Stewart McAndie: Good morning and good afternoon, I'm Stewart McAndie. I'm a member of the Ashmore UK Client Team. Welcome to everyone, and thank you for joining today's Ashmore webinar titled "Frontier Markets: Case Studies, Cycle Positioning, and Actionable Steps for Diversified Portfolios." Today's webinar is for investment professionals only, and not for members of the media. So please log off now if you're a member of the media. Also, if you have any questions, please enter them in the live Q&A box on your screen and we will address them at the end. Any questions we do not answer live, we'll follow up post the webinar. Today we're joined by Cemil Urganci, Investment Committee member and Head of Local Currency Bonds at the Ashmore Emerging Market Debt Team. Andy Brudenell, Head of the Ashmore Frontier Market Equity Investment Team, and Gustavo Medeiros, Ashmore's Global Head of Research, who I'll hand over to first to set the scene and ask the first questions. So over to you, Gustavo. Thank you. time.

Gustavo Medeiros: Well, thank you, Stewart. I wanted to open by saying a few words about the trip I've just come back, the World Economic Outlook Forum in DC. And frontier remained front and centre of that for a second consecutive year in a row. There is a pretty clear split when you look at the investor base and what people are interested in. On the global macro side, people are worried about still-loose financial conditions and a cooling labour market in the US in particular. In the frontier rooms, we're still discussing the sheer volume of reforms that have been implemented over the last 18 to 24 months, and the pipeline of reforms that is about to deepen them. 

So, a few examples that were obviously noteworthy, starting with Argentina, where officials that we met emphasised that, you know, the main concern is politics. After two consecutive years of overall budget surplus, the credibility anchor is now focused on sequencing tax labour and deregulation reforms. They mentioned a foreign direct investment (FDI) pipeline of USD 80bn within the next years, centred on energy and mining. And, obviously, that was two weeks ago when we were before the midterm election. These political risks have now faded significantly. Now we are looking at a potential gradual FX liberalisation and normalisation as uncertainty declines and, to have a fully open economy towards the end of this process.

What is interesting is that real currency has moved around 20% to 25%, from the time that they moved from a fixed FX regime to a floating regime within the band. And there has been very muted pass-through from weaker currency to inflation so far, most likely given the relatively low monetary base and how tight policy and liquidity remained on the ground. So, it's interesting. People are trying to see what's going to happen now in terms of the pacing and sequencing. And, obviously, everybody was really worried about politics, and the main concern was out of the way. That is no wonder why we had such a sharp price action on Monday. But more to come I think when it comes to Argentina, considering the depth of the structural reforms. 

Another story that is gaining momentum again is Ghana. The International Monetary Fund (IMF) disbursements are on track as the macro targets have been hit. The macro payoff has been quite fast. If you look at inflation, it dropped from 24% roughly to recently 9.4% in a relatively short time horizon. The Bank of Ghana already cut policy rates by 650 basis points over two meetings to around 21.5%. And the Cedi has been rallying quite strongly, particularly in the second quarter of this year, driven by gold prices. And that helped to ease FX pressure, they've been accumulating reserves quite rapidly as well. Cocoa remains a swing factor. They've had problems there with the harvest that led to sharp increasing price, and they are looking to support farmers still, which remains a pressure on the fiscal position. 

Another country that is moving towards normalisation post-restructuring is Zambia. The IMF programme is also on schedule with most targets met. Inflation has eased into the low teens, and the currency has been strengthening recently. The central bank is keeping monetary policy relatively tight at 14.5%. Not very far from inflation levels, but it's been enough to keep the currency anchored and support the real economy. They are also targeting higher copper prices from here. And there's been quite a lot of encouraging signs from the real economy. 

Now, stepping back a little bit from the specific frontier economies, on the macro side, reform discussions are really happening against a global backdrop that has been very friendly to risk. I think that there is a bit of an offside debasement narrative that is definitely not really being seen in the macro economy. The key support for asset prices across the board, but also particularly EM and frontier, has been declining US nominal and real interest rates. About a quarter ago, one-year ex-ante real interest rates in the US was at around 2%. Today we're below one percentage point. We also have a credible path of easing across a number of countries both in DM and EM, rather than a new inflationary shock that people were worried about in 2021, 2022, or 2020 to 2022. 

