2023 is a positive year for Asia’s frontier markets, with growth outperforming the majority of emerging markets. In fact, some major stock markets in Asia are experiencing negative growth this year such as China, Malaysia, Thailand…
According to AFC Fund, besides the stable macro environment and attractive valuations, the two main driving forces for the uptrend of the frontier market are reduced inflation and low interest rates.
| Asia’s frontier markets outperformed most emerging markets |
Commenting on the frontier market outlook in 2024, AFC Fund maintains a positive perspective for a number of reasons.
First, global central banks began an easing cycle. With the US Federal Reserve (Fed) giving the first signals of lowering interest rates in 2024, other central banks around the world may also loosen policy next year. A shift or reduction in the level of “hawkishness” will be a very positive factor for global stock market sentiment.
Second, a key factor that continues to drive repricing in Asia’s frontier markets is the recovery in corporate profits, led by Bangladesh, Pakistan, Sri Lanka and Vietnam. Profit growth in these economies recovered from the low base of the past 12-18 months and was supported by economic recovery and a low interest rate environment.
“In addition, we expect profit changes to be very positive for investor sentiment and stock prices,” AFC Fund shared.
| Countries are forecast to lead the profit recovery in 2024 |
Third, valuations in frontier markets are much lower than the average of the past 5 years. 2024 will witness favorable winds thanks to low interest rates and positive profit growth, thereby creating momentum for the valuation process in frontier markets in general and the markets that AFC Fund focuses on in general. specifically, including Vietnam.
| P/E of some current frontier markets (pink column) and 5-year average (red column) |
In the vision of the next 3-5 years, AFC Fund believes that Vietnam will continue to stand out as one of the markets receiving many favorable winds in Asia, especially with the shift of supply chains globally, helping promoting both exports and economic growth. Vietnam could return to GDP growth of 6-6.5% per year from 2024 onwards.
In general, AFC Fund maintains a positive perspective on frontier and emerging markets, especially frontier groups in Asia. However, the factor that needs to be closely watched is the new changes in the US market, when the election will take place at the end of 2024.
“We think that the current context will continue to create momentum for the growth of global stocks, especially in the first half of 2024,” AFC Fund said.
Lam Phong
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