East Capital Global Frontier Markets

Frontier markets ended the year with a modest decline of 1.0% in the final quarter, while East Capital Global Frontier Markets slightly outperformed with a loss of 0.9%. For the full year, the benchmark MSCI Frontier Markets Index gained 9.6%, while our strategy delivered an exceptional 20.8% return - achieving a substantial 11.2% outperformance. This marks our second consecutive year of USD returns that exceed 20%, which is largely due to effective stock selection across more than 20 markets.

Throughout the year, economies and corporate earnings continued to expand, while inflation moderated in most of our markets. In this environment, frontier markets dominated the list of best performing equity markets in 2024. Against this backdrop, our strategy also significantly outperformed emerging markets by 16% and developed markets by 5% in 2024. Over three- and five-years, East Capital Global Frontier Markets has outperformed the emerging markets index by 30% and 57% respectively. 

Pakistan was the shining star of the final quarter. Supported by a sharp decline in inflation and subsequent rate cuts totalling 900 bps, the policy rate dropped to 13% from a peak of 22% in May 2024. The local benchmark gained 40% in Q4 and an outstanding 86% for the full year, in USD terms. Given the lower interest rate environment, local institutions reallocated funds from fixed income to equities, further fuelling a rally. However, Pakistan detracted from our alpha due to an underweight position, particularly in outperforming oil and gas companies which we typically avoid for ESG reasons. When it comes to companies in our portfolio, on the positive side, Pakistan’s leading IT company, Systems Limited, delivered a remarkable 50.4% return, benefiting from a strong Q3 report that reversed prior disappointments. Conversely, Meezan Bank, the country’s leading Islamic bank, contributed a more modest 9.2% gain, as regulatory changes continued to weigh on its funding advantage and earnings prospects.

In Vietnam, the market faced headwinds related to concerns over potential trade actions under the incoming Trump administration. Vietnam had been one of the main beneficiaries during Trump’s first term, but the market remained cautious about Trump’s new term in office. Despite these challenges, our holding in FPT Corporation, Vietnam’s leading IT and telecommunications services provider, gained 8.6% in the quarter, bringing its performance to an impressive 74.7% in 2024. FPT remains a cornerstone of our portfolio due to its consistent 20% annual growth trajectory and a valuation discount compared to global peers (2025e P/E 23x vs. peers 25-40x) with similarly high and consistent annual growth.

Elsewhere, Nigeria saw gradual progress in reforms under President Tinubu’s administration, prompting us to increase positions in Guaranty Trust Bank and Zenith Bank, two of the country’s largest private banks. Both returned nearly 30% in 4Q24, reflecting their strong fundamentals and undervalued metrics, including forward P/B ratios of around 0.4x and P/E multiples of less than 2x. Going forward, the ongoing recapitalisation of the banking sector should further solidify the attractiveness of these high-quality banks. 

In Kenya, we increased our holding in Safaricom, the country’s leading telecom and fintech company, as its Ethiopian operations began to show signs of stabilisation. Despite investor concerns, Safaricom gained 14.1% in the quarter, supported by strong performance in its core Kenyan business and its long-term potential as a pioneer in East African fintech. 

In the UAE, we participated in the heavily oversubscribed IPO of Delivery Hero’s regional arm, Talabat, which marked one of the year’s most anticipated listings. However, post-IPO volatility weighed on the stock, likely due to smaller-than-expected allocations for institutional investors amid high demand. Despite this, we remain optimistic about Talabat’s prospects as one of the few fast-growing companies in the food delivery sector. With projected earnings growth of 24% in 2025 and a reasonable price-to-earnings ratio of 20.7x for 2025e, Talabat offers a compelling case. 

On the negative side, the Philippines’ global port operator, International Container Terminal Services (ICTSI), was affected by trade war fears and fell 7.4% during the quarter, while supermarket chain Puregold declined 5.2%, partly due to lowered expectations of future interest rate cuts. These cuts had been expected to boost consumer sentiment in 2025. On a forward P/E multiple of 8.2x, however, we believe Puregold remains attractively valued despite the recent headwinds. 

Throughout the period, we engaged extensively with current holdings and new opportunities across our markets through various in-person investor conferences and one-on-one virtual meetings. Management teams remain optimistic, and we see continued strength particularly in the Middle Eastern markets, supported by stable, pegged currencies and higher than initially expected local interest rates (i.e. favourable for the banking sector). With roughly 90% of our portfolio invested in currencies that we expect to remain stable (pegged currencies and those in well-balanced economies), and the rest offering favourable risk/return profiles, we anticipate the supportive environment for frontier markets to continue in 2025 as well.

Having navigated a decade of different economic cycles across some of the world’s most dynamic markets, we remain as optimistic as ever. Frontier markets continue to offer appealing growth prospects, reform momentum and technological advancements. At just 7x forward earnings - despite two years of exceptional returns - we firmly believe that valuations remain compelling relative to both emerging and developed markets, which trade at 39% and 63% P/E discounts, respectively.  

Performance in USD net of fees.

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In 2021 global financial markets data company Lipper named East Capital Global Frontier Markets the best European fund for the past three years in the Equity Frontier Markets category. The announcement underscores the fund's outstanding development and East Capital's expertise in the area.