In that environment, when you look at EM and frontier, we see one-year nominal and ex-ante real interest rates at 11.5% and 4.5%, respectively, which should continue to attract demand from foreign investors against the backdrop we've seen, and obviously these reforms are helping to increase market access. So, that's the context for today's frontier debt and equity session with both Andy and Cemil. Reforms are real in the frontier space. The macro impulse is improving across several names, and the opportunity set is getting broader and more different than people assume. My first question though goes to Andy. Vietnam is not really in the IMF crowd, but it's really core to your universe. Tell me a little bit about the most recent development for earnings visibility and market depth there.

Andy Brudenell: Yes, great, thanks Gus. So yes, this is a really interesting one for us. And it's a good example of ongoing reforms. Very often, we talk about our markets, and we talk about – given the sort of the smaller base that these countries are coming from – they really hold their destiny in their own hands. And if they could only do X, Y, Z, it'd be great to see that, and it would really result in things moving forward. We're actually beginning to see Vietnam do that now. A whole range of things have changed with this new government that came in last year. Policy reforms are more focused on the private sector, on technology, on small and medium-sized enterprises (SMEs), and diversifying the economy. 

As I say, getting the private sector involved is something they've not really focused on that much. So, this is a big positive change. They're also making legal changes to improve the efficiency of the real estate market, and of the banking system, and local provincial planning to make things more efficient and smoother. Essentially, they’ve just removed an awful lot of red tape to get things to move more quickly. 

They're also developing international collaboration, more FDI into tax-efficient zones across more industries, with more involvement from higher value-add supply chains. And at the same time, they are doing their own bit as the government and really stimulating the economy through increased investment. Debt-to-GDP in Vietnam is only about 36%, which, of course, every developed country would dream of nowadays. They're looking to let that rise up to 45% by 2030, and that is really going to push a lot of spending. The budget for this year is up 28%. And really across transport, railways, airports, new roads, ports, airports, better healthcare, more focus on education in higher value-add, more technological sectors to make their young population, over 100 million people now, even more relevant to the modern world. And this is going to have, you know, a really big impact. We're going to see GDP growth accelerate from 6-7%, to nearer 8-10% per annum, out to like 20 to 30%, which should result in income per capita almost doubling, to about $8,500 by 2030, which is quite near to Thailand's level now. So, the impact that has on the economy, on the potential for domestic corporates' earnings, is obviously vast. You end up with the trickle-down effect increasing consumer spending as the middle class becomes much larger. And at the same time, it's going to come with like a widening of the range of financing options, and increased depth in financing as well, which again really helps the capital markets and really helps the banks. It also helps consumer companies, industrial businesses, the whole gamut. So, they've started on this path, it's very, very encouraging. And, if they get this mostly right, it should be very exciting.

 

Gustavo Medeiros: Excellent, very good. Thank you, Andy. Let's flip a little bit to Cemil. Nigeria remains one of the most interesting reform stories in frontier debt. What are the latest steps? And what keeps you excited these days, versus what keeps you up at night in that country?

Cemil Urganci: Nigeria has been one of the most fascinating stories over the course of last year and this year as well. The most difficult part of the reform programme is already over, they have been delivered. And now we have a functioning FX market, basically. The central bank has cleaned up various contingent liabilities and arrears, and their gross reserves are now at USD 43bn. They have stopped financing the government by printing money. Their fiscal picture looks much better, having removed most of subsidies. Dangote Refinery is now functioning, and inflation's coming down. It is now basically at 18%. 

We will have a pickup at the turn of the year due to the debasement made last year, but we forecast that inflation will be in mid-teens over the course of next year as well. So, the central bank has started cutting rates very cautiously. They delivered their first cut in September by 50 basis points to 27%. And also, they have been removed from the FATF Grey List this week, potential making even more FDI into the economy. So, this is all being done, or all has been done. The latest steps that are underway involve the NMPC, their oil giant. A lot of bold steps have already been taken, but, obviously, we need to see further progress for oil production to meaningfully rise. And after that, the key task will be the electric sector. Again, a mammoth of a task, but that will really unlock the true potential of Nigeria’s economy. 

What keeps me up at night? Most risks actually reside outside of Nigeria. I think the most kind of tricky one is the oil price. Nigeria has lowered its sensitivity to the oil, but still, I think if it goes below USD 50 per barrel, for example, that will create headwinds for this reform process.

