| Commenting on the markets, Sam Vecht and Emily Fletcher, representing the Investment Manager noted:
Portfolio
In May, the Company’s NAV rose by 2.0%, outperforming the Frontier benchmark by 1.0% (on a US Dollar basis with net income reinvested). The MSCI Emerging Markets Index declined by 3.7% over the same period.
Kazakh names, Halyk Bank, KCell, and KazMunaiGas were all among the month’s largest individual contributors, rising by 37%, 41% and 12% respectively over the month. Having substantially underperformed other Frontier Markets over the past year, the companies rallied off multi-year lows following the increase in the crude oil price (which is up by more than 80% from January lows). Two Argentinian holdings showed notable performance during the month. Utility, Pampa Energia, rose by 15% following the announcement that Petrobras had accepted an offer for their Argentinean subsidiary. Investors were relieved that Pampa will not be paying a substantial premium for the assets and that they will be able to finance the deal through internal resources. Given the expected synergies from the deal, we remain positive on the stock. Technology company, Globant, was also a strong performer, rising by 13%. The company reported Q1 results which were above analyst expectations and raised their guidance for the year on the back of continued strong demand from their key customers. We also benefited from our continued overweight positions in both Bangladesh and Pakistan which were among the strongest Frontier Markets during the month, rising by 9% and 3% respectively.
Conversely, the Company’s underweight exposure to Nigeria weighed on performance. The Monetary Policy Committee announced on 24 May that they would look to move away from the rigid foreign exchange policy that they have held for the last year and introduce a flexible exchange rate. The local market subsequently rallied, up by 16% over the month, however, to date, there have been no further details released on how the Central Bank will enact this new policy. We remain of the view that the currency needs to be devalued very substantially before the market becomes interesting for investors.
Our position in Eurasian Coke bottler, Coca-Cola Icecek, was the largest detractor over the period, falling by 18%, after the company reported results which missed analyst expectations. In addition, increased political concerns in Turkey, the country of listing for the stock, also hurt performance.
Portfolio Activity
The Company participated in the IPO of Egyptian hospital, Cleopatra, as we believe that the company stands to benefit from structural drivers including an underpenetrated market and an aging population. During the month we trimmed some of our Pakistani exposure, taking profits, as the market rallied on speculation over a potential MSCI upgrade to emerging markets status, we remain overweight the market.
20 June 2016
ENDS
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