For long-term investors committed to thorough research and willing to think carefully about idiosyncratic risks, frontier markets offer a range of opportunities. Varshan Maharaj discusses some of the ideas we are finding compelling in Southeast Asia.
In all markets, one sees waves of overreaction, on the downside and the upside, to material events with a wide range of possible outcomes. This seems to be more pronounced in frontier markets and often centres around possible leadership changes or fiscal concerns, as recently seen in Sri Lanka, Pakistan, Georgia and Kazakhstan. Furthermore, US President Donald Trump’s tariffs announced on “Liberation Day” also led to a sharp contraction in the Vietnam Ho Chi Minh Stock Index, which has rallied over 50% since its April 2025 low. It often seems that no price is too low for a bear, or too high for a bull. We try to take advantage of this by remaining level-headed, buying from pessimists when bad news strikes and selling to optimists during the good times.
An example of such an opportunity is NagaCorp, which has a monopoly casino licence for a 200 km radius around the capital city of Cambodia, Phnom Penh. The firm’s founding family owns over 60% of the shares in issue. Historically, the business operated with little to no debt, and costs were well controlled. Furthermore, revenues are denominated in US dollars and grew strongly from its listing in 2006 until 2019.
COVID-19 restrictions then led to a collapse in NagaCorp’s revenue, earnings and share price, as well as a build-up in debt. We used this period of pessimism as an opportunity to build a stake in the business. Since then, debt has been repaid, earnings are recovering nicely, and the share has produced a total return of 59% in US dollars for the 12 months to 30 September 2025. Revenue and earnings are still far below peak-2019 levels and considerable upside potential remains.
The Philippines is another example of a market where pessimism currently reigns. Many of the large constituents of the Philippine stock market are conglomerates. These are holding companies which own stakes in several businesses. A common measure of value for conglomerates is the sum of the parts (SOTP). The discount to the SOTP of many of the Philippine conglomerates is currently at, or near, historic highs.
Seventeen percent of the Allan Gray Frontier Markets Equity Fund is invested in the Philippines. These holdings trade on a weighted average trailing 12 month price-to-earnings (PE) ratio of 8.6 despite these businesses having grown their US dollar per share earnings over the long term and with good prospects to continue doing so. The underlying businesses in these holdings include a leading supermarket chain in the Philippines, a fast-moving consumer goods business with leading market share in its categories, the manufacturer of the largest gin brand in the world by sales volumes, and the owner of the distiller of some of the leading single malt whiskies in the world, including The Dalmore, Jura and Tamnavulin. These are compelling investment propositions.
There continues to be little interest in the frontier universe among global investors. This is a contributing factor to the large disparity in valuation multiples between companies in the frontier universe and comparable companies in developed markets, as well as the low value traded in many good quality frontier market businesses. We continue to use this backdrop to buy good businesses at discount prices.