Commentary 30 June 2022
During the second quarter of 2022 the fund returned -13.10% compared to the -16.03% of the benchmark.
Despite the unfavourable conditions that characterised the broad market, our risk management system allowed us to cushion the blow. Since February 24th, we have reduced the beta of our portfolio, bringing it to 0.74, allowing us to outperform the benchmark of +3% during the quarter.
Although we remain in a climate where further interest rate hikes are expected to curb inflation and mitigate weaker currencies, in our opinion, Frontier Markets have an edge, especially when compared to Developed countries.However, the pressure that rising inflation and, more likely, raising interest rates could put on Frontier Markets is something to monitor but not necessarily be concerned about. In fact, Frontier Markets have a better ability to cope with inflated prices than more developed markets.
Looking at valuations, Frontier Markets show compelling figures. Our major stock markets trade at significantly lower P/E than their historical median value, with some exceptional cases such as Nigeria, Kenya, Pakistan and Egypt where stocks trade at a record 48%, 49%, 57% and 61% discounts, respectively.
Frontier Markets’ investors have already priced in severe pain, which means that in the next few years these markets should be able to provide acceptable returns even in a very hostile environment.
