THE FUND

The fund rose 1,8% during the month, compared to MSCI FMxGCC Net, which rose 5%. Argentina was the main driver of relative negative performance where fund maintained its underweight position. The continued money flow to Argentina due to increased optimism in Macri’s pro-reform agenda has resulted in 58% YTD return for the market and pushed the valuations to seemingly stretched levels. Argentinian banks are on average trading at P/B 3-4, which is 2x the valuations we see in other markets such as Pakistan and Vietnam. In addition, Pakistan’s weak performance also added to the underperformance. Uncertainty regarding the leading party’s (PML-N) future leadership in time for 2018 elections continued to keep the buyers at bay. Delaying tactics employed by the ex-Prime Minster and Foreign minister to appear in the accountability court further aggravated the situation, with the court finally issuing the arrest warrants. The market has likely discounted all the known factors that have pushed the index 25% down from the peak, however investors seem less inclined to return without further clarity on triggers. Despite fund’s overweight in Vietnam, it cost around 1% in relative performance as few index heavy stocks posted decent returns. FLC Faros, an industrial company with a P/E of 207x, shot up 87% in October and contributed ~50bps to the negative returns. The fund reduced its exposure in Consumer Staples in Vietnam as prices increased and instead invested in a new IPO, Vincom retail. Vincom raised USD 708m in one of the largest IPOs in Vietnam and was valued at USD 3.4bn. Vincom retail has a 60% market share in the country through 41 commercial centres and malls in prime locations, with a target of 200 locations in the next 3-4 years. The fund also added a bank in Vietnam; Lien Viet Post (LPB VN). A merger of a bank and postal company with more than 1,200 consumer touch points across Vietnam to carry out financial transactions, 200 branches and 1,067 postal offices with LPB desks. LPB is also pursuing digital banking and manages one of only three e-wallet initiatives in the country, which gained 1.5mn users within one year of its launch. A growing bank trading at a valuation of P/B ~1 and P/E ~6.5 is a good example of growth at reasonable valuations. In terms of positive contributors, Bangladesh’s BRAC bank was one of the best performing stock for the fund increasing 19% in October. Egypt also contributed positively to the fund during October. The primary reason was our position in GB Auto and ElSwedy Electric, increasing 10% and 20% during the month. (changes in SEK)

THE MARKET

MSCI FMxGCC Net rose 5% during the month, compared to MSCI EM Net which rose 5.9% and MSCI World Net which rose 4.2%. The dollar strengthened during the month by nearly 2.3%, which also contributed to absolute returns. Argentina (+8%) continued its bull run along with other index heavy countries posting positive returns such as Vietnam (+7.4%), Nigeria (4.2%) and Morocco (3%) while Kenya remained flattish. Politics remained the major news item during the month. Argentina’s mid-term elections brought sweeping victory to Macri’s coalition, winning 13 of Argentina’s 23 provinces, including five of the most populous areas. This result will strengthen President Mauricio Macris’ position as he seeks to complete his pro-market reforms. On the other hand, elections in Kenya had an about face with the main opposition leader, Odinga, boycotting the re-poll which Kenyatta went on to win. However, with 39% voter turnover, compared to 80% in the August elections, fuel rumours of another legal battle. The fund has around 10% exposure in Argentina and none in Kenya. (changes in SEK)