Sri Lanka shines as top performer in AFC’s Asian Frontier Fund

Amidst a landscape of geopolitical uncertainty, Sri Lanka has emerged as the best-performing frontier market for Hong-Kong-based AFC Asia Frontier Fund in June 2025, demonstrating remarkable resilience and a robust economic comeback that is capturing investor confidence.

While many Asian frontier markets successfully navigated the volatility stemming from Middle East tensions, Sri Lanka led the charge in contributing to the fund’s strong monthly performance. 

The AFC Asia Frontier Fund (AAFF) reported a +1.9 percent return for its USD A-shares in June, reaching an all-time high NAV of US$ 1,992.85. The gains were significantly driven by its investments in Sri Lanka, alongside other markets like Kazakhstan and Bangladesh.

Reflecting this growing confidence, the fund increased its asset allocation to Sri Lanka, which now stands at 12.9 percent of the portfolio, up from 12.6 percent in May. This makes Sri Lanka the second-largest country allocation for the fund.

The positive sentiment was further solidified by an on-the-ground visit to Colombo by Ruchir Desai, Co-Fund Manager of the AFC Asia Frontier Fund.

“Our on-the-ground visit to Sri Lanka in June further cemented our positive outlook for the country,” the fund stated in its latest report. “The robust economic rebound is backed by political stability, and this confidence was reflected in the meetings with policymakers and companies we had during our visit.”

This confidence was reportedly widespread, with the management across key sectors including banking, consumer, construction, and tourism expressing optimism. The upbeat outlook is supported by strong macroeconomic data. Sri Lanka’s GDP growth for the first quarter of 2025 came in at a strong +4.8 percent, led by manufacturing and services industries. With a stable political and economic platform, AFC expects this solid growth to continue over the next two to three years.

“Sri Lanka remains one of our top country picks, with the market still trading at valuations that are well below pre-crisis levels,” the fund noted, highlighting the attractive entry point for investors.

In line with its strategy, the fund made several adjustments to its Sri Lankan portfolio in June. It acquired a stake in a local conglomerate with a focus on the beverage industry while exiting a cement producer and a hotel operator. As of the end of June 2025, prominent Sri Lankan companies in the fund’s top ten holdings include Commercial Bank of Ceylon PLC (3.2 percent) and Sunshine Holdings PLC (2.7 percent). 

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