MONTHLY COMMENT SUSTAINABLE FRONTIER - NOVEMBER 2025

Click here to access the full monthly report

WEAK MONTH IN AN OTHERWISE STABLE MARKET ENVIRONMENT

In USD the fund declined by 2.7% during the month (EUR: -3.1%), compared with the MSCI FMxGCC Net TR (USD), which rose by 1.1% (EUR: +0.7%), and the MSCI EM Net TR (USD), which fell by 2.8%. In terms of absolute returns, the Philippines was the only country allocation to contribute positively (+0.7% absolute contribution), while Vietnam (-0.8%) and Sri Lanka (-0.8%) generated the largest negative contributions. Relative to the index, our underweight in Morocco (+0.7% relative portfolio contribution), our stock selection in the Philippines (+0.7%), and stock selection in Kazakhstan (+0.2%) contributed most positively, while our stock selection in Vietnam (-2.5%), Sri Lanka (-0.8%), and Pakistan (-0.4%) detracted the most.

Among individual holdings, the strongest positive contribution came from Philippine food producer Century Pacific (3% of the portfolio), which rose 16% following a solid quarterly report. The second-largest positive contributor was Philippine grocery retailer PureGold (3% of the portfolio), which gained 11% despite an earnings release that came in below expectations. The largest negative contribution came from Sri Lankan renewable power company Windforce (4% of the portfolio), which declined 11% after a very strong performance in the previous month, and from Vietnamese IT consultancy FPT Corp (6% of the portfolio), which fell 6%. The company reports monthly results at a headline level; in October, profits increased by 19% year-on-year. However, the share price retreated as IT services outside Vietnam once again delivered relatively weak growth (+6% year-on-year).

IMPACT ON SRI LANKA FROM CYCLONE DITWAH

In USD Sri Lanka rose 1% during the month. At month-end, the country was struck by Cyclone Ditwah. The market initially fell 3% on 1 December but has since stabilized. Initial reports confirm 627 fatalities, hundreds missing, and more than 2.1 million people affected by widespread flooding, landslides, and heavy rainfall. Floodwaters and landslides have destroyed more than 4,500 houses and partially damaged over 76,000 dwellings. Although the disaster is not on the scale of the 2004 tsunami, Ditwah is the most devastating natural catastrophe in two decades, causing significant disruption across multiple provinces.

The cyclone is likely to slow the ongoing economic recovery and may prompt revisions to GDP and fiscal forecasts, though a clearer assessment will depend on a full evaluation of the damage. Early indications point to losses in agriculture, with paddy fields and key vegetable-producing regions still inundated, while roads and bridges have sustained damage. Small businesses have incurred losses through destroyed inventories, equipment, and premises. The tourism sector, which typically enters its peak season at this time of year, is likely to see some slowdown as national parks and hill-country destinations remain closed. In the near term, we expect pressure on foreign exchange earnings, weaker consumption in affected regions, and a delayed recovery in confidence. However, reconstruction activity and targeted government support should help stabilise the economy over the next twelve months.

A STRANGE YEAR DRAWS TO A CLOSE

A rather unusual year is now drawing to a close. From an index perspective, it has been one of the strongest years on record for frontier markets, yet active funds - including our own - have found the environment exceptionally challenging. One unusual component has been the sharp depreciation of the US dollar (-10% against the Euro up to November). This has meant, for example, that European investors in US index funds have generated very humble return in Euro terms, while US-based investors are likely quite satisfied with a gain of around 17%.

The changed geopolitical landscape globally was, in our view, set to favour investments outside the United States. This has indeed been the case, with most other asset classes outperforming the US. Europe, emerging markets, and frontier markets have all delivered stronger returns than the US this year. European frontier markets and frontier markets close to Europe (Slovenia, Romania, and Morocco) have had an exceptionally strong year. This is not particularly surprising given the abrupt and significant weakening of the US dollar, which typically takes time to be fully priced into more dollar-denominated markets (particularly those in Asia).

Nevertheless, we note several anomalies. We expected a cautious return of foreign investors to Vietnam once the Federal Reserve began cutting rates. This has not materialised. Instead, Vietnam has seen the largest net outflows since records began (USD -5.2bn). In recent years, we have seen several foreign investors accompanying us in our preferred holdings. In 2025, this has resulted in selling pressure, contributing to our Vietnam portfolio falling 11% in USD this year - even as the equity market has risen by an astonishing 55%. Domestic investors have largely ignored the heavy foreign selling and have enjoyed a speculative rally in shares that most foreign investors do not involve themselves in (property developers and financial conglomerates). We believe 2026 should be a better year in Vietnam, though we are referring specifically to our own portfolio. We are less convinced about the broader index, where certain constituents - particularly index-heavy Vingroup - trade at unsustainable valuations.

Similarly, we expected foreign investors to finally return to Pakistan after two strong years. This has not occurred. Pakistan has instead recorded one of its weakest years in terms of foreign portfolio flows, with outflows of just over USD 300m. Just as in Vietnam’s case this has however not deterred domestic investors, who have focused on reallocating from government securities into equities, supported by a solid external balance and an improved geopolitical backdrop. Although Pakistan too has seen renewed interest in sectors typically favoured in higher-risk environments (such as cement and state-owned entities), we consider the rally to be relatively healthy in nature. In USD our Pakistan portfolio is up 54% this year compared with the market’s 41%.

The persistently muted – in some cases very weak – interest from foreign investors in smaller emerging and frontier markets is evident. This is particularly visible in the Philippines, which has had an exceptionally difficult 5–6 years, with 2025 proving no exception.

When we summarise valuations across our key markets, we note that levels have returned to something more in line with the past decade. Few markets trade at the upper end of historical valuation ranges, while several offer unusually low valuations (Vietnam and the Philippines, in particular).

Although the world remains geopolitically uncertain and certain themes (AI, anyone?) continue to dominate headlines, we do not see any of our markets at risk of a sudden and negative deviation from the recovery phase currently under way. Central banks remain conservative, which should reduce the risk of rising long bond yields and allow the ongoing reallocation from fixed income to equities among local investors to continue. The absence of foreign investors remains puzzling, but domestic investors have managed well on their own, and any foreign inflows would represent potential upside surprises. As we have noted several times this year, the current environment resembles the period a few years after the Asian Financial Crisis of 1997–98. If that analogy holds, we should have several reasonably strong years ahead of us. Since inception, our greatest strength has been our ability to identify the right companies over time, and we hope to reassert this advantage in 2026 - not least in Vietnam.

---

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.