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Asia Frontier Capital (AFC) - November 2019

“ The most important quality for an investor is temperament, not intellect. ” ― Warren Buffett

The most important quality for an investor is temperament, not intellect.

Warren Buffett 

AFC Asia Frontier Fund USD A 1,262.23+1.8%−7.5%+26.2%
AFC Frontier Asia Adjusted Index2 +9.0%+0.3%+7.4%
AFC Iraq Fund USD D622.25+0.8%+5.9%−37.8%
Rabee RSISX Index (in USD) −1.5%−3.8%−53.7%
AFC Uzbekistan Fund F1,076.05+1.1%+7.6%4+7.6%
AFC Vietnam Fund USD C1,748.83-2.2%-1.6%+74.9%
Ho Chi Minh City VN Index (in USD) −2.8%+9.1%+73.6%
  1. The NAV given is for the main share series for the relevant master fund. Investor’s holdings may be in a different share class or series or  currency and have a different NAV. See the factsheets and/or your statement for full details.
  2. The index was adjusted on 1st June 2017. Prior to that it consisted 100% of the MSCI Frontier Markets Asia Net Total Return USD Index, and after 1st June 2017 it consists of 37% of that index and 63% of the Karachi Stock Exchange 100 Index in USD.
  3. NAV and performance figures are all net of fees.
  4. YTD since 29th March 2019

Asian frontier markets continue to rebound led by Pakistan and Sri Lanka

Pakistan and Sri Lanka led Asian frontier markets once again this month with a strong rally as the Pakistan KSE100 Index rallied by +14.9% while Sri Lanka witnessed a gain of +3.7%. Continued macro stability and anticipation of interest rates cuts in Pakistan led to improving investor sentiment while the positive outcome of the presidential elections and tax cuts in Sri Lanka are expected to have a positive impact on consumer and business sentiment. In a further sign of an improving macro environment in Pakistan, Moody’s upgraded the country’s outlook from negative to stable on 2nd December – this should support positive investor sentiment.

Pakistan and Sri Lanka have outperformed frontier and emerging market peers significantly over the past six months but valuations remain attractive with the Pakistan KSE100 Index and Colombo All Share Index trading at a P/E of 9.2x and 11.9x respectively – a large discount to other frontier and emerging markets.

Keep an eye out for our upcoming Pakistan and Bangladesh travel reports as Thomas travelled to Islamabad, Lahore and Karachi and Ruchir visited Dhaka in December.


Big outperformance by Pakistan and Sri Lanka versus frontier and
emerging market peers in the past six months

(Source: Bloomberg)


AFC presents at the Hong Kong Society of Financial Analysts (HKSFA)

AFC Asia Frontier Fund co-manager Ruchir Desai presented on the opportunities in Asian frontier markets to a full house at the HKSFA on 27th November 2019. The discussion centred on the perception, potential and risks of investing in Asian frontier markets. Click here to view the presentation.


AFC presents at the HKSFA

(Photo: AFC)


AFC Uzbekistan Tour 2020

Asia Frontier Capital will be hosting its second AFC Uzbekistan Investor Tour from 29th April to 2nd May 2020. We will be taking a small group of investors to experience this wonderful country and better understand the economic and social transformation taking place on the ground today.

The Uzbekistan Investor Tour will start in Tashkent on 29th April 2020 with a welcome dinner. On 30th April and 1st May we will be conducting site and boardroom meetings with publicly listed companies in the sectors of chemicals, pharmaceuticals and financial services to understand how these businesses operate in the local capital market environment on a daily basis. For the final part of the trip, on 2nd May 2020 we will visit the ancient Silk Road City of Samarkand for the day, taking the Afrosiab bullet train round trip. This will give us the chance to absorb the unique beauty of Uzbekistan and see one of the many wonders that will attract millions of new tourists to the country in the coming years. If you are interested in joining this tour please email us at This email address is being protected from spambots. You need JavaScript enabled to view it.

Below please find the manager comments relating to each of our 4 funds for the month of November 2019. Later this month we will share with you our review of 2019r, and provide an outlook for Asian frontier markets for 2020.

If you have any questions about our funds or would like to receive additional information, please be in touch with our team at This email address is being protected from spambots. You need JavaScript enabled to view it. .



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Upcoming AFC Travel

Thomas Hugger, Ruchir Desai, and Peter de Vries are based in Hong Kong, while Andreas Vogelsanger is based in Bangkok 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. .




