“Some people grow into their dreams, instead of out of them.”

– Lois McMater Bujold - acclaimed American writer

AFC Funds Performance Summary

AFC Iraq Fund Continues its Strong Performance into 2024

After a stellar return of +110.4% in 2023, the AFC Iraq Fund’s performance momentum continued into the new year with a strong gain of +10.0% in January 2024. The continuation of the rally in Iraqi equities and the AFC Iraq Fund reflects the positive and structural changes taking place on the ground in Iraq, which investors are giving more weight to compared to the ongoing tensions in the region.

AFC Quarterly Webinar was held on Thursday, 18^th January 2024

The AFC Team successfully conducted another quarterly webinar, which was very well attended by existing and prospective investors who posed excellent questions. As discussed in our AFC Asia Frontier Fund Review & Outlook report, the big picture discussion on the webinar was about Asian frontier markets benefiting from positive trends in 2024, i.e. monetary easing, earnings recovery, and discounted valuations. 

We expect these tailwinds in economic and investor sentiment to be positive for Asian frontier markets and especially for the AFC Asia Frontier Fund, which has exposure to many key economies like Bangladesh, Pakistan, Sri Lanka, and Vietnam, which are seeing a turnaround.

You can view the webinar recording and presentation in the links below.

Co-Fund Manager of the AFC Asia Frontier Fund, Ruchir Desai also appeared on Bloomberg TV on 9^th February 2024 and gave his views on the elections in Pakistan and their impact on the local market. Click the link below to watch the Bloomberg TV interview with Ruchir Desai.

Best Wishes for the Year of the Dragon

The entire team at AFC wishes all our investors and newsletter readers a Happy Chinese New Year and best wishes for the Year of the Dragon!

February 2024 Subscription Cut-Off Date

The next cut-off date for subscriptions for our funds will be 23^rd February 2024. If you would like to know more about the subscription process, please get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it. 

Please find below the managers’ comments on each of our four funds for January 2024.

AFC in the Press

Upcoming AFC Travel

Thomas Hugger, Ruchir Desai, and Peter de Vries are based in Hong Kong, while Andreas Vogelsanger is based in Bangkok, Vicente Nguyen in Ho Chi Minh City, Scott Osheroff in Tashkent, and Ahmed Tabaqchali in London and Iraq. If you have an interest in meeting with our team at their homeports or during their travels, please contact Peter de Vries at This email address is being protected from spambots. You need JavaScript enabled to view it..

AFC Travel

AFC Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned +10.0% in January 2024 with a NAV of USD 1,572.81 versus its benchmark, the Rabee Securities US Dollar Equity Index (RSISUSD index), which gained 8.8% during the month. Since inception, the fund has gained 57.3% while the RSISUSD index is up by 12.7%, an outperformance of 44.6%.

Over the last few months, fears of a widening Middle East conflict increased in line with the series of escalations that eventually led the U.S. and the U.K. to take military action in the Red Sea, which intensified at the start of February following the U.S.’s strikes on targets in Syria and Iraq. However, the Iraqi stock and currency markets, as well as oil markets, are discounting a very different outlook to that implied by these fears. Supporting the markets’ different outlook are the U.S.’s clearly telegraphed and calibrated response, Iran’s distancing itself from the attacks that led the U.S. to act, a substate actor’s declaration of the suspension of its attacks on U.S. bases in Iraq even in the case of a U.S. strike, and finally that the U.S.’s strikes did not include targets in Iran. 

Within Iraq, both the stock and currency markets were mostly discounting Iraqi dynamics that were driving the transformation of the economy, and that were already in place prior to the onset of the conflict in early October 2023. For the stock market, these dynamics were the expansionary 2023 budget, the continued growth in the money circulating in the economy, and the developments that promise to accelerate the adoption of banking and bring about a transformation of the sector and its role in the economy. The RSISX USD Index’s decline during the conflict’s first month was a pull-back following a scorching four-month run in which it was up 43.7%, and not a reaction to the onset of conflict, as evidenced by the resumption of its rally in the following months while the conflict escalated. The index is up 20.9% from just before the start of the conflict to 5^th February 2024 – in particular, it is up 4.4% since the attack on the U.S.’s base in Jordan on 29^th January 2024 (chart below).

