2026 Outlook – AFC Asia Frontier Fund is in a Sweet Spot
After three consecutive years of strong performance, the fund remains well-positioned for further gains. We continue to believe that Asian frontier markets have entered a sustained multi-year upcycle driven by lower interest rates, supportive fiscal policy, stable currencies, and improved governance.
Across our fund universe of countries, we are witnessing an early cycle of economic growth led by lower interest rates, stable currencies, infrastructure spending, and a reform mindset from governments. In general, business and consumer sentiment in our markets has not been this good for a long time.
Given the conviction and confidence we have in the outlook for our country universe, we anticipate another year of broad-based returns across our markets, a similar positive trend to the last three years of outstanding returns.
We are bullish across the board on our markets such as those in South Asia, Central Asia, the Middle East, and also Mongolia and Vietnam. Therefore, because of the conviction and confidence we have in our view, we chose “AFC Asia Frontier Fund is in a Sweet Spot for 2026” for the headline title this year.
Below is the 2026 Outlook for the AFC Asia Frontier Fund’s Key Markets (in alphabetical order)
Bangladesh
We anticipate Bangladesh to turn the corner in 2026 after a few difficult years, both economically and politically. On the macroeconomic front, lower inflation in 2026 should lead to benchmark interest rates declining, which will be very positive for stock market sentiment.
More importantly, with parliamentary elections set for 12th February 2026, an improvement in political stability and policy-making can be a major positive for Bangladesh’s economy and overall investor sentiment.
An economic and stock market recovery will be positive for the fund as our investments are leveraged to the country’s higher consumption and economic activities like banks, consumer staples, healthcare, and telecom. You can read more about our view on Bangladesh in our 2026 country calls.
Georgia
GDP growth in Georgia remains robust with the first nine months of 2025 reporting economic growth of +7.9%. We expect this trend to continue into the next few years, with Georgia expected to sustain GDP growth of 5% or more from 2026 onwards. Domestic consumption, rising exports, tourism inflows, and supply chain relocation are expected to support the Georgian economy going forward. The fund is well-positioned for this scenario through its holdings in Lion Finance Group and TBC Bank Group.
Iraq
With an outlook for continued political stability, Iraq should continue going through its multi-year transformational phase, which supports the earnings of various industries and also provides a big boost to infrastructure spending. After three decades of conflict, the ongoing political and economic stability will be positive for Iraq’s equity market, which still has a lot of room to grow.
Kazakhstan
GDP growth of close to 5% in 2026 for Kazakhstan will continue to support overall earnings momentum for the fund’s Kazakh holdings. The government has a reform mindset in terms of removing energy subsidies, raising further taxes and managing its fiscal deficit, though overall macroeconomic indicators are fairly stable. The fund is invested in fundamentally well-run and very profitable companies like Halyk Bank, Kazatomprom, and Kaspi.
Mongolia
S&P Global Ratings recently upgraded Mongolia’s sovereign rating because of accelerating output from the country’s mining sector linked to coal, copper, and gold production. Mongolia is forecast to grow its economy by around 5.5% over the next few years, which will be good for the companies the fund holds in the consumer and mining sectors.
Oman
A reform-oriented government that has successfully brought down its overall budget deficit and debt levels leading to sovereign rating upgrades should provide a platform for GDP growth in Oman to improve, and this should be positive for the fund’s holdings. GDP growth in 2026 is expected to be close to 4% compared to 1.7% in 2024 and 2.9% in 2025, respectively.
Pakistan
After a challenging economic and political period from 2018 to 2023, Pakistan has now achieved much greater stability on both fronts, and this has helped corporate profitability to improve. We believe that the government is keen to maintain overall macroeconomic stability, unlike the country’s past boom-bust cycles.
Therefore, even though the stock market in Pakistan has done very well in the last two years, it could be in the midst of a multi-year bull market as valuations re-rate due to both continued strong earnings growth and a higher level of macroeconomic and political stability. Pakistan remains the fund’s highest country weight for a second year in a row.
The fund is well positioned to cyclical names in Pakistan as these companies should benefit from a stable economy growing at around +4% over the next few years.
Sri Lanka
We remain positive on Sri Lanka, not just in 2026 but also over the next three to five years, as the country now has both economic and political stability after a long time. We are convinced that this is a solid platform for continued economic growth, which could result in better-than-expected GDP growth of above 5%.
Though the recent floods will have a short-term negative impact on the economy, we are not extremely concerned by this impact because Sri Lanka is in a much stronger macroeconomic position compared to a few years ago. Furthermore, we expect the government to spend substantially more on reconstruction activities because of its fiscal buffer, and this expenditure should be a positive contributor to overall economic growth in 2026.
Uzbekistan
There is significant momentum in the Uzbek economy as expected GDP growth of 8% in 2025 is considerably higher compared to 6-6.5% in the last few years. An outlook for the economy growing sustainably at greater than 6% over the next three to five years will provide tailwinds for the net profits of listed companies, which are still trading at extremely low single-digit P/E ratios. We therefore strongly believe that there could be a large re-rating in Uzbek equities in 2026 and beyond.
Vietnam
A Vietnamese economy growing by more than 8% over the next few years should lead to a broad-based positive impact across industries, and this provides a forecast for high sustainable earnings growth in Vietnam.
In addition to being a key beneficiary of the global supply chain shift despite the ongoing uncertainty over U.S. reciprocal tariffs, Vietnam’s economy is benefitting from the government thrust on reforms linked to infrastructure spending, private sector participation, and capital markets.
In Vietnam, the fund is well-positioned in the banking, consumer, logistics, and technology sectors.
The broadly positive outlook for economic growth in our fund universe is also reflected in the relatively high earnings growth expectations for 2026, as can be seen in the chart below. This ongoing momentum in earnings in the fund’s key markets will again be one of the key drivers of generating returns for the fund in 2026.
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