MONTHLY COMMENT SUSTAINABLE FRONTIER - JUNE 2026

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Pakistan and Egypt led the way in June

In USD, the fund gained 2.1% (EUR: 4.4%) during June, compared with 0.6% for the MSCI FMxGCC Net TR (USD) (EUR: +2.8%) and -1.4% for the MSCI EM Net TR (USD) (EUR: +0.8%). In terms of portfolio contribution, Egypt was the largest positive contributor (+1.7%), followed by Pakistan (+1.7%) and Bangladesh (+0.3%). The largest negative contributions came from Sri Lanka (-0.5%), Vietnam (-0.3%), and Indonesia (-0.3%). Relative to the benchmark, our overweight position in Egypt (+1.7%), our overweight position in Pakistan (+1.5%), and our underweight and stock selection in Morocco (+0.6%) made the strongest positive contributions. Conversely, our underweight position in Romania (-1.1%), our overweight position and stock selection in Sri Lanka, and our underweight position in Vietnam (-0.5%) detracted the most from relative performance.

At the individual stock level, the largest positive contributor was Egyptian conglomerate GB Corp (5% of the portfolio), which advanced 30% during the month. The Egyptian market performed strongly on the back of lower oil prices, which, as is the case for most lower-middle-income economies, are expected to ease inflationary pressures and, in turn, support lower interest rates. A new funding round was announced in a fintech associate company, MNT Halan, Egypt’s first unicorn with a valuation over USD 1.4 billion, reviving expectations of a potential initial public offering of that company. GB Corp ended the month at a new all-time high in local currency terms.

The second-largest contributor was Pakistani textile manufacturer Interloop (4% of the portfolio), which rose 31% after the government presented its proposed budget. The proposal abolishes the so-called "super tax" (previously a 10% levy on profits above a specified threshold) for companies deriving more than 80% of their revenues from exports. We estimate that this measure will increase Interloop's annual earnings by approximately 16–17%. The largest negative contributor was Sri Lankan renewable energy company Windforce (3% of the portfolio), which declined 11% in the aftermath of the quarterly results released the previous month.

Brent crude oil prices declined by 18% during the month as shipping through the Strait of Hormuz gradually resumed. Although traffic remains well below normal levels, larger oil tankers have been prioritised, a development reflected in lower global oil prices. We would not be surprised to see oil prices fall below the levels prevailing before concerns over a broader regional conflict first emerged. This time, many countries acted swiftly to curb energy consumption, and some of these conservation measures may remain in place for an extended period. Certain changes are likely to prove permanent, including the acceleration of renewable energy investment. At the same time, tensions within OPEC have become increasingly apparent. In May, the United Arab Emirates - accounting for approximately 12% of OPEC production prior to the conflict - exited the organisation. Iraq has also expressed dissatisfaction with its production quota and has hinted that it could follow suit. Lower oil prices would be beneficial for most of our markets. Assuming Brent remains around current levels (approximately USD 73 per barrel at the time of writing), it is likely to take several months before easing geopolitical concerns translate into lower inflation and, ultimately, lower interest rate expectations.

Looking back at the performance of our key markets since the conflict involving Iran began, the divergence has been striking. Nigeria's relative resilience is perhaps unsurprising given its commodity exposure. Pakistan's strong performance, however, has been more unexpected and is likely explained both by the government's swift response to the spike in oil prices and by the country's increasingly prominent role in the subsequent diplomatic negotiations. A stronger regional, and indeed global, standing should prove supportive for the country's long-term investment climate. Indonesia's continued underperformance, in our view, primarily reflects investor concerns over President Prabowo's economic policies, compounded by market-specific headwinds, including MSCI's criticism of the country and uncertainty surrounding its position within the MSCI Emerging Markets Index.

From a valuation perspective, Indonesia - and to a lesser extent the Philippines - continues to stand out as particularly inexpensive, while valuations across our other core markets suggest broadly neutral investor sentiment. Provided tensions in the Middle East do not escalate again, we expect investor interest from both domestic and international investors to improve gradually as geopolitical concerns continue to recede.