THE FUND
In March, the Fund fell 1.6%, which was in line with the Fund’s benchmark index MSCI FMxGCC Net TR (SEK) that went down 1.5%. Positive contributions accrued primarily from the Fund’s underweight in Argentina and good relative returns in Vietnam. However, these were neutralized by negative contributions from the Fund’s overweight in Pakistan and Bangladesh, as well as by weak performance in the Fund’s only Turkish holding. Among individual holdings, the Vietnamese ice cream manufacturer Kido Frozen Foods distinguished itself by rising just over 60% during the month. However, should be seen against the background of weak price development for a year now. The Nigerian bank Access Bank also excelled with an increase of about 14%. The Argentine banks Grupo Supervielle and Grupo Galicia fell 31% and 16% respectively due to the background of renewed currency turmoil in Argentina. Lastly, the Sri Lankan Sampath Bank fell 20% after announcing a rights issue.
MARKET
The Fund´s benchmark MSCI FMxGCC Net TR (SEK) fell 1.5% during the month, compared to MSCI EM Net TR (SEK), which rose 1.3%. The main reason was Argentina’s weak development, which went down approximately 20% in March. In Argentina, the discussion was primarily about continued high inflation and thus the risk of further devaluations, in combination with the fact that the economy has come to a standstill. These were the factors we were primarily concerned about at the end of 2017, which prompted us to leave the market. It is a certain sub-grade to the market that the discussion is only now being conducted when most of the Argentine banks are currently trading 70-80% lower than at the end of 2017. Argentina has been and remains a high-risk market. However, it is more the market’s perception that has changed. From hybris at the end of 2017 to fairly close to bottom levels at present. Further on, for our more important markets, we currently see Sri Lanka and Pakistan as the two markets where the perception of the market is perhaps closest to the bottom levels and therefore has the greatest potential to generate excess returns over the next couple of years. In Sri Lanka, there is currently a political vacuum after the turbulent autumn 2018. In a couple of months, we expect investors to gradually look forward to the presidential election (expected towards the end of 2019) and a more transparent political situation thereafter. In Pakistan, international investors are waiting for an agreement with the IMF, which has historically signaled the bottom of the market. This should be signed before the summer, but the time frame has shifted many times since autumn 2018 and must thereby be deemed uncertain.
ESG ENGAGEMENT
In March, two Vietnamese companies were divested due to financial considerations; these were Bim Son Cement and Vietnam Electrical Equipment.
Pakistan’s Meezan Bank Limited was re-added to the Fund during the month. The largest Islamic bank in the country, Meezan Bank reportedly has 660 branches in 180 cities across Pakistan. The bank has robust sustainability policies and initiatives for the environment, social concerns, and corporate governance. Meezan Bank is also contributing to the Sustainable Development Goals (SDGs) by prioritizing the few that are aligned with its sustainability strategy. These are: SDG4 Quality Education, SDG7 Affordable and Clean Energy, SDG8 Decent Work and Economic Growth, SDG12 Responsible Consumption and Production, and SDG17 Partnerships for the Goals. The bank’s headquarters can be found in Karachi.
DISCLAIMER: 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 ACOLIN Fund Service AG, Affolternstrasse 56, CH-8050 Zurich, whilst the Paying Agent is Bank Vontobel Ltd, Gotthardstrasse 43, CH-8002 Zurich. 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.
