Developments second quarter - Fact sheets June 2024
In the second quarter of 2024, the Frontier Market Index rose 1.5%. The sentiment was particularly positive in countries like Pakistan (+17.1%), Morocco (+5.3%), and Sri Lanka (+5.2%). The biggest decliners were Nigeria (-15.4%), Vietnam (-4.5%), and Kazakhstan (-1.4%). Overall, the positions in the portfolio focused on Frontier Markets decreased -0.7%.
The KSE-100, or the stock market of Pakistan, reached a record high of 80,000 points during the 2nd quarter. This surge is attributed to the recently presented budget, which does not impose additional taxes on dividends and keeps the capital gains tax for unchanged. Since June last year, the KSE-100 index has seen an increase of approximately 98%, largely thanks to an IMF support program. The Finance Minister's plans to issue euro bonds worth up to $1 billion and attract new foreign loans of $4 billion, as well as expected higher dividends from state-owned enterprises, played a significant role in the market record. A 1.5% interest rate cut by the central bank also stimulated the market. The outcome of the ongoing talks between the government and the IMF will determine the future direction of the stock market. Pakistan is seeking a longer-term and larger support program of approximately $8 billion from the IMF to stabilize the economy.
In June, Morocco formed an important climate and energy alliance with Germany, aimed at expanding renewable energy and hydrogen production. This partnership is of great importance to Germany, which aims for climate neutrality by 2045 and will largely depend on imported hydrogen. Morocco offers ideal conditions for green hydrogen production, making the country attractive for investments.
The performance of Nigerian stocks was under pressure due to a sharp decline in the Naira this quarter (-13.5%). The Central Bank of Nigeria has significantly raised interest rates for the third time this year in response to ongoing inflation, which reached a 28-year high. Governor Olayemi Cardoso announced a rate hike of 150 basis points, bringing the rate to 26.25%, to promote price stability. Previous increases were 200 basis points in March and 400 basis points in February. Inflation reached 33.69% year-on-year in April, driven by the removal of subsidies on gasoline and electricity and devaluations of the Naira under President Bola Tinubu.
In the second quarter, there was positive sentiment on the Egyptian stock exchange due to a significant increase in Egypt's foreign currency reserves. These rose to a record high of $46.1 billion. This increase followed an important deal with the United Arab Emirates, where Egypt received a second tranche of $14 billion as part of a $35 billion financing agreement. This investment enabled a currency devaluation, freeing up more funding from the IMF, the European Union, and others, bringing total aid to Egypt to $57 billion.
In Vietnam, sentiment was slightly pressured in recent months. Foreign investors sold more shares than they bought. The news of the death sentence of the chairman of Van Thinh Phat and recent changes at the top of the government had a negative impact on sentiment. This was compounded by geopolitical tensions in the Middle East. Retail investors, who account for almost 90% of trading volume, reacted strongly to these reports. However, stocks recovered during the last two months. This was supported by positive developments in the currency market: the upward trend of the USD/VND exchange rate began to weaken. Additionally, the Vietnamese securities agency regularly provided updates on the KRX system, which reinforced the expectation that this new system would go live by the end of the year.
Finally, Vietnam saw strong GDP growth of 6.9% in the second quarter of 2024, a significant acceleration from the 5.7% in the previous quarter, indicating ongoing economic momentum. The manufacturing and services sectors were the growth drivers, contributing 37.0% and 43.3% of GDP, respectively. Looking ahead, there is a favorable outlook for the Vietnamese economy and stock market given the macroeconomic indicators and growing corporate profits. The headwinds from foreign sales and the expected higher deposit rates are considered temporary, and such challenges can be seen as opportunities.
More news about Vietnam, Africa and the Global Frontier fund can be found in the latest fact sheets of the equity funds:
TCM Global Frontier High Dividend Equity
TCM Vietnam High Dividend Equity
TCM Africa High Dividend Equity
