THE FUND
The fund rose 7.1% during the month, compared to MSCI FMxGCC Net (SEK), which rose 4.9%. The main reason for the excess return was Egypt, which accounted for more than the net contribution. The primary reason was our position in the car manufacturer GB Auto, which rose about 40% during the month. GB Auto was, until September, one of the fund’s worst investments in 2017. More interest rate hikes than expected and a delayed bill aimed at stimulating local vehicle production weighed on the stock until September. With the market now anticipating the end of the interest rate hike cycle and a discussion about a bill supporting local manufacturing bill, the stock clawed back losses until August in just one month. We still see the company as the best exposure to the automotive industry in our universe, where the valuation of the company’s manufacturing capacity is still only approximately 1/8 of the listed Pakistani auto assemblers (admittedly the latter are operating in a stronger environment currently). Elswedy, an Egyptian subcontractor of power equipment, increased by 20% during the month, which contributed positively to the fund. Vietnam was the second best market for the fund. In particular, Vietnam Electric (a subcontractor to the power industry) and Hoa Phat Group (steel) were particularly positive, with increases of 15% and 10% respectively. The underweight in Argentina gave the single biggest negative contribution during the month. The biggest portfolio change during the month was that the fund increased its position in Vietnamese Kido Frozen Foods to nearly 2% of assets. The company is Vietnam’s largest ice cream manufacturer with about 40% market share. Today Vietnam consumes 400 grams ice cream per capita and year, compared to nearly 10 kg per capita and year in Sweden. The company has a very strong brand in Vietnam and a well-developed infrastructure for handling cold transport. We believe Kido Frozen Foods can become a new favourite among foreign investors in the future.
THE MARKET
MSCI FMxGCC Net (SEK) rose 4.9% during the month, compared to MSCI EM Net (SEK) which rose 2.0% and MSCI World Net (SEK) which rose 4.7%. The dollar strengthened during the month by around 2.4%, which contributed to absolute returns. Among individual markets, Argentina rose by 13%, as did Bangladesh (6.5%) and Vietnam (5.4%). In terms of news, it was a rather slow month, initially influenced by geopolitics (North Korea vs U.S.A.), but in the latter part of the month we saw a much more heterogeneous development. During October, the planned elections in Kenya and Argentina (a total of about 30% of the index) are likely to affect the market. Both markets have performed strongly this year (46.1% and 17.7% respectively). Tundra’s exposure in these markets is only around 10% in Argentina (0% in Kenya).