London, UK   20th December – 23rd January   Ahmed Tabaqchali
Netherlands   23rd December – 2nd January   Peter de Vries
Tashkent, Uzbekistan   17th January – 29th February   Scott Osheroff
Sulaimani/Erbil/Baghdad, Iraq   24th – 26th January    Ahmed Tabaqchali
Tokyo   27th – 31st January   Ahmed Tabaqchali
Sulaimani/Erbil/Baghdad, Iraq   1st February – 1st June   Ahmed Tabaqchali
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AFC Asia Frontier Fund - Manager Comment


The AFC Asia Frontier Fund (AAFF) USD A-shares increased by +1.8% in November 2019 with a NAV of USD 1,262.23. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−1.3%) and the MSCI Frontier Markets Net Total Return USD Index (+1.4%) but underperformed the AFC Frontier Asia Adjusted Index (+9.0%) and the MSCI World Net Total Return USD Index (+2.8%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +26.2% versus the AFC Frontier Asia Adjusted Index, which is up by +7.4% during the same time period. The fund’s annualized performance since inception is +3.1%, while its 2019 performance stands at −7.5%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 8.87%, a Sharpe ratio of 0.27 and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.32, all based on monthly observations since inception.

Asian frontier markets continue to rebound and this saw another month with strong rallies in both Pakistan and Sri Lanka, while Bangladesh witnessed a recovery as well. Pakistan and Sri Lanka have outperformed their frontier and emerging market peers over the past six months due to greater macro stability and political improvements respectively, while valuations for both of these markets continue to remain attractive. The AFC Asia Frontier Fund reflects this with a very attractive P/E ratio of 8.1x. 



(Source: Asia Frontier Capital, Bloomberg)


Positive investor sentiment in Pakistan continued this month with a tremendous rally of +14.9% which was broad based, but cyclical sectors like autos did much better than the overall market. Investors expect the State Bank of Pakistan to start cutting interest rates from the first quarter of 2020 which has resulted in cyclical stocks doing well over the past month. As we discussed in the October 2019 manager comment, cyclical stocks in the auto and cement sectors have seen valuations correcting significantly while margins are close to bottoming out. As a result, the fund has been increasing its weight to the auto and cement sectors which has played out well with a passenger car manufacturer seeing its stock price rally by 53.6% this month while the market capitalisation of this company remains at a paltry USD 127 mln. This company is a bargain given its strong brand and manufacturing capacity. In further affirmation of an improving macro environment, Moody’s raised the country’s outlook from negative to stable on 2nd December and this should also add to positive investor sentiment going forward.

The higher exposure to Sri Lanka added to this month’s performance with the Colombo All Share Index witnessing another month of good gains on the back of Gotabaya Rajapaksa’s strong win in the Presidential elections which took place on 16th November (you can read our Sri Lanka election update here). Furthermore, the new government is planning to pass a number of tax cuts and tax breaks which are expected to significantly boost both consumer and business sentiment.


Pakistan and Sri Lanka have outperformed frontier and emerging market peers in second half of 2019

(Source: Bloomberg)


Disposable incomes should see a large increase as the tax free income threshold has been doubled together with the reduction of value added tax from 15% to 8% which will act as another tailwind for consumption, leading to improving volumes for consumer companies. The banking sector, which has seen its effective tax rate in some cases rise to as high as 60%, is set to see its tax rate come down with the removal of the debt repayment levy and nation building tax. This should lead not only to improved earnings for the banks but also an improvement in their return on equity. The telecom sector, besides benefitting from reduced value added tax, will also gain from a reduction in government levies on the voice related business which should lead to an increase in revenues for telecom companies as well.

Overall, these tax measures are expected to add to earnings growth and the fund has exposure to the Sri Lankan consumer, banking and telecom sectors. However, we must add that given the fiscal situation of the country there could be some tweaking to these new tax policies when the new annual budget is announced in April or May 2020. These tax announcements, however, are a much-needed boost to investor sentiment in the near term.

In light of greater political stability in Sri Lanka and extremely cheap valuations for the banking sector, the fund further increased its weight in Sri Lanka through the purchase of Commercial Bank of Ceylon, the largest private sector bank in the country in terms of assets, trading at a price/book ratio of 0.8x.

Bangladesh helped performance this month as well, as the Dhaka Stock Exchange Broad Index rebounded by 1.0%. Beximco Pharmaceuticals, the fund’s largest position whose GDR the fund holds, rallied by +13.8% on the back of excellent quarterly results with net profits increasing by 15.4% YoY. The GDR continues to trade at a large 38% discount to the local listing. Furthermore, with the stock trading at a P/E of 10.9x, its valuation remains extremely attractive, especially in light of robust earnings growth expectations.

