Sri Lanka and Pakistan poised to lead Asian Frontier Markets in 2025

• Sustain strong growth momentum
• Global monetary easing, earnings and macro-economic recovery among key performance drivers across the Fund
• Vietnam also expected to drive earnings recovery in the coming period

By Nishel Fernando 

Sri Lanka along with Pakistan is poised to lead South Asian frontier markets with strong performances extending current market rally to next year amidst continuous progress in both economic and political reforms and prevailing low valuations, much anticipated recovery in earnings and possibility of a greater political stability, according to AFC Asia Frontier Fund.

According to the AFC, Sri Lanka became the second best performing market index in the fund, with 29.7 percent returns as of 25th of October this year.

“South Asian frontier markets i.e. Pakistan and Sri Lanka are well placed to continue performing in 2025 – P/E multiples have not re-rated much but both economies are making progress,” the Fund highlighted during its quarterly webinar this week.

In addition, Sri Lanka followed by Pakistan and Vietnam is expected to drive the earnings recovery in the coming period.

“Positive on South Asian frontier markets for 2025 Bangladesh, Pakistan, and Sri Lanka can have relative outperformance. These countries are not so exposed to global trade. Macro-economic recovery, reforms, valuations and earnings growth are all in their favour,”

The   Strong Earnings Recovery is expected to support the Ongoing Re-rating in Asian Frontier Markets. It emphasised that ‘Greater Political Stability’ could advance Colombo Stock Exchange’s (CSE) current market rally  into 2025.

Sri Lanka’s Central Bank (CB) was the most aggressive Monetary Authority that has cut interest rates, leading Asian Frontier Countries in the fund.

In general terms, global monetary easing, earnings and macro-economic recovery, discounted valuations have been identified as key performance drivers across the Fund.

Meanwhile, the Fund continued to strengthen its portfolio in September this year.

In September, the fund purchased a rubber glove manufacturer in Sri Lanka, an airport retail store operator in Vietnam. During the month, the fund added to existing positions in Bangladesh, Mongolia, and Sri Lanka and also reduced existing positions in Mongolia. As of September, the country allocation for Sri Lanka in the Fund stood at 7.4 percent.

At the end of September 2024, the portfolio was invested in 67 companies, 2 funds, and held 4.1 percent in cash.