Rabee Securities U.S. Dollar Equity Index

For the currency market, the dynamics were driven by the Central Bank of Iraq’s (CBI) latest procedural requirements for its provisioning of U.S. dollars for cross-border transfers introduced in mid-November 2022, which led to a dollar supply-demand mismatch and consequently to the currency’s upheaval. This upheaval was expressed as a depreciation of the parallel market price of the Iraqi dinar versus the dollar, or an increase in the delta between the parallel market exchange rate versus the dollar over the official exchange rate. This delta increased from an average of around 1.2% that prevailed over the 18-month period preceding mid-November 2022 to 19.8% on the eve of the conflict. A month later, the delta increased to 27.1%, however, that was a function of the markets’ ongoing adjustments to the mid-November 2022 procedural requirements, and not a reaction to the conflict itself. The delta subsequently narrowed to 16.3% by 5^th February 2024, as the parallel market price of the Iraqi dinar rallied by 8.5% against the dollar – an action that is hardly consistent with fears of a widening of the Middle East conflict that would come with capital flight, or dollar hoarding (chart below).

Dinar Parallel Market Exchange Rate versus the U.S. Dollar and its Delta over the Official Exchange Rate

Finally, current oil market expectations, as measured by Brent crude futures contracts as of 6^th February 2024 (yellow line-chart below), are near the middle of a range bound on the upper end by supply fears following the invasion of Ukraine (red line-chart below), and on the lower end by those at the end of 2021 (grey line-chart below). Thus, while elevated, they are discounting a contained conflict, as discussed here a few months ago in “Assessing the Risks of a Wider Middle East Conflict”.

Market Expectations for Future Oil Prices
As measured by Brent Futures Contacts (USD per barrel)

In conclusion, the Iraqi equity market, while beginning to discount the positive developments discussed here last month is in the early phases of emerging from a brutal seven-year bear market in which RSISUSD index was down 66.6% during these years. Moreover, even after the stellar returns of 2023 and the strong start to 2024 it is, by end of January 2024, 19.7% below the all-time high achieved in early 2014 before the onset of the bear market. Risks to the Iraq story remain a factor given its history of conflict, extreme leverage to volatile oil prices, as well as the continued risks of an actual widening of the current Middle East conflict. However, both fundamentally and technically, the risk-reward profile of the market remains very attractive compared with most global markets.

At the end of January 2024, the AFC Iraq Fund was invested in 11 names and had a cash level of 2.8%. The fund invests in both local and foreign-listed companies that have the majority of their business activities in Iraq. The markets with the largest asset allocation were Iraq (96.0%), Norway (1.0%), and the U.K. (0.2%).

The sectors with the largest allocation of assets were financials (80.4%) and consumer staples (9.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.96x, the estimated weighted harmonic average P/B ratio was 1.72x, and the estimated weighted average portfolio dividend yield was 2.85%. The fund’s portfolio carbon footprint is 0.07 tons per USD 1 mn invested.

 AFC Asia Frontier Fund - Manager Comment

The AFC Asia Frontier Fund (AAFF) USD A-shares returned +0.4% in January 2024 with a NAV of USD 1,559.79. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−0.5%) and underperformed the MSCI Frontier Markets Net Total Return USD Index (+1.0%) and the MSCI World Net Total Return USD Index (+1.2%). The performance of AFC Asia Frontier Fund A-shares since inception on 30^th March 2012 now stands at +56.0% versus the benchmark, which is down by 24.1% during the same period. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.7% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.52, all based on monthly observations since inception.

After a very strong 2023, Asian frontier markets had a soft start to the year as domestic investors settled in for the new year. There were no major negative events in our fund universe this month, and the big-picture story of monetary easing, earnings recovery, and discounted valuations remains. The gains in Iraq and Vietnam were negated by softness in Mongolia, Bangladesh, Uzbekistan, and Kazakhstan. 

