Aberdeen Global - Hozam Plaza

Frontier Markets EquityFor the year ended 30 September 2012PerformanceFor the year ended 30 September 2012, the value of the FrontierMarkets Equity - I Accumulation shares increased by 16.49%compared to an increase of 3.97% in the benchmark, the MSCIFrontier Markets Index.Source: Lipper, Basis: total return, NAV to NAV, net of annual charges, gross incomereinvested, USD.Manager’s reviewFrontier market equities rose during the year under review, despitesignificant volatility owing to continued uncertainty over Europe’sdebt crisis. Investor sentiment was lifted by policy actions from majorcentral banks such as the European Central Bank’s (ECB) long-termrefinancing operations in the first quarter, and more recently, theconcerted easing of monetary policies by the Federal Reserve, theECB and the Bank of Japan. However, ongoing concerns over theglobal economic slowdown capped gains.Portfolio reviewIn stock selection, the shares of Egyptian lender National SocieteGenerale Bank rallied after Qatar National Bank expressed interestin buying it from parent Societe Generale. Also contributing toperformance was Asia Pacific Breweries (APB), which was the subjectof a complex two-month long takeover battle that eventually sawDutch brewer Heineken prevail; we divested APB consequently. InKenya, alcoholic beverage company East African Breweries postedrobust results and benefited from the generally positivemacro environment.Apart from the sale of APB, we introduced Nigerian lender GuarantyTrust Bank, a conservative and profitable bank; industrial gas providerLinde Pakistan on cheap valuations; and Ghanaian dairy company FanMilk, which has well-established brands in a growing market and tradesat an attractive valuation.OutlookConcerted central bank action has boosted frontier equities, but therally appears to be waning, as worries over global growth prospectsreturn to the fore. Europe’s debt problems are far from over; theunderlying fundamentals remain weak. Growth in the US is stillfragile. The looming ‘fiscal cliff’ may tip the US economy back intorecession if policymakers allow tax hikes and budget cuts to occurnext year. Meanwhile, frontier economies are struggling to generatethe kind of growth that has marked previous recoveries. Add to thatgrowing concern that the Federal Reserve’s latest round of quantitativeeasing may stoke inflation and trigger sharp gains in frontier marketscurrencies which would make exports less competitive.Investor sentiment is therefore likely to remain subdued, with theoutlook susceptible to further economic or policy disappointments.During such times, balance sheet strength and managing growth ina relatively conservative and disciplined manner become even moreimportant and these are the very attributes that characterise manyof our holdings.Conversely, Romanian lender BRD struggled on credit quality concerns.It reported a loss in the second quarter after increasing provisions formore non-performing loans. Elsewhere, the Commercial Bank ofCeylon’s share price underperformed following weak fourth-quarterresults. This was compounded by a significant devaluation of the SriLankan rupee. Meanwhile, our lack of exposure to Nigerian Breweriescost the Fund. The beer maker benefited from the country’s expandingmiddle class and posted solid second-quarter profits.110 Aberdeen Global - Frontier Markets Equity