Gustavo Medeiros: That's great, thank you. Yes, execution of the reform process is something that is very topical and obviously, is a key focus on a country-by-country basis. Oil below 50 would be a bit extreme, but yes, oil weakness from here is definitely possible. 

Now, I've got a question, or an exercise to help our clients understand the classic frontier investment cycle. So usually, we talk about our ‘catapult ‘cycle being easy financial conditions that typically attract capital inflows – and a lot of that goes to frontier. These markets are relatively small. As capital flows to frontier, the currency starts getting very expensive and overvalued, and you start seeing imbalances accumulating, typically via a higher current account deficit, for example, even on countries that are net exporters.

Eventually you get a global tightening of financial conditions that drives some capital outflows out of the frontier economies. They start bleeding reserves, and initially resisting a currency depreciation to avoid macro destabilisation. But eventually, if capital outflows keep on pushing, they are forced to do a reset. Typically, that's when they go and call the IMF and have to go through the balance of payment adjustment, which involves letting the currency depreciate. Typically, the currency overshoots in the process. Then they have to tighten both monetary policy – very aggressively initially – to anchor the currency and to stop the tradable goods to pass through to non-tradable goods. And it comes with a fiscal adjustment that typically is not super front-loaded, but is spread across a number of years. 

Now, the optimal positioning within our catapult cycle is, obviously, we buy dollar bonds just before and into the adjustment. Then you wait to buy local currency government debt, and you focus on the short term and T-bills right after the FX evaluation. If they've done enough devaluation, the currency overshoots. And if the interest rates were adjusted enough, then you eventually extend duration and add active exposure as this tight monetary policy and the fiscal adjustment starts to play off, and you start to see inflation declining quickly. This decline in interest rates later on becomes an opportunity, a broader opportunity for longer-dated bonds. And the steepness of the curve typically creates an opportunity for cyclical and banks, etc. Now, where is Egypt today on that map? Because we all know that Egypt is another story that has been developing. I would love to get your perspectives, both Cemil and Andy, starting with Cemil perhaps.

Cemil Urganci: I think it's very early cycle. So, we are just at the starting phase of the duration trade. We have started dipping our toes in the bond market. The currency adjustment in early 2024 was meaningful. The currency depreciated and cheapened a lot. And also, it helps consolidate inflation, somewhat counterintuitively, because they were protecting the currency level on the official market. But because the black market was trading at much weaker levels, inflation had already been printing at 40%. So, after the official devaluation in free markets, inflation actually started coming down with the help of tight monetary policies as well. Currently we're at 11. 7%, down from almost 40%. And the central bank has been very prudent, and has been easing monetary policy very cautiously, to the criticism of the finance ministry in a way as well. The policy rate is at 21% and two-year bonds still offer net yields of about 20%. So, very strong positive real yields. And we do think that they have huge potential to deliver on this structural reform programme as well.

 

Gustavo Medeiros: Great, just very quickly, I met with a key official from the Central Bank of Egypt there in the IMF. And I've asked him about where they see the 'r*' neutral rate, and they think it's at 3-3.5%. And we're now at double-digit levels, right? But they are very patient, and have emphasised and spent a lot of time saying it's going to take some time for them to get there because they want to make sure that they are seeing further disinflation towards the target, which is around 8%, right, Cemil? Andy?

Andy Brudenell: I mean, for equities, it's tricky in the earlier stages of that cycle that you outlined. Because, obviously, you know, the currency adjustment can be quite aggressive. And, obviously, inflation is high. And this is difficult for businesses that we would look at to generate hard currency earnings that we would like. 

Obviously, there are sometimes businesses that benefit from a devaluation, and so, sometimes you can play that. But outside of that, sticking to your cycle story, equities come a little bit later. 

So now, or  really in the last say, nine months, we see the light at the end of the tunnel as Cemil has just outlined. As, you know, most of the devaluation seems to be done and rates are beginning to come down. There's still quite large, real positive interest rate there, but that ought to come down, inflation's coming down, confidence on the ground begins to pick up. The opportunity cost of just sitting on your money begins to get lower and lower. You know, the cost of doing something else, investing as a businessman or putting it in a stock market, whatever it may be, begins to look a little bit better. And so, you begin to sort of see opportunities. 