The year began with parliamentary elections in Bangladesh, and with this now out of the way and the previous government back in power, the economy and stock market in Bangladesh can look forward to improvements in policymaking and investor sentiment.

The new government in Bangladesh has been quick to improve its capital markets policies with the floor price rule on the Dhaka Stock Exchange being removed on 21^st January 2024. The floor price limit, which was in place since July 2022, sucked a lot of liquidity out of the market and led to a lack of fair pricing. 

We believe removing this floor price rule is very positive for investor sentiment as it will lead to liquidity coming back into the market, especially when many domestic investors have been on the sidelines due to the lack of liquidity in the last 18 months. 

The fund also took advantage of this improvement in liquidity and investor sentiment and purchased shares of the largest cement producer in Bangladesh, while also adding to our existing position in a bank and a pharmaceutical company. With an improvement in investor sentiment, attractive valuations, and the prospects for Bangladesh’s economy recovering from the second half of 2024, we will look to increase the fund’s weight to Bangladesh further in the future.

Removal of Floor Price Rule in Bangladesh on 21^st January 2024 is Very Positive for Investor Sentiment – Average Daily Turnover Increased (in USD mn)

Tourism in Sri Lanka has made a massive comeback after four tough years for the industry. 2023 witnessed tourist arrivals touching almost 1.5 million visitors, which is 64% of pre-pandemic levels, and the country is well on its way to a full recovery, with January 2024 arrivals touching 87% of pre-pandemic levels at 208,000 arrivals. 

More importantly, the momentum in tourist arrivals benefits Sri Lanka’s foreign exchange reserves, with the tourism sector generating USD 2 billion in foreign exchange earnings in 2023. These gains in foreign currency earnings are extremely important for supporting Sri Lanka’s macroeconomic stability.

Sri Lanka's Strong Tourism Recovery is Very Positive for the Economy

In line with our expectation that monetary policy will continue to be eased in Asian frontier markets, the National Bank of Kazakhstan and the National Bank of Georgia cut their benchmark interest rates each by 50 basis points as inflation has eased significantly in the past year in both countries. This trend towards lower interest rates will be very positive for investor sentiment in the Asian frontier universe and is in line with our call made at the end of 2022.

Monetary Easing Continues to Play Out in Asian Frontier Markets as Anticipated – Georgia and Kazakhstan Cut Benchmark Interest Rates by 50 Basis Points Each

The fund’s largest holding in Vietnam, FPT Corp. (FPT), delivered another year of solid performance, with its 2023 net profit growing by 22%, led mainly by its key global software outsourcing business, which crossed the USD 1 billion mark in revenues. 

The company has shown excellent execution of its strategy, and we believe this will allow FPT to grow its global software outsourcing business even further. At the same time, in the long term, it can benefit greatly from Vietnam becoming a platform for the technology supply chain shift taking place in the region.

FPT Corp. is the Fund’s Largest Position in Vietnam and it Continues to Deliver Strong Net Profit Growth since Initial Purchase

The best-performing indexes in the AAFF universe in January were Iraq (+8.8%) and Laos (+3.1%). The poorest-performing markets were Sri Lanka (−3.2%) and Bangladesh (−1.5%). The top-performing portfolio stocks this month were a Pakistani automobile assembler (+22.1%), a Pakistani automotive battery producer (+16.0%), a Pakistani consumer healthcare company (+15.4%), a Vietnamese airport retail store chain (+13.9%), and a Mongolian construction materials company (+13.8%).

In January, the fund invested in a cement company in Bangladesh and an IT company in Pakistan and added to existing positions in Bangladesh, Mongolia, Myanmar, Pakistan, Sri Lanka, and Vietnam. The fund also exited a Mongolian cashmere producer and a Mongolian petroleum company.

At the end of January 2024, the portfolio was invested in 68 companies, 2 funds, and held 13.2% in cash. The two biggest stock positions were a fintech company in Kazakhstan (3.9%) and a mining company in Mongolia (3.6%). The countries with the largest asset allocation were Iraq (16.1%), Vietnam (12.6%), and Mongolia (12.2%). The sectors with the largest allocation of assets were financials (31.0%) and consumer goods (19.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.11x, the estimated weighted harmonic average P/B ratio was 1.36x, and the estimated weighted average portfolio dividend yield was 2.81%. The fund’s portfolio carbon footprint is 0.69 tons per USD 1 mn invested.

