MONTHLY COMMENT SUSTAINABLE FRONTIER - SEPTEMBER 2025

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POSITIVE MONTH LED BY PAKISTAN In USD, the fund rose by 2.2% during the month (EUR: +1.7%), compared with MSCI FMxGCC Net TR (USD), which gained 1.0% (EUR: +0.5%), and MSCI EM Net TR (USD), which rose by 7.2% (EUR: +6.6%). In absolute return terms, Pakistan was the single largest positive contributor (+3.1%), followed by Sri Lanka (+0.8%), while Vietnam (-0.8%) and Bangladesh (-0.3%) were the main detractors. Relative to the benchmark, our overweight in Pakistan (+2.4% relative contribution), overweight in Sri Lanka (+0.9%), and underweight in Morocco (+0.7%) contributed positively, whereas our stock selection in Vietnam (-0.8%), underweight in Romania (-0.4%), and Slovenia (-0.4%) detracted.

At the individual stock level, the largest positive contributions came from Pakistan. Meezan Bank (9% of the portfolio) gained 12%, IT consultant Systems Ltd (9% of the portfolio) rose 10%, and National Bank of Pakistan (divested during the month; see below) gained 26% during the holding period. We also benefited from Grab (2% of the portfolio), which gained 21% during the month. The strength in our Pakistani holdings reflected strong inflows from local institutional investors. Grab’s rally followed its participation at Asia’s largest investor conference in Hong Kong (attended by Tundra), where its progress in autonomous transport and positive guidance regarding its fintech business (expected to break even next year) were well received. We also noted that Sri Lanka’s “Grab equivalent”, Digital Mobility, rose 18% during the month, likely supported by two positive research reports from leading local brokers.

The largest negative contribution came from the Egyptian fintech conglomerate GB Corp (5% of the portfolio), whose share price fell 11% during the month – a decline we interpret as profit-taking after strong year-to-date performance. When reviewing the company’s valuation against its share price, we note that following Egypt’s devaluation in spring 2024, its valuation has remained stable at around 7x earnings. The increase in the share price (in USD) over the same period has therefore been entirely driven by earnings growth (see Figure 1).

FIGURE 1: GB CORP P/E RATIO VS SHARE PRICE PERFORMANCE (USD)

We remain positive on the company’s long-term growth potential. Its 44% stake in fintech company MNT-Halan alone should be worth well above GB Corp’s current market capitalisation. The ongoing discussions regarding an IPO of MNT-Halan on a Gulf exchange could act as a supportive catalyst. Falling inflation in Egypt over the coming two years is likely to lower interest rates and, consequently, the cost of equity - a development that should benefit equity valuations, as well as the group’s core businesses (automotive manufacturing and leasing).

The second-largest negative portfolio contributor was Vietnamese IT company FPT Corp, which fell 9% despite a rising market. In the final days of the month, we increased our position by 2 percentage points to just over 6% of the portfolio. The FPT purchase was financed through our exit from National Bank of Pakistan. Over the years, we have frequently been asked why we owned NBP. It is not a typical “Tundra company” – i.e. a best-in-class market leader. As previously mentioned, we viewed it as a “special situation” where a pension liability had been significantly mispriced by the market, and where that mispricing could be quantified in time. At the same time, we considered the company’s quality, including management, sufficient to realise the upside we saw. After the recent re-rating, we now believe most of the mispricing has been corrected, and competition for capital has become too fierce compared with our more traditional “Tundra companies” – in Pakistan as well as elsewhere.

KEY MARKET DEVELOPMENTS

In an otherwise calm month, Pakistan stood out, gaining 13%. The rally was supported by the government’s completion of loans worth over USD 4 billion in local currency from a consortium of banks to settle outstanding energy-sector debt. Furthermore, the improving tone in US-Pakistan relations and the unexpected signing of a mutual defence agreement between Pakistan and Saudi Arabia were received very positively by investors. Together, these developments signalled a strengthening of Pakistan’s geopolitical position and fuelled strong gains, particularly in the power, oil and gas, and banking sectors.