And usually, the banks are one of the first places we would look at here. There is an investment adage: if you like an economy, you should like its banks. And so, if you begin to see that come through banks will begin to see credit demand pick up. They're going to see real credit growth, real loan growth on their books. Going forward, it ought to be a little bit more long term and capex related, growth related, not just working capital coverage. That brings with it lots of other opportunities in cross-selling for the banks. There's a little bit of a margin opportunity. And then as I say, obviously people are now getting funding and then that begins to trickle down, and you get the consumer beginning to take part. So, we're in the very early stages of that, fitting the cycle that you outlined at the beginning.

 
Gustavo Medeiros: Very interesting, yes. Another interesting fact on the IMF, the authorities are very interested in initial public offerings (IPOs) from the private sector. So, they will need the cycle to accelerate there if they want that too. There’s a natural tension between the macro stability and getting growth going again that I noticed. 

Now, let's switch gears a little bit. As we said, this better macro environment for frontier has become very visible, even for a number of our clients. So, about a year ago, we launched a Frontier Debt Strategy, and we started talking more about that. And I come across several clients saying, "We shouldn't have frontier debt and frontier equity, because then you're doubling down on the same risk, right?" And when I look at that, obviously I see a completely different picture. The opportunity sets are very different, right? The frontier debt universe, for example, has around 45% in Africa, 20% in Latin America, only 1% in the Middle East. Then we look at our frontier equity and select EM benchmark, we have around 40% in the Middle East. Around 25% in Asia, 20% in Eastern Europe, 10% in Africa, and 5% in LatAm. So, Andy, can you walk us through the design logic behind this equity benchmark? And why this diversification matters? And perhaps shed some light on some other details of the strategy as well?

Andy Brudenell: Absolutely. So, this fits with the cycle we were talking about earlier. And there are a few things here. Generally speaking, a nation's capital markets will start at the government level, and the government will start to borrow. In the early days they will only borrow in hard currency. So, your sovereign bond will be your first port of call, and then that begins to maybe set some yields and some rates that people can look at. Then you'll begin to see, maybe it'll look to borrow in local currency, depending on market appetite, or some of the larger government-related entities or corporates can now begin to borrow at a spread off the back of the yield that's being created by the sovereign. And now, we're up and running. 

Right now, you've got a few options within the nation, but these are at the national or very large corporate, government-related entity level. So, to get to the stock market level, obviously you have owners of these businesses who decide that they want to diversify their funding. And there'll also be the government, because the government will tend to own a lot of businesses, particularly the national players like the banks and the telcos and utilities. And so, you'll then begin to see those come to market. 

It makes sense that where things are still in the early stages, you will see in Africa for example. Generally speaking, as a continent, since we split it into continents or regions, Africa is less developed from a capital markets point of view. And therefore, it has a lot more of a debt focus than an equity focus. We haven't got to the equity stage quite yet. That fits and makes a lot of sense. And generally speaking, the breakdown of the numbers would follow that path. Except perhaps, the other angle is that sometimes a country or a capital market will be frontier, not because it doesn't have the funding. But because it's just maybe a bit of a smaller place, like Kuwait's not a very big place. Or it hasn't yet created the international standards of equity, settlements, custody, FX, or whatever it may be. And that's a bit of a work in progress. 

The Middle East will fall into that category where, from a sort of debt point of view, they don't need a great deal of money relatively speaking to other nations, and they certainly don't plan on paying massive spreads for it. So, it's quite small in the fixed income world. But in the equity world, it's much bigger because the economies are booming and the businesses are doing well. And they are IPO-ing, and the government's selling a lot of its businesses to diversify, but also to create a capital market and create a stock market which they want. Therefore, suddenly the Middle East is actually a big part of our world. 

But in the Middle East, some of these markets aren't quite so developed or large enough to be a big part of the EM indices, so they tend to fall into my frontier world. There are a couple of different ways that can come about, but obviously, what this creates is a nice natural diversifier by geography across frontier debt and equity. It's definitely not the same thing, and it's not the same risk. But as I say, it creates a natural diversifying effect.

Gustavo Medeiros: That's great, thank you, Andy, for the colour. Another myth I come across very often that I would like to debunk on this call if possible… people think of frontier as high octane, right? But when you're looking at the traditional volatility levels in different portfolios, you don't often find that. 

So, two questions for Andy. First, what is the typical volatility and dividend yield valuation versus global equities, to show a kind of a comparison? And Cemil, specifically how do you construct a total return debt portfolio that avoids large drawdowns while harvesting above average carry within the frontier space?

