Geopolitical uncertainty and negative news flow continue to create volatility across frontier markets. Varshan Maharaj explains how the Allan Gray Frontier Markets Equity Fund is using these market movements to add to attractively priced businesses and take profits where valuations have risen.
The ongoing conflict involving Iran, Israel and the United States continues to contribute to heightened uncertainty, negative sentiment and asset price volatility. While this volatility can be difficult for financial market participants to stomach, we seek to use it to our advantage in at least two ways.
Firstly, we hold positions in precious metal miners and energy-related businesses such as AngloGold Ashanti, Zimplats and Seplat Energy. Gold and energy-related holdings may benefit from asymmetric gains when geopolitical tensions, heightened uncertainty and supply chain disruptions drive sharp changes in the price of commodities, such as gold, platinum and crude oil.
Secondly, we use emotionally driven overreactions to negative news flow to build positions in high-quality companies at attractive prices. We also use strong share price rallies during good times to reduce positions when share prices run ahead of our assessment of the business’s underlying fundamentals.
Over the quarter, we took advantage of the emotionally driven sell-off to add to our holdings in Vietnamese businesses, including Masan Group. One of Vietnam’s largest private sector conglomerates, Masan Group owns food and beverage brands that reach most Vietnamese households. Its retail subsidiary WinCommerce operates the largest modern retail network in the country. These businesses benefit as Vietnam's middle class grows and consumers shift from small, unbranded market stalls towards trusted brands and organised retail.
Masan Group also owns 19.7% of Techcombank, one of the country’s leading private banks. According to Bloomberg data, the bank has more than doubled its adjusted earnings per share in Vietnamese dong over the past five years. Masan Group also owns a collection of other assets, including one of the largest tungsten mines in the world and a tea and coffee chain. It reported record profit for the first half of 2026, with management expecting full-year profit to grow by more than 50% year-on-year in Vietnamese dong.
The combination of dominant everyday consumer franchises, improving profitability and exposure to Vietnam's rising incomes makes the business an efficient way to participate in the country’s growth story. Despite trading at a large discount to our estimated intrinsic value, Masan Group’s US dollar share price has declined by more than 21% from its recent high in September 2025. We do not believe that this decline reflects a deterioration in the company’s fundamentals, and therefore, we used the weakness as an opportunity to increase our holding.
Broadening the opportunity set
Earlier this year, we expanded our investment universe. We added seven new positions across new markets and are actively researching many other interesting prospects. The new holdings include TOA Paint, a Thai paint manufacturer, and Avian Brands, one of Indonesia’s largest paint and building supplies manufacturers. Both businesses have very attractive characteristics, including that they:
- Are market leaders in their domestic markets
- Are operated by members of their founding families, who remain heavily invested in the business
- Have strong balance sheets with significant net cash positions
- Are actively buying back their shares
- Trade at share prices significantly below our estimates of intrinsic value
On a trailing 12-month basis, Avian Brands and TOA Paint trade on price-to-earnings multiples of 10.2 times and 9.3 times respectively – low relative to their historical levels. Both stocks have derated as new home sales have been weak in both markets in recent years. We consider this weakness to be cyclical rather than structural. Both still have a long runway for growth.
At the other end of the spectrum, sentiment and ratings of our Nigerian holdings have improved significantly over the past year. Earnings have also grown over this period, leading to strong share price performance. We have used this opportunity to take some profits.
During the quarter, the Fund added to Southeast Asian stocks, took profits in Nigerian stocks to manage position sizes and sold our position in Krka, a Slovenian generic pharmaceutical manufacturer, due to its share price rising beyond our estimate of intrinsic value.
Despite pleasing performance in absolute and relative terms, there continues to be little interest among global investors in the select emerging and frontier markets universe. This is a contributing factor to the wide disparity in valuation multiples between these companies and comparable companies in developed markets. We will continue to use this backdrop to buy good businesses at discounted prices.