While President Trump’s return to office has caused anxiety among many world leaders, relations between the US and Pakistan have improved markedly compared with the previous administration, which regarded India as its key strategic partner in the region. The recent deterioration in relations between Washington and New Delhi has made Islamabad appear a more attractive partner for the US. In recent months, several American companies have shown renewed interest in Pakistan’s mining and energy sectors. In September, cooperation between the two countries deepened further, with high-level visits by both Pakistan’s Army Chief and Prime Minister to the White House. For example, U.S. Strategic Metals signed an MoU with Pakistan’s Frontier Works Organization regarding the production and recycling of critical minerals. In addition, Hycarbex-American Energy, a US energy company, entered a joint venture with local players Mari Energies and Fatima Petroleum to restart exploration in the Khyber Pakhtunkhwa province. Moreover, the US EXIM Bank and other US-backed multilateral institutions (including the World Bank and ADB) are in advanced discussions to finance the Reko Diq copper and gold mine in north-western Balochistan.

We live in a rapidly changing geopolitical environment, where relationships can improve or deteriorate swiftly. Since the nuclear tests in 1999, global investors have viewed Pakistan with suspicion, and this isolation has severely constrained the country’s development. It is too early to tell whether the current improvement is temporary or structural, but should Pakistan indeed be re-entering the global investment arena, what we are witnessing now could merely be the beginning.

INSIGHTS FROM OUR TRIP TO SRI LANKA

During the month, we visited Sri Lanka, meeting both existing portfolio holdings and potential new investments. The trip also provided an opportunity to update our short-term outlook for the country. Perhaps the most striking impressions came from our visit to the vast City of Dreams complex - a combined hotel and casino development with 800 rooms and approximately 16,000 sqm of gaming space (roughly equivalent to Marina Bay Sands in Singapore). Staying at the hotel allowed us to experience the guest offering first-hand.

We were positively surprised by the occupancy rate, which we estimated at 35–40% during our stay – an encouraging figure for the low season and only a month after the casino’s opening. Visiting on a Thursday evening, we found a fair level of activity at the tables, even though the venue was far from full.

Our overall impression was that the project is likely to succeed. With its capacity and facilities, it is set to become a natural hub and an ideal venue for large conferences. Its proximity to India will be a key advantage: currently, nine Indian cities offer direct flights to Colombo. From Bangalore (14 million inhabitants and a major IT hub), the flight takes 1.5 hours; from New Delhi (33 million inhabitants, northern India) around 3.5 hours. Anyone familiar with both countries would agree that Colombo could easily serve as a weekend getaway for affluent Indians seeking to escape congestion and pollution.

Since becoming shareholders in Digital Mobility Solutions Lanka, we conducted our first on-site visit, meeting several department heads. Management informed us about the launch of a new event-ticketing service on its platform, with the ambition to become Sri Lanka’s leading online ticketing provider. Growth in the core ride-hailing business remains on track, but management also highlighted the imminent entry of a new competitor, HelaGo, expected to launch shortly. Our initial assessment is that Sri Lanka’s ride-hailing market, currently resembling an oligopoly, has room for one more player – though success will require strict cost discipline during the early years and a service level comparable with established competitors.

While travelling around Colombo, we were struck by the high number of BYD vehicles on the streets, particularly given that the ban on private vehicle imports was lifted only eight months ago. John Keells is the authorised BYD distributor in Sri Lanka. According to management, the order backlog stood at over 7,000 vehicles by end-June 2025, of which more than 4,000 had already been delivered.

As always when visiting our markets, we enjoy walking around to compare price levels and service quality. We visited both Cargills and Keells supermarkets, and Tundra’s Senior Analyst Imran, who is based in Karachi, observed that food prices in Colombo are now roughly on par with those in Karachi.

During the trip, we also met leading banks and infrastructure-focused companies. Sri Lanka’s recovery from its crisis years is impressive, though construction activity remains well below pre-COVID-19 levels. According to the CEO of one of the country’s largest construction companies, cement and asphalt consumption are still around 30% and 55% below their peaks, respectively. With improved fiscal space, we expect to see more state-led infrastructure projects in the coming years – particularly roads and the expansion of Bandaranaike International Airport in Colombo. We conclude that Sri Lanka may be entering a period of relatively strong growth, with both a healthy external balance and prudent fiscal management offering a degree of protection against negative surprises.