AFC Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned −2.2% in January with a NAV of USD 3,074.70, bringing the return since inception to +207.5%. This represents an annualised return of +11.8% since inception. The fund underperformed the benchmark, the Ho Chi Minh City VN Index, which gained 2.4% in January 2024 in USD terms. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 14.97%, a Sharpe ratio of 0.69, and a low correlation of the fund versus the MSCI World Index USD of 0.50, all based on monthly observations since inception.

The VN-Index continued its solid recovery in January, climbing 2.3% in USD terms to 1,164.3 points, driven mainly by the strong performance of the banking sector, while the remaining sectors were unchanged. The fund's underperformance is attributed primarily to its strategic decision not to include banks in its portfolio. Additionally, the Vietnamese Dong (VND) depreciated against the USD by 0.75% in January, further impacting the fund's performance.

Market Developments

In January, the VN-Index experienced a significant surge primarily driven by the banking sector, which holds a substantial weight of nearly 40% in the index. Key players in the banking industry, including VCB, CTG, BID, TCB, and ACB, recorded notable increases ranging from 7-12%.

The VN-Index Crossed its 200-Day Moving Average on the Upside

AFC Vietnam Fund has strategically excluded banks from its portfolio due to perceived risks within the banking and real estate sectors, particularly anticipating challenges in the banking sector over the next 2-3 years. The decision is rooted in observations of the consequences of the late 2022 real estate crisis. During this period, numerous banks had to aggressively increase deposit interest rates to stave off a liquidity crunch. The State Bank of Vietnam (SBV) therefore intervened in the second half of 2023 to ease interest rates. The SBV also issued a new regulation (Circular 02/2023/TT-NHNN), permitting commercial banks to maintain existing loan risk classifications without reclassification and, at the same time, allowing banks to reduce loan provisions by 50% until June 2024. At a recent press conference, the Standing Deputy Governor Dao Minh Tu stated that the SBV is contemplating extending this Circular, given that the current non-performing loan (NPL) level has increased from 1.92% at the end of 2022 to 4.95%, despite this new regulation. He also mentioned that the SBV plans to manage monetary policy in 2024 by focusing on restructuring the credit institution system, handling bad debts, and striving to achieve an NPL ratio below 3% by the end of the year.  We remain cautious and concerned that due to the SBV’s leniency, the official and “non-official” NPL ratio will deteriorate further, given the ongoing challenges in the banking sector.

This caution is supported by the SBV's announcement of credit growth of 13.5% year-on-year at the end of 2023, up from around 9.15% at the end of November. This indicates a hurried lending environment in the last month of 2023, with a monthly increase of around USD 20 bn. This substantial loan growth is likely sourced from larger enterprises rather than retail investors. After thorough research and investigation, there is a suspicion that some distressed real estate companies were selling their subsidiaries and/or real estate assets to a special purpose vehicle (SPV) owned by themselves, to buy back their corporate bonds and to report extraordinary profits. The issue arises if this SPV borrowed funds from banks to purchase assets from their parent company. If this suspicion holds true, the reported level of NPLs may not accurately reflect the actual situation, potentially leaving the NPL level at the same or higher levels. In light of these uncertainties, the AFC Vietnam Fund has prudently chosen to avoid exposure to the banking sector for the time being.

Furthermore, we are closely monitoring the market, whose liquidity is currently significantly below the record highs reached during 2021. We anticipate that speculative funds will soon take profits from the banking sector and move to other sectors. We also believe that we will soon experience a robust increase in the mid and small-cap segment, which would align with our strategic portfolio allocation.

