTS

We noted increased participation by local Pakistani institutions in the stock market during October. Expectations of lower interest rates tend to lead to a shift of allocated capital from interest-bearing instruments to equities (see the previous monthly newsletter), and that looks set to be the case this time as well. At the time of this monthly letter (November 4th), the central bank has just cut interest rates by a further 250 basis points (to 15%). That was higher than the consensus estimate (200 points), takes the decline so far this year to 700 points, and should support the stock market going forward.

After the initial optimism in Bangladesh after the regime change, the stock market has fallen back on the realization that the country still has some way to go to get out of the ongoing crisis. During October, as expected, the central bank raised its key interest rate by 50 basis points to 10%. Inflation in September fell to 9.9% year-on-year in September, compared to 10.4% in August but remains uncomfortably high. Our two holdings, BRAC Bank and Square Pharmaceuticals, have fared relatively well, both delivering good results for the third and second quarters respectively during the month. BRAC’s third-quarter profit rose 70% year-on-year, primarily driven by higher returns on investments. The stock is currently valued at a P/E of 8.3 on rolling twelve months, compared to its ten-year average of 12.8x. Square Pharmaceuticals delivered results for the second quarter of 2024 (the last quarter for 2024 in the company’s broken fiscal year). Profits rose 17% during the quarter (10% for the full year). The stock is currently valued at 9.6x annual earnings on rolling twelve-months earnings, compared to an average valuation of 15.7x over the past ten years.

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DISCLAIMER: DISCLAIMER: Capital invested in a fund may either increase or decrease in value and it is not certain that you be able to recover all of your investment. Historical return is no guarantee of future return. The state of the origin of the Fund is Sweden. This document may only be distributed in or from Switzerland to qualified investors within the meaning of Art. 10 Para. 3,3bis and 3ter CISA. The representative in Switzerland is OpenFunds Investment Services AG, Seefeldstrasse 35, 8008 Zurich, whilst the Paying Agent is Società Bancaria Ticinese SA, Piazza Collegiata 3, 6501 Bellinzona, Switzerland. The Basic documents of the fund as well as the annual report may be obtained free of charge at the registered office of the Swiss Representative.