Aberdeen Frontier Markets hit by Pakistan weighting – In what the chairman describes as a particularly disappointing year, Aberdeen Frontier Markets returned -14.0% in NAV terms (NB all these figures are in US dollars) and -14.4% in share price terms against a positive 5.2% return from the MSCI Frontier Markets Index. The dividend was maintained at 2 cents per share. The portfolio’s exposure to Pakistan (which is classified as an emerging rather than a frontier market) was particularly unhelpful as that market fell by 36.7%. The chairman says this may be because the new government’s policy (under Imran Khan) took months to define and the negotiations with the International Monetary Fund took almost a year to conclude.
The chairman’s statement says “The year ended 30 June 2019 was particularly disappointing as our country weightings in the second half detracted from performance and added to initial market declines in the first half of the year. The underweight position to stocks in Kuwait and Bahrain where the Investment Manager continued to struggle to find fair valued investment opportunities, a feature noted in the Half-Yearly Report, continued to hold back relative performance over the balance of the year. In addition, deteriorating relations over trade and tariffs between the US and China continued to form a difficult backdrop for all markets. The anticipated rise in frontier markets, offering a defensive asset class if global equities lost their appeal given their lack of correlation, was only witnessed briefly in May which proved insufficient to reverse the overall trend.”
Notwithstanding the commitment that the board has given to offering all investors an exit at NAV, the manager is keen to convince investors of the merits of its approach (which we have written about extensively).
The manager’s report notes that, amongst frontier markets, positive performance was concentrated in the Gulf region and Vietnam, while most other markets saw net outflows of investors’ money and trading volumes have been falling.
The manager believes that the stocks it has selected may have been de-rated but still offer good long-term growth. In Pakistan, for example, the company “owns a basket of six extremely undervalued yet very much established Pakistani corporates and we have every faith that these companies will witness a strong recovery in due course, once liquidity conditions normalise. In the meantime, all continue to pay dividends, ranging between 2.5% and 11.5%.”
AFMC : Aberdeen Frontier Markets hit by Pakistan weighting