Optimistic Stock Market Outlook for 2024

Despite existing economic and banking sector challenges, Vietnamese stockholders collectively express optimism, believing that the worst is behind us. Projections from major brokers indicate a bullish outlook for the Vietnamese stock market in 2024, with the average forecast expecting a 20% increase, closing the year at approximately 1,350 points. Among the brokers, VNDIRECT stands out as the most optimistic, forecasting a 28.4% increase to reach 1,450 points. Meanwhile, MB Securities adopts a more conservative stance, projecting a +13.3% increase to 1,280 points.

Vietnamese Market Forecasts

TET Holiday

The TET holiday or Vietnamese New Year holds immense cultural significance in Vietnam, bringing families together in joyous celebrations. Commencing one to two weeks before TET, many young families embark on a journey from the cities to their hometowns, contributing to preparations for the holiday. Traditional activities include cleaning houses and adorning them with festive decorations, particularly flowers, which play a central role during TET. Flower farmers residing in the countryside engage in planting, harvesting, and selling flowers in city street markets in the lead-up to TET. These farmers often form close-knit communities in what are referred to as "flower villages," drawing attention from tourists seeking to experience rural life and traditional village markets. One prominent flower village is Sadec Flower Village, located around 150 km from Ho Chi Minh City. Established in the late 19^th century in Dong Thap province, this village boasts over 2,500 families engaged in the flower business, spanning more than 800 hectares along the Mekong River. The vibrant array of flowers and colorful festivities at Sadec Flower Village create an authentic TET atmosphere, making it a popular destination for local tourists, mainly from Ho Chi Minh City. Given the increasing influx of visitors, local authorities have initiated various activities, such as an old village market, to further attract and engage tourists during this festive period.

Sadec Flower Village

Flower planting stands out as a pivotal economic activity in Sadec village, contributing significantly to the local economy. In 2020, Sadec village achieved substantial flower revenue of USD 90 m. However, the subsequent years of 2021 and 2022 witnessed a decline in flower revenue to USD 65 million due to the adverse effects of the COVID-19 pandemic. Encouragingly, in 2023, the village experienced a recovery, with flower revenue bouncing back to USD 80 m, as reported by local authorities. The economic impact extends beyond flower sales, with local tourists playing a crucial role in generating substantial income for flower farmers. The number of visitors to Sadec flower village has been steadily increasing each year, contributing to the overall growth of the tourism sector. The rising income levels and robust economic expansion in Vietnam have further fueled the growth of domestic tourism, creating job opportunities and benefiting the rural communities. According to the Vietnam Tourism Department, the total number of local visits in 2023 set a record high at 108 m, surpassing the 2019 level by a significant margin.

Domestic Tourism – Visitor Trips (m)

Economy

Vietnam attracts USD 2.36 bn in FDI in the first month of 2024

As of 20^th January 2024, Vietnam has attracted over USD 2.36 bn in foreign direct investment (FDI), indicating a remarkable increase of more than 40% compared to the same period in 2023, according to the Foreign Investment Agency under the Ministry of Planning and Investment. This growth is attributed to the approval of 190 new projects, a year-on-year increase of 24.2%, with a total registered capital exceeding USD 2 bn, reflecting a substantial 67% rise from the previous year. Large-scale projects and diverse sectors contributed to this surge, with the real estate sector leading at over USD 1.27 bn (53.9%), followed by the processing and manufacturing industry at nearly USD 926 m (39.2%). Investments were made by companies from 39 countries and territories, with Singapore leading at more than USD 1.4 bn (59.5% of total investment), followed by Japan with nearly USD 297 m. Investments were distributed across 35 provinces and cities, with Hanoi attracting the most FDI, followed by Ba Ria-Vung Tau, Bac Giang, Bac Ninh, and Dong Nai.

At the end of January 2024, the fund’s largest positions were: TNG Investment and Trading JSC (8.6%) – an apparel manufacturer, Thien Long Group (8.3%) – a manufacturer of office supplies, Minh Phu Seafood Corp (8.3%) – a seafood company, Lam Dong Minerals and Building Materials JSC (8.0%) – a building material supplier, and Agriculture Bank Insurance JSC (7.1%) – an insurance company.