The fund’s only bank holding in Bangladesh, BRAC Bank, also had a good rebound of +14.6% this month as loan growth is expected to improve on the back of improving liquidity in the banking sector. Though continued marketing and technology investments in its mobile app bKash are hurting short term profitability, the app continues to gain market share while management quality of the bank stands out.

In Myanmar, the fund’s holding Yoma Strategic Holdings (Yoma) announced a series of positive developments. The company continues to look to allocate capital to its core businesses which has led to the divestment of its telecom tower business while investing more in its mobile financial services joint venture with Telenor, Wave Money. Yoma will now have a 44% holding in Wave Money, which is the leading mobile financial services platform in Myanmar with a large prospective market as the country has a smartphone penetration of 80%, but very low banking penetration.

More importantly, Ayala Corporation, the leading Philippine conglomerate, will be investing in Yoma for a 20% equity stake with a valuation for Yoma shares at a 37.7% premium to the closing price of 12th November. This is a big show of confidence in Yoma’s core businesses which focus on food & beverage, real estate, financial services and automotive – all potentially high growth areas. Yoma’s stock price ended the month with a +12.7% gain which also helped the fund’s performance.

The Vietnamese market was weak this month as the Ho Chi Minh VN Index was down by -2.8% in November. However, the fund’s Vietnamese exposure ended the month flat due to positive moves in an industrial park developer, a modern retail mall operator and a transportation company. Vietnam’s November industrial production growth was weaker than earlier months but this could be due to certain one-offs while the country’s tourism industry sees a continued boom with November arrivals growing by 39% YoY, the highest ever monthly number for Vietnam. This growth in tourist arrivals will be positive for the fund’s airport holding, Airports Corporation of Vietnam (ACV).

The best performing indexes in the AAFF universe in November were Pakistan (+14.9%), Sri Lanka (+3.7%), and Mongolia (+3.4%). The poorest performing markets were Vietnam (−2.8%) and Laos (−2.7%). The top-performing portfolio stocks this month were a Pakistani automotive battery company (+94.8%), a Pakistani truck manufacturer (+72.0%), a Pakistani passenger car manufacturer (+53.6%), a Mongolian property holding company (+50.9%), and a Pakistani paint company (+38.8%).

In November, the fund exited a cargo handling company and an insurance company in Vietnam and bought a passenger car manufacturer and a cement company in Pakistan, while also adding to an existing Pakistani car manufacturer and a cement company that the fund already holds. The fund further added to existing holdings in Mongolia and Vietnam.

As of the end of November 2019, the portfolio was invested in 76 companies, 2 funds and held 5.8% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (9.4%) and a pump manufacturer from Vietnam (8.5%). The countries with the largest asset allocation are Vietnam (23.7%), Mongolia (16.7%), and Bangladesh (16.2%). The sectors with the largest allocation of assets are consumer goods (23.7%) and industrials (18.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.07x, the estimated weighted harmonic average P/B ratio was 0.80x and the estimated weighted average portfolio dividend yield was 3.88%.

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AFC Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund Class F shares returned +1.1% in November with a NAV of USD 1,076.05, bringing the return since inception (29th March 2019) to +7.6%.

During November a spotlight was cast on Uzbekistan’s capital markets when on 15th November the Capital Markets Development Agency (CMDA) organized an investor conference in Tashkent which brought together over 300 participants to discuss the future outlook for the industry. Another important milestone that occurred mid-month was the AFC Uzbekistan Fund making its first investment into banking stocks. We gained exposure to Uzbekistan’s largest private bank, Hamkor Bank, which trades at a P/E of 2.24x and a P/B of 0.61, and had year over year equity growth of 42%.

AFC Uzbekistan Fund valuations as of 30th November 2019

Estimated weighted harmonic average trailing P/E (only companies with profit): 4.04x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 8.74%


Privatizations set to accelerate:

During November the CMDA announced it will be short-listing 20 companies for IPO/SPO through the Tashkent Stock Exchange, with the official list to be published by February 2020. It has already been publicised that 12% of the Uzbek Commodities Exchange (TSE: URTS) and 5% of glass producer Kvarts (TSE: KVTS) are slated for near term privatization (the privatization of KVTS is ongoing and that of URTS should occur within the coming months). Following these two companies, Jizzakh Plastics, a plastics producer, is preparing to conduct a secondary offering where it will issue 20% new equity to be used for expansion. Future listings and privatizations will likely include Navoi Metallurgical Mining Company (NMMC), Uzmet Kombinati (TSE: UZMK), oil & gas producer Uzbekneftegaz and the national airline, Uzbek Airways, among others.