Andy Brudenell: Yes, I think it was me to go first. So, yes, this comes up a lot. There's this feeling that, it must be the Wild West, and things must be incredibly volatile. As you say, it's not really the case. I mean, the frontier indices and our portfolio quite consistently have had lower volatility at the kind of 10 to 12% level versus EM, which is nearer like 16-18%. The developed world markets are about 12-13%, just to give you a sense of it. 

So, there's a big difference there. And although that sounds counterintuitive, it's basically because of the diversifier effect we talked about. The fact that the frontier countries we're talking about tend to not be quite as plugged in to the rest of the world. I'll talk about this a bit later I think as well. But they're just not as plugged in as the emerging world might be, for example. And, therefore, though the retail guys in any particular frontier equity market might try and throw that market round a little bit, there might be some volatility, let's imagine in the Vietnam stock market this year, it doesn't really have any impact on what's going on in the rest of the world. That market is reacting to its own things. Like I said, the country's destiny is in its own hands, and so is the volatility of its stock market. It's not moving as much on global trade flows or global macro events because as an economy, it's simply not as plugged in. 

I'm not saying the correlation is negative. It is a positive correlation, but it's just a much lower one. If everyone remembers their maths days, if you have a bunch of exposures that are quite volatile, but they're not correlated, so their covariance is very low, if you have a diversified portfolio of countries, you end up with quite a low vol. Because each one is volatile, but for different uncorrelated reasons. 

And so, that's the great thing about what we're able to do here, is you've got these really interesting markets with a great opportunity for growth. And they're a geographic diversifier. But also, they're actually lower, much, much lower volume than you might expect. To give you a sense of this, if you think about when I say not as plugged in, you know, the great story about the emerging markets and the larger emerging markets like Korea and Taiwan and China and in equity land is that they now have companies and, therefore stocks, that are really dominant and big in global trade. I mean, one of the reasons for Trump's angst I suspect is that, actually, there are some really big emerging market companies that are properly plugged in. And so, the good news is they're plugged in, they're much bigger than they used to be. And they trade on higher valuations, and the stock markets have gone up a lot. The bad news is that they're plugged into the world and, therefore, if the world get catches a cold, they risk catching one as well - i.e., they're more correlated. 

So, EM is more correlated with DM than it used to be. And it's much more correlated with DM than frontier, than FM is. And so that's across whether it's mining or manufacturing or semiconductors – everyone knows the names that we're talking about here. 

In terms of valuation and yield, so what is the opportunity set here? In frontier, the latest figures I have is the PE ratio is about 11 times. That compares to almost 17 times in EM and 24 times in DM. So big, big discount on valuation. And then, also partly commensurate on that valuation, but also because of the nature of these markets, there's a reasonably high dividend payout ratio. Because, again, the capital markets aren't that developed, and people still need income from their investments in the stock market. 

So, the yield is 3.8% in frontier versus 2.3 in EM, and only 1.6 in DM. You're getting a cheaper, faster growing, higher yielding, lower correlated, and less volatile asset class in frontier equity than you are, certainly, in emerging market equities, which tends to be the main opportunity costs that our clients are kind of looking at when they consider allocating capital.

 

Cemil Urganci: Well, it's a very similar picture for fixed income as well. I won't repeat many of the things that Andy said, but from a different angle. It's a really common misconception that frontier markets are always in the low end of the credit spectrum. 

So, as you pointed out earlier, Gustavo, the key criteria for us are development of capital markets. For example, Uruguay, a relatively wealthy emerging economy, which has one of the best practices in the world in terms of ESG, is a key holding for our frontier debt funds. It's a country of only three and a half million people. Hence, reflecting the point Andy was making, it's a small economy relatively. Its capital markets are less developed as well; hence it fits into a frontier universe. So, a broad-brush stroke, but our portfolio shows characteristics of a barbell strategy, barbell approach. We have good number of high-quality investment grade countries that we still think are in the process of improving capital markets and pays a good yield and value. For example, Dominican Republic, Uruguay, as I highlighted, and Morocco. We also have, in our portfolio, lower credit quality countries that we think is in significant structural reform process, like Nigeria and Egypt that we discussed before, Pakistan and a few others too. So, the result is an effective portfolio with lower volatility and a higher Sharpe ratio than traditional higher beta portfolios.

Gustavo Medeiros: Excellent, thank you, Cemil.