The portfolio was invested in 56 names and held 3.3% in cash. The sectors with the largest allocation of assets were consumer (60.0%) and financials (12.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 12.20x, the estimated weighted harmonic average P/B ratio was 1.27x, and the estimated weighted average portfolio dividend yield was 4.19%. The fund’s portfolio carbon footprint is 2.52 tons per USD 1 mn invested.

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned −3.4% in January 2024 with a NAV of USD 1,680.32, bringing the return since inception (29^th March 2019) to +68.0%. On an annualised basis, the fund has returned +11.3% p.a. with a Sharpe ratio of 0.68.

January saw more 2023 annual statistics published which were all very positive, while the month was another quiet one for the Tashkent Stock Exchange as prices drifted lower. However, on 31^st January 2024, the Tashkent Stock Exchange launched a new marketing tool to promote investment in the capital markets.

AFC Uzbekistan Fund Valuations as of 31^st January 2024:

2023 Macroeconomic Data

To further sum up 2023, GDP reached USD 90.8 billion for the year, translating into GDP per capita of USD 2,468. GDP per capita however is skewed in Uzbekistan as the State makes up roughly 50% of GDP while the mining and chemical industries represent the majority of its contribution. Nonetheless, it is still moving in the right direction, having grown 68% since we entered the market in 2018, and the increase in per-capita wealth is clearly visible for those who have visited the country. We don’t anticipate this trend changing anytime soon as Uzbekistan is still at an early stage of development and is continuing to undergo rapid transformation.

GDP Per Capita (USD)

Further, tourism is back to its pre-pandemic peak, reaching 6.6 million tourists in 2023, just shy of the 6.7 million peak reached in 2019 before the pandemic. We have long believed that if it were not for the pandemic, Uzbekistan would be in a much more advanced state of growth. Last year, the country got back in its stride as momentum on various reforms from liberalization of utilities to a focus on capital markets development and attracting more foreign direct investments picked up. Poor government responses globally to COVID-19 slowed Uzbekistan’s growth trajectory. Despite this, the coming years should see an acceleration as we continue to believe there is no reason Uzbekistan won’t become the largest economy in Central Asia within the next two decades, catching up to the raw materials exporting powerhouse (oil, gas, copper, gold, uranium) to the north, Kazakhstan.

Tourist Arrivals (000’s)

Tashkent Stock Exchange Marketing

The past few months we have discussed a new capital markets platform that will be launched by a friend of ours and which we plan to highlight next month. In the meantime, on 31^st January 2024, the Tashkent Stock Exchange, in partnership with the State Unitary Enterprise "Information and Resource Center of the Stock Market”, announced the launch of a Telegram bot (similar to a social media channel on WhatsApp) for capital markets information. Having explored the channel, it is quite well built with coverage of all listed companies, company news filings, and analytics. The platform is in Russian, Uzbek, and English and is being marketed locally by the exchange. As financial instruments outside of bank term deposits are not widely held by the Uzbek population, it is encouraging to see the exchange pushing for increased visibility of the capital markets, and which is good timing, in line with the tax incentives for Uzbek investors which was discussed in our December 2023 update.

AFC Uzbekistan Tour 2024

For those interested in visiting Uzbekistan with us, we are planning our third AFC Uzbekistan Tour, which will be held from Sunday 19^th May 2024 to Tuesday 21^st May 2024. We will begin on the 19^th with a day tour of Tashkent, followed by company meetings and site visits on the 20^th and 21^st. If you are interested in joining, please write us at This email address is being protected from spambots. You need JavaScript enabled to view it..

At the end of January 2024, the fund was invested in 24 names and held 7.7% cash. The portfolio was allocated to Uzbekistan (92.25%) and Kyrgyzstan (0.05%). The sectors with the largest allocation of assets were financials (40.1%) and materials (32.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 4.58x, the estimated weighted harmonic average P/B ratio was 0.93x, and the estimated weighted average portfolio dividend yield was 3.50%.

I hope you have enjoyed reading this newsletter. If you would like any further information, please get in touch with me or my colleagues at This email address is being protected from spambots. You need JavaScript enabled to view it.

With kind regards,

Thomas Hugger
CEO & Fund Manager

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