THE FUND
The fund rose 4.1% in November, compared to MSCI FMxGCC Net TR (SEK) rising 2.2% and MSCI EM Net TR (SEK) which fell 0.2%. Our positions in Egypt added slightly more than 1.5% alpha during the month, the overweight in Bangladesh added an additional 1%, and our underweight in Argentina added 1.5%. The underweight in Kenya cost about 0.5% while stock selection in Vietnam (no exposure to the largest index companies) cost a further 0.5% relative return. Among the individual positions, Egyptian car manufacturer, GB Auto, rose 18% during the month on renewed hopes that a bill with a view to making local manufacturing more competitive will soon come into force. The stock is still the fund’s largest position. High debt due to stock keeping as well as an important part of the company’s leasing business means that GB Auto will benefit greatly when the central bank begins to lower its key interest rate (currently 18.75%), expected in early 2018. Vietnamese IT company FPT rose 15% as the state is expected to privatise a stake in the company. The market expects a similar interest as in the sale of shares in Vinamilk where a foreign buyer recently paid over 20% premium to acquire 3.3% of the company and then followed up this acquisition by buying another 6% of the company in the market.
THE MARKET
MSCI FMxGCC Net TR (SEK) rose 2.2% during the month. Vietnam represented more than 100% of the rise, adding 2.5% to the index as the market rose 17%. This year’s best market, Argentina, fell by 6% which scaled 1.6% off the index performance. Outside Vietnam, no single market moved more than 10%. Kenya rose 7% after the Supreme Court dismissed the opposition’s appeals regarding the recent election. Incumbent President Kenyatta was installed for another term at the end of November. The market in focus during November was Vietnam, where the two largest shares, Vinamilk and Vingroup accounted for the bulk of the index gain. Both increased over 20%. There is very strong optimism in Vietnam where local investors are surprised by the strong and aggressive foreign buying. Jardine’s aggressive purchase of 9.3% of Vinamilk at a significant premium has meant a hunt for “the next company to be re-valued.” We are positive to the Vietnamese market, but a word of caution should be raised for the 4-5 largest index shares, which are now valued at 30-50 times net earnings: cooling down would be sensible.
