East Capital Global Frontier Markets

Frontier markets started 2025 on a positive note, with the benchmark MSCI Frontier Markets Index gaining 8.3% in Q1, significantly outperforming both emerging markets (2.6%) and developed markets (-1.8%). East Capital Global Frontier Markets delivered a positive performance of 1.7% but lagged its benchmark, as several of the strongest alpha contributors in an outstanding 2024 showed signs of weakness. Despite a challenging start to 2025 in relative terms (albeit with decent absolute returns), our strategy still significantly outperforms developed, emerging, and frontier market indices on a three- and five-year basis.

During the first quarter, we spent a considerable amount of time traveling around our investment universe, reviewing existing holdings and looking for new opportunities via various in-person investor conferences and virtual one-to-one meetings. The second half of February was spent on a Frontier Asia trip to Sri Lanka, the Philippines, and Vietnam, followed by company meetings in the UAE during the first half of March.

The South-East Asian frontier economies of Sri Lanka, Pakistan, and Bangladesh are in various stages of recovery from recent economic and/or political upheaval. All three are on IMF programmes, which they are diligently following, and are implementing reforms that have been well received by foreign investors. Pakistan -the only one of the three where we are currently invested, partly due to liquidity constraints in the other markets- continued its positive momentum in 2024, returning 4% in the first quarter. We added a new name to the portfolio after several interactions with the company: Air Link Communications, a mobile phone assembler and local partner of Chinese consumer electronics giant Xiaomi. The company, which trades at around 10x 2025 P/E, is expanding its Xiaomi product range and has significant upside potential through export opportunities.

The second leg of our trip was the Philippines. This is a compelling story – a large and young population, GDP growth of around 6%, and a growing middle class- a textbook structural growth case. Despite the promising top-down picture, the country’s equity market has not performed for several years now. Sentiment was further dampened following Trump’s election and has yet to recover. We view the Philippines as a market of selective opportunities. One such opportunity we acted on this quarter was Converge ICT, a pure-play fiber broadband company. Operating in an underpenetrated market, Converge is targeting 4 million subscribers by 2027, implying mid-teens revenue growth, while delivering market-leading profitability. After a stellar 2024 and a further 19% rise in Q1, its multiples have widened, but at 5x EV/EBITDA, we still find the risk-reward clearly favourable.

The final leg of the Frontier Asia trip was Vietnam, where the fund has historically generated strong alpha, though the market has underperformed so far in 2025. While the Vietnamese market is up 3% YTD, one of our largest holdings, IT company FPT, declined 21% following a spectacular 75% gain in 2024 and subsequent profit-taking by foreign funds - many of which, like us, had generated significant alpha in the name. FPT, NVIDIA’s local partner, was also pressured by the fading AI hype and foreign outflows. Nevertheless, the company remains a cornerstone of our portfolio due to its consistent 20% annual growth trajectory and a now more attractive valuation at a 2025e P/E of 18x, with no direct tariff exposure. In addition to FPT’s underperformance, the resurgence of Vingroup related stocks - an index-heavy group that significantly lagged in 2024 - also hurt our relative performance.

In the MENA region, Morocco was a standout performer for the benchmark, gaining 27%, driven in part by a tax amnesty in January and announcements of major infrastructure investments ahead of international events in coming years, including as one of the hosts of the 2030 FIFA World Cup. We view Morocco as a cyclical market with unattractive valuations and have remained highly selective. Our holding Akdital, a hospital operator that is executing well on a rapid growth plan, returned 27%, in line with the market. However, our underweight in the country detracted from relative performance as expensive Moroccan names continued to re-rate.
In Egypt, which stands to benefit from stabilising macro conditions and an improving regional geopolitical environment, we added home-grown fintech Fawry. The company is forecasting 50% revenue growth in 2025 with stable margins and trades at a P/E of 15x - an attractive value proposition in our view.

Elsewhere in Africa, our Nigerian bank holding, Guaranty Trust, returned 22% in Q1 following strong 2024 results, aided by FX gains on USD holdings post-devaluations. Nigeria’s outlook is gradually improving, and, despite the recent strong performance and macroeconomic challenges, the risk/reward remains favourable with valuation multiples of just 2x P/E and 0.7x P/B.

While the overall market outlook feels less rosy than at the start of the year, our long-term view of the underlying trends and potential in our universe remains intact. Frontier markets – aside from Vietnam - have limited exposure to US trade and are primarily driven by domestic factors, thanks to their large and young populations. Despite the short-term headwinds, these markets continue to offer attractive growth prospects, reform momentum, and technological advancement. With East Capital Global Frontier Markets 2025e P/E of just 6.4x compared to 18.2x for developed markets and 12.4x for emerging markets (following the tariff-related declines), we believe the strategy should remain relatively resilient with a reasonable degree of valuation-driven downside protection, while still offering notable upside potential across different market cycles.

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.