Andy Brudenell: Thank you guys. I wonder if I could put a question back to you, Gus, just to level the playing field a little bit. I'd be interested to get your thoughts on where we are in this global cycle. I mean, it's incredibly complicated, so it's a big question. But where do you think we are in the cycle? And how constructive as a backdrop could that be for the frontier world, from your point of view? And then maybe, I'm going to be cheeky and ask Cemil to comment as well please.

Gustavo Medeiros: Well, thank you for the question, Andy. It's been an interesting cycle, right? Everybody was worried about US tariffs at the beginning of the year. We ended up getting into a strange equilibrium on the back of US tariffs whereby the US, for the first time in eight years, is doing a marginal fiscal consolidation in 2025. And that is hitting the economy when the cyclical side of the economy has been struggling for the last 24 months, perhaps a little bit longer than that, in a kind of rolling recession environment. Think about housing, think about auto makers, etc.

And at the same time, they've passed this One Big Beautiful Bill Act that put in place a lot of incentives for capex and research and development, which is really leading to a boom into this artificial intelligence (AI) industry that has a huge amount of potential. So, you have this interesting dynamic. And AI, we're seeing more investment without higher employment, right? Amazon, for example, announced 14,000 layoffs today. But we're seeing more of these companies that are doing a lot of the capex actually reducing their overall labour. So, you have this interesting economy, where several parts of it are struggling and the labour market is already showing those signs. 

There's also a lot in the labour market; supply is declining on the back of lower immigration. But the fact is that you have very low job market creation at the moment. And that is keeping the US Federal Reserve (Fed) a little bit concerned. The fiscal consolidation, again, is impacting the US economy at a moment when cyclically the economy is slowing down and where labour market inflation, so wages, are actually low in real terms. This means that the inflationary impact from higher tariffs on the goods are not really being spread quickly to the non-tradable sector. 

Therefore, the Fed is looking into this balance and is saying there is actually a risk that the unemployment rate can increase relatively sharply, despite the fact that inflation is still a little bit above the target. And the Fed needs to actually do some insurance cuts and bring their real interest rates to a lower level. 

That's why I mentioned at the beginning that real interest rates declined from 2% on a one-year extended basis. We're around 0.8% now. So, that is interesting because we have this dynamic where equity markets are close to all-time highs everywhere, or new all-time highs. Credit spreads are very tight, but the Fed is actually easing monetary policy. And the tariffs also created a disinflationary impact to the rest of the world, as China's going to try to reroute activity. 

So, what we see is that over the last five years, growth has been surprising to the upside, and inflation surprising to the downside across emerging market economies. Now, we have this disinflationary push that actually is hitting these economies when real interest rates are very elevated, real interest rates both in EM and frontier are at the highest level in about 15 years. And remember, that's when we get into the fourth gear of the cycle, right? So that is what makes it interesting. We have this kind of like ‘Goldilocks’  combination, where asset prices are elevated and the Fed is easing monetary policies. 

So, financial conditions are getting easier, and that will allow EM central banks to cut policy, EM and frontier central banks to cut policy rates more than people expect. So that's really favourable, right? Because when you're looking into the carry that you're getting to these assets, and then you start thinking about the total return within the next 12 to 18 months, you end up with very good valuations. Obviously, I think Cemil is going to comment on the dollar a little bit, but I'll leave that to you, Cemil.

Cemil Urganci: Yes, I mean, dollar weakness is a big tailwind for all emerging markets, but particularly frontier markets. The other point that I would also add is that almost all of these markets are in the easing process, as you highlighted. But also, a lot are coming out of a restructuring process as well. They lowered their debt-to-GDP numbers after COVID especially. That process has almost in all cases been done and behind us. So that means that we are really in this sweet spot, where investing in the frontier markets is providing a very good unique opportunity across all fixed income classes, both local currency and hard currency.

Gustavo Medeiros: That's great. Do we have any questions from the audience, Stewart?

Stewart McAndie: Yes, Gustavo, thank you guys. There was a question. We've alluded to elevated yield levels in frontier markets and Andy's spoken about the dividend yields, volatility, etc., on the equity markets. Cemil, can you put into context what sort of yield you can get from frontier markets? With sovereign dollar bonds that are at 6.8, local currency bonds are 5.8, where are we in terms of duration and yield-to-maturity for the frontier market portfolio?

Cemil Urganci: Our portfolio currently is just short of 10% yield, or 9.6% to be exact. And the duration is lower than our peers in other portfolios, at the moment about 3.2 years of duration contribution.

