East Capital Global Frontier Markets

Frontier markets started 2026 on a strong footing, extending the positive momentum from late 2025. However, the quarter proved volatile, with global equities correcting amid rising geopolitical tensions linked to the US-Iran conflict with the MSCI World and the S&P 500 indices declining by 3.6% and 4.3%, respectively. Against this backdrop, the MSCI Frontier Markets Index declined by 0.4% while the East Capital Global Frontier Markets strategy delivered a positive return of 1.4%, reflecting the benefits of diversification and an uncorrelated return profile, even during a volatile period.

The Middle East was at the centre of market volatility. Prior to the escalation, regional equity markets were performing well, supported by robust economic activity, ample liquidity and positive investor sentiment. Our UAE holdings delivered returns of 20-30% ahead of the conflict. Anticipating elevated risks, we had already reduced exposure from around 10% at the end of 2025 to approximately 5% before the escalation, cutting further as conditions deteriorated. This proactive approach limited the downside, enabling a modest positive return and alpha contribution from the UAE during this highly volatile period.

Commodity-exporting markets, particularly those less exposed to geopolitical tensions, performed relatively well. Kazakhstan, for example, benefited from higher energy prices. Supported by its strong market position, attractive valuation and expected dividend yield of around 12%, Halyk Bank gained 6.7%. Kazatomprom, the world’s largest uranium producer, returned 43.9%, driven by rising energy prices and renewed interest in nuclear energy. While this supported absolute returns, it detracted from relative performance due to our initial underweight position. However, we increased our exposure during the quarter to reflect the improved outlook.

After a weaker 2025, Vietnam, our largest country exposure, returned to being a key source of alpha. It contributed 1.6% of alpha in Q1, second only to Nigeria. Our addition of Vinhomes, Vietnam’s largest real estate company and part of the Vingroup ecosystem, contributed positively. The stock traded below 10x P/E, offering a dividend yield of nearly 6%. Our continued underweight position in Vingroup itself was the largest single positive contributor in Vietnam, adding nearly 1.3% in outperformance as the stock declined by 17%.

Vietnam’s target of 10% annual GDP growth became more challenging given the spillover effects from the Iran conflict. Nevertheless, Q1 GDP remained strong at 7.8%, marking the highest first quarter growth since 2010. Increased global uncertainty was reflected in PMI data, which eased to 51.2 in March as higher freight and fuel costs weighed on demand. Nevertheless, the index remained in expansion territory for the ninth consecutive month, which is one of the longest such periods in Asia. While Vietnam is an energy importer, the government’s proactive approach and neutral stance have helped to secure short-term energy supplies. After quarter-end, FTSE confirmed Vietnam’s upgrade to Secondary Emerging Market status. While expected, this may support sentiment and attract more foreign interest, with implementation phased in over one year from September 2026.

FTSE also announced Nigeria’s upgrade back to Frontier Market status after two years as a standalone market. Although this announcement came after the quarter-end, it confirms improving conditions and may bring renewed interest from foreign investors. Nigeria contributed 3% of outperformance during the quarter. Guaranty Trust and Zenith Bank returned 24% and 55%, respectively. Despite this, they remain attractively valued at 3-4x P/E and 0.7-1.1x P/B, with returns on equity of around 25%. As an oil exporter, Nigeria proved relatively resilient during the March volatility.

Elsewhere in Asia, Pakistan attracted attention in late March for its role as a mediator in the Iran conflict. As an oil importer with a fragile macroeconomic position, the market declined by 15% in Q1. Our holdings, Sazgar and Meezan Bank, declined by around 6% on average, contributing positively to alpha. Sazgar benefited from the successful launch of the Tank 500 and continued strong sales, trading at 5-6x P/E with a dividend yield of around 5%.

In Eastern Europe, Nova Ljubljanska Banka delivered a steady performance, rising 12.7%. The bank remains attractively valued, trading at 8.6x 2026e earnings and offering a dividend yield of approximately 6.7% in euro terms. Its consistent execution, strong capital position and disciplined management continue to support our investment case.

Egypt was among the weaker performers, reflecting risk-off sentiment and its position as a net oil importer. The Egyptian pound depreciated by approximately 14%, mainly during March. Despite this, our portfolio generated positive returns. Egyptian holdings had previously delivered gains of 30-50% before retracing. Abu Dhabi Islamic Bank Egypt stood out, rising 14.9%, supported by a valuation of 4x 2026e P/E and a return on equity of around 35%.

We maintained an active presence on the ground, attending investor conferences and meeting companies in key markets including the UAE, Egypt, Vietnam and Sri Lanka. We also met companies from Pakistan and Bangladesh. Prior to the escalation, the overall environment was positive, with strong growth, controlled inflation and constructive corporate sentiment. While it is too early to assess the full impact of the conflict, our diversified portfolio remains a core strength, spread across regions, sectors and macro exposures. The portfolio has navigated multiple crises for more than a decade and has demonstrated its resilience again in this period.

We made a higher-than-usual number of stock-level adjustments in response to increased volatility and emerging opportunities, while avoiding significant changes to our top-down allocations. In uncertain environments, it is neither prudent nor effective to anchor positioning to macro scenarios given the wide range of potential outcomes. Instead, we focused on company-level mispricing. We increased our exposure to oil exporters, such as Kazakhstan and Nigeria, while also adding selectively in oil-importing markets and in stocks affected by rising energy prices. For example, we added to our holding in a Latin American airline after it declined around 25%, driven by short-term volatility rather than fundamentals. This approach is consistent with our strategy of using dislocations to build positions in high-quality companies at attractive valuations.

Looking ahead, the portfolio is well positioned to withstand a range of scenarios. It remains diversified across geographies, sectors and macroeconomic exposures, striking a balance between oil exporters and importers. Valuations remain compelling, with the portfolio trading at 6.2x 2026e earnings and expected earnings growth of approximately 15%. This provides downside protection alongside meaningful upside potential. In our view, this risk-reward profile remains central to the investment case for frontier markets, which continue to benefit from structural growth, improving macroeconomic frameworks and low correlations, supporting diversification and resilience. While volatility may persist in the short term, we remain confident about the long-term opportunity and our ability to generate attractive returns through disciplined active management.