The rebound of emerging markets continued as a strong theme in the third quarter, while FMs only managed to add 2%, so on a YTD basis the MSCI FM index is still trading in red despite most of the world indices being in positive territory. It has thus been a difficult year so far for the fund, but we take some comfort in how the flow of funds typically move and expect a time lag for the frontier markets. The recent outperformance of emerging vs. developed markets bodes well for the frontier markets.

All of the broad frontier market indices ended the quarter in positive territory except for frontier Africa. MSCI FM Central & Eastern Europe + CIS index was the top performer (+10%) pulled higher by the Kazakhstani market where the fund has a large overweight. MSCI FM Africa index underperformed due to Kenya (-1%) and Nigeria (-11%). Kenyan stocks traded lower due to a new law restricting lending, and Nigerian stocks failed to recover from the recent floating of the Nigerian Naira.

During the year we have been building our exposure to Egypt, and it is currently the fund´s third largest exposure. The sentiment has improved and momentum is gaining as IMF have been engaging with Egyptian officials regarding a loan to shore up the government’s finances.