Stewart McAndie: Fantastic, thank you. There's another question that's come through. Can we ask both Cemil and Andy, which markets are you not currently invested in that you're starting to actively monitor?

Andy Brudenell: I guess an easy start. I was in Uzbekistan last week, I was in Tashkent, central Asia, where there isn't really a stock market of any note as yet. But that is all changing and I think there could be, well, there will be opportunities to invest in equities in Uzbekistan from early next year, and then, probably a number of IPOs expected through next year and into 2027. So that is a market similar-ish to what I was saying about Vietnam where destiny is in their own hands. If the government decides it wants a capital market and it wants it to be interesting and attractive to foreign investors, then most of the work can be done itself. It doesn't require any know external factors, per se. 

There was a big conference out there last week. The government is very focused on pushing through a whole load of reforms and laws. And changes to encourage foreign investors and improve governance, transparency, levels of disclosure, accounting standards, banking regulation, everything that you would need. There is a lot to do, as you can hear, and they've really been working on that very well. I went out and met a whole load of companies out there. So that's on our radar. That's one we've been looking at the last past few months this year. 

Another one that we've been looking at is Argentina. Obviously, Gus ran through the whole story at the very beginning, but we've been monitoring progress by the government over the last year or so, which has obviously been up and down. And then, of course, whether the people are willing to give President Milei a mandate to continue. So, that's another one we've been looking at as well. Those would probably be the main two, I would say, at this point. I will pass over to Cemil.

Cemil Urganci: One thing that we constantly do in our frontier debt fund is to look to purchase between hard currency and local currency of individual countries. So, we are currently invested in Kazakhstan and Argentina in hard currency, for example, and they have been both profitable trades. But FX has been more challenging in both cases. We are looking at opportunities there to be able to have FX exposure in the future too. 

Another one, Ghana, again, you mentioned. It has been a profitable trade for us in the frontier debt funds, both in hard currency, local currency, especially local currency. But they haven't been issuing debt since the restructuring of local currency debt a few years ago. So, again, if they were to come into the market next year, I think it'll help to attract even more investment into the economy. And for us, we could be interested in getting our main funds involved in the trade as well.

Stewart McAndie: Thank you both, that's very helpful. Andy, we've got time for one more quick question. You've mentioned Vietnam a couple of times, it's obviously a large part of the fund and the benchmark. There's talk of them being upgraded next year. What's your thoughts on that, in terms of what likely opportunity that may create for the fund?

Andy Brudenell: Yes, so really, the upgrades are to some extent, a rubber-stamping of all of the work the government's been doing on settlement procedures, on the quality of the exchange, on failed trades. All the sort of technicalities that foreign investors want, that passive ETF investors need that are required to build confidence.

So, they've been doing a lot of that work and the market's been getting larger and more liquid. The liquidity of the market now, off the top of my head, is generally over USD 1bn. And I would say five years ago, it was maybe USD 400m. And five years before that, it was probably under USD 100m. So, huge, huge change. 

All of these factors result in the index providers to begin to upgrade them into larger markets. And, obviously, the FTSE has announced an upgrade from Frontier to Emerging Market II. There's two sort of levels there. The MSCI has stricter rules and regs, and so it'll be a little bit longer before they come in. But all this does is really get Vietnam on the radar of more foreign investors. And larger foreign investors, as it goes hand-in-hand. So, we should see that pick up in flow next year. 

We had one of the Vietnamese brokerage companies, so not our broker, but a company we're looking to invest in, that reckons transactional volumes, will be up like 40% next year. That might be a bit high, but the direction of travel is correct. So, you should begin to see that. And then, the authorities will be encouraged to keep going and to do more and to get the MSCI on side. This just brings more attention, more flow, more scrutiny, which will bring better transparency and governance for those businesses that want us to succeed. Which is all obviously good for our fund. We're there, we're positioned well, and we’re very happy for more people to come in and realise that the businesses we own are cheap, and they should bid them up higher for our clients.

Stewart McAndie: Very much so. Thank you, guys, I appreciate that. Gustavo, Cemil, and Andy, thank you for your time today. And to all attending, again, thank you for joining today's Ashmore webinar. If you have any questions or would like any follow-up information, please contact your Ashmore representative. Please feel free to share this with any colleagues that you think will find it valuable. That concludes today's webinar, thank you.