THE MARKET

MSCI Frontier Markets xGCC Net (SEK) increased 0.7% in April, broadly in line with MSCI Emerging Markets Net (SEK). The Swedish krona was further strengthened by 1% against USD during the month, which reduced the SEK returnaccordingly. Two of the smaller frontier markets, Sri Lanka (2% of the index) and Bulgaria (0.1% of the index) rose 14% and 7%, respectively. Worst performers were Jordan (1.8% of the index) and Lebanon (3.7% of the index) with drops of about 5% each. It was quiet in global equity markets. Given the shocks with both Brexit and Trump, there was some nervousness before the first round of the French presidential election. Despite a relatively expected outcome and the fact that the probability of a second round win by the right-wing extremist Le Pen candidate did not change significantly, we saw rising world markets after the first round. Second round is held May 7th. Europe and the world hope for the avoidance of a third political shock in the course of a year. Oil prices rose during the first part of the month from USD 51-53/barrel to USD 55-57 on optimism about OPEC’s production cutbacks, only to fall back to USD 50-52/barrel on concern concerns primarily for rising US output. However, the reactions to our markets were modest. Oil price-dependent Nigeria was one of the better markets during the month and market movements before and after the French presidential elections were limited. One of the major frontier markets, Pakistan, moves to the emerging market category by the end of May as per index provider, MSCI’s definition. However, Pakistan’s upcoming upgrading has so far been a big disappointment for those who anticipated large foreign inflows. Instead of inflows, USD 400m of foreign capital has left the stock market over the last twelve months, while local investors have been net purchasers. If there is an emerging market effect, we have not seen this yet. As noted earlier, investors should primarily focus on the long-term positive effects of improved perception that comes with inclusion in the emerging markets category. We hope Pakistan will get a bigger audience after the upgrade, something we think the stock market will benefit from.

THE FUND

The fund rose 1.2% during the month, marginally better than the benchmark index. Positive contributions were received from our stock selection in Pakistan, where price increases of more than 10% in Meezan Bank, Systems and TPL Properties contributed positively while lack of holdings in fertilizers and some of the larger banks also helped relative returns. We also received a positive contribution from our overweight in Sri Lanka, although our sub-portfolio developed a few percentage points weaker than the market as a whole. Some of our Egyptian holdings, especially cement companies, also contributed positively. The winner of the month was Suez Cement, which rose more than 25% on acquisition rumours. Market expectations for the cement market in Egypt are still very low for a good reason. However, it is reflected in the valuations. Since our first purchase in early December, Suez Cement has risen close to 100% but is still valued at around USD 30/debt-adjusted tonne of installed capacity. It is around ¼ of valuations in Pakistan, which on the other hand currently is a very profitable market. Our overweight in Vietnam contributed negatively during the month, though to a limited extent.

No major transactions were carried out during the month.