While most of these privatizations should occur in a single transaction, others will occur in stages—for example the government aims to privatise 20% of Kvarts through the stock exchange in tranches of 5% so as to ensure the issues are fully taken up by investors. Privatizing millions of dollars of state shares at once through the stock exchange would likely be ineffective at present as local investors are active, but not active enough to absorb tens of millions of dollars in new shares, while foreign institutional investors are only just beginning to enter the market, with AFC having led the pack. A slow but steady privatization of companies in our view is better as it gives local investors the opportunity to understand the value in some of these privatizations and also prevents single investors from gaining control of state assets, often at quite attractive prices.

Uzpromstroy Bank issues USD 300 mln 5-year Eurobond:

On 25th November Uzpromstroy Bank (TSE: SQBN), the “Construction and Industrial Bank” issued a USD 300 mln 5-year Eurobond with a YTM of 5.75% (initial expectations were for 6.5%) which was 4x oversubscribed. SQBN’s credit profile is rated as BB- with a Stable outlook by S&P.

As local banks face capital constraints due to high credit growth and largely being financed by loans from international financial institutions (“IFI’s”), Uzpromstroy bank’s bond issuance is expected to bolster its balance sheet and allow it to more sustainably grow its business, easing off of the reliance on IFI’s. Further, Uzpromstroy is only the first of several state-owned banks expected to come to the market through debt offerings, with more expected in the coming several months. Certainly, these offerings will help in attracting investor attention to the investment opportunities available today in Uzbekistan.

On a non-investment related note, winter has arrived in Uzbekistan and having experienced Tashkent’s first snow, below is a picture I took of the Amir Temur Museum located in the City Centre, blanketed in snow.


Amir Temur Museum blanketed in fresh snow

(Source: AFC)


At the end of November 2019, the AFC Uzbekistan Fund was invested in 29 names and held 7.0% in cash. The markets with the largest asset allocation were Uzbekistan (90.3%) and Kyrgyzstan (2.8%). The sectors with the largest allocation of assets were materials (57.5%) and industrials (13.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 4.04x, the estimated weighted harmonic average P/B ratio was 0.68x and the estimated weighted average portfolio dividend yield was 8.74%.

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The AFC Iraq Fund Class D shares returned +0.8% in November with a NAV of USD 622.25 which is an outperformance versus its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which returned −1.5% for the month. Year to date the RSISUSD is down −3.8% while the fund is up +5.9% YTD.

The demonstrations which resumed in the last week of October persisted into November and seem likely to continue for some time yet, in contrast to earlier expectations that they would run out of steam due to a combination of carrot, stick and fatigue, none of which, alone or in combination, dented the spirt of an increasingly sceptical youth movement.

The first to fail were the bundle of carrots in the form of successively enlarged government handouts over the course of the last few weeks. The sticks, in the form of excessive government crackdown, failed too - even though the cumulative casualty list increased considerably to over 450 people dead and nearly 20,000 wounded, the bulk of whom were demonstrators. The expected fatigue turned out instead to be an explosion of art as the protest movement, acquired its own symbolic art form expressed through large street murals, public performances, music and in particular the movement’s version of calligraffiti- a hybrid of calligraphy, typography, and graffiti.


Calligraffiti in Baghdad’s Tahrir Square

(Source: Photo by Mohammed Ghani posted on Baghdad Projects’ Facebook page)


The sheer number of casualties among the country’s youth, while not sufficient to shake the political class into action, caused an expression of extreme anger by the leading religious authorities that led to the resignation of the prime minister by end of the month. Consequently, there is an intense political manoeuvring among the political elite over the choice and form of a new government that would undertake the needed electoral reform, to be followed by early elections in 2020. Complicating matters is the extent of the compromises by the political elite to ensure that these elections would be a meaningful departure from the prior ones that largely allowed them to maintain their oversized influence on successive government formations.

While it is unlikely that the political elite will implement reforms that would threaten their interests, a consensus is emerging for making enough changes that would lead to the formation of future governments with a majority in parliament and parliamentary opposition, as opposed to the case since 2003 in which successive governments were composed of all parties in parliament, with no defined government programme, and with no real opposition in parliament. This was the root cause of the failures of the past to implement the reconstruction of the country, as each party pursued its own program within its own sphere of influence within an all-inclusive government.

These developments have yet to be played out, and a lot of uncertainties remain, yet the near-term effect on the economy would be that the current caretaker government, while unable to act on capital spending plans, will follow up with implementing the current spending element of the 2019 expansionary budget. Moreover, it will continue to implement this budget in 2020 through the upcoming months of pre-election manoeuvring, elections, and post-election government formation. The most important consequence of this is the sustainable continuation of the consumer led economic recovery that first manifested itself through the growth of Iraq’s imports, as discussