Bangladesh equities continued their contraction for another quarter. The DSE all share Index closed 8.7% lower in USD terms as the regulatory issues in banking and telecom sectors suppressed any positive sentiment in equities. Brac Bank lost 7.7% QoQ as the banking sector continued to face growth constraints due to the lack of growth in fresh deposits and the limited increase in lending capacity of most banks.
We remain overweight in Sub-Saharan Africa, with the largest allocation in our portfolio to Egypt, at 14.1%, followed by Nigeria at 11.7%. Within the GCC we remain underweight in Kuwait versus the benchmark but have the highest exposure in the region at 12.4%. For Egypt the strong rally led to the highest weight in the portfolio, we have exited Obourland, reduced EFG Hermes and invested in Telecom Egypt. Post healthy rally in the UAE names we preferred profit taking and hence reduced our exposure in Air Arabia. In Kenya we also reduced banking sector exposure by partial profit taking in KCB Group due to low visibility of NIMs accretion in future.
In Asia region, we lowered our country weight in Vietnam by reducing Masan Group as we are of the view that for the company the minerals segment possess a short term threat to sustainable earnings as the global prices are stagnant for tungsten, however in the medium to long term we hold positive view on the company’s earnings outlook. This also facilitated us in generating liquidity for the fund.
PORTFOLIO OUTLOOK AND STRATEGY
The fund continues to be positioned to fully benefit from a continued recovery in macro-economic drivers across our regions combined with a supportive global monetary easing cycle. The combination of lower interest rates, rich equity markets valuations and increased political risks in developed markets will further increase the relative attractiveness of Frontier Markets. Silk Invest African and Frontier Markets Fund continues to offer access to attractively priced companies that are among others selected for their solid earnings outlook in their respective markets. The current Price to Earnings (P/E) of the Fund stands at 8.5x and Price to Book (P/BV) is at 1.1x.
In Asia we have increased our overweight to Pakistan. The combination of implementation of prudent fiscal policy, IMF commitment, attractive valuations and the scope for monetary easing will support