East Capital Global Frontier Markets

Frontier markets continued their strong momentum in the third quarter of 2025, with the East Capital Global Frontier Markets strategy delivering a solid return of 8.9%, compared to the benchmark’s 14.9% gain. This marks another quarter of robust returns, supported by improving macroeconomic conditions, easing inflation and growing investor interest across our markets.

Notably, Vietnam stood out with a 30% return that was accompanied by a sharp increase in daily trading volumes, up from just USD 300 million a few years ago to between USD 1.5-2.0 billion during the quarter. This surge reflects growing domestic participation and optimism surrounding Vietnam’s potential inclusion in the FTSE Emerging Markets Index. The removal of tariff uncertainty and the government’s proactive engagement with index providers has further boosted confidence, positioning Vietnam as one of the strongest equity markets so far this year. However, despite its strong performance, Vietnam detracted from our strategy’s relative returns due to a rally in large-cap stocks that we consider to be either expensive or of lower quality. These names, often heavily weighted in the index, benefited from the local retail-driven momentum, while our holdings, focused on quality and growth, lagged during this extraordinary period.

In Pakistan, Meezan Bank - the country’s largest Islamic finance institution - was the biggest alpha contributor in Q3 2025, rising 33.4% during the quarter. Following regulatory changes in 2024 that had temporarily undermined its funding advantage, Meezan adapted swiftly and resumed its growth trajectory. The bank continues to deliver an ROE in excess of 30%, supported by strong fundamentals and disciplined cost control. Despite its strong year-to-date performance of 90.3%, Meezan remains one of the most attractive names in the market, trading at a 2025e P/E of 10.4x and offering a dividend yield close to 6%.

Nigeria was also among the strongest contributors to performance in Q3 2025, with both Guaranty Trust Bank and Zenith Bank rising by nearly 25% during the quarter. These gains reflect the ongoing recapitalisation efforts, as well as a broader recovery in the country, where macroeconomic stability and improving investor sentiment have begun to reverse years of underperformance. Despite gradually re-rating since last year, both banks remain attractively valued, trading at just 2.5–3.0x forward P/E. The combination of low valuations, a high return-on-equity (35% for Guaranty and 25% for Zenith) and increasing foreign interest, albeit from depressed levels, makes Nigerian banks a compelling investment case in the current environment.

In Egypt, Commercial International Bank (COMI) remains a core holding. The bank posted a 20.1% return in Q3 2025, supported by a solid ROE of 37%, reflecting its dominant market position against the backdrop of an improving economy. Trading at a forward-looking P/E ratio of just 4.9x, COMI offers significant potential for long-term investors like us. Fawry, Egypt’s leading fintech platform, also performed strongly, rising by 22%, as it benefited from the improving macroeconomic situation and increased digital adoption. It achieved impressive growth in revenues of 63% and a 103% jump in profits in Q2 2025.

Kenya remained on a constructive path in Q3 2025, with ongoing macro stabilisation supporting equity performance. The successful Eurobond refinancing in Q1 2025 helped to ease external financing pressures and restore investor confidence. Kenya Commercial Bank (KCB), one of our core holdings in the country, benefited from this improving sentiment, achieving a 28.9% return. Although this is a modest position, KCB offers a well-capitalised entry point into East Africa’s banking sector. The bank continues to deliver solid profitability, with an ROE of around 22%, and a strong balance sheet that supports its expansion. KCB’s valuation remains highly appealing, with a 2025e P/E ratio of just 3.0x and a dividend yield approaching 10%.
Nova Ljubljanska Banka (NLB) in Slovenia also continued its upward trajectory, reaching new highs in Q3 2025. The bank trades at a 2025e P/E ratio of 6.9x and offers a dividend yield of 7.7% in euros, supported by resilient macro fundamentals and positive investor sentiment in Eastern Europe.

On the negative side, Converge ICT, the Philippines’ growing broadband operator, detracted from performance. The company faced headwinds from fears of increasing competition, which weighed on its valuation. While the long-term growth story remains intact, driven by low household penetration and structural demand for high-speed connectivity, near-term volatility has impacted investor confidence, leading to a negative spiral and a significant decline of 37.5%. We are monitoring the name closely and are mindful that the current 2025e P/E ratio of 7.5x could present a good buying opportunity.

As in recent years, frontier markets continue to deliver strong returns while offering compelling opportunities supported by momentum for reform, improving macroeconomic conditions and attractive valuations. Our strategy remains anchored in bottom-up stock selection, focusing on quality companies in high-growth environments. Despite its strong performance year-to-date and in previous years, the portfolio trades at just 6.5x forward earnings – near its historical low, representing a significant 53% and 68% discount to emerging and developed markets, respectively. We maintain a disciplined approach, ensuring the strategy is well-diversified across different regions while continuously rotating into new ideas. Looking ahead, we see further upside potential across several core holdings.

Performance in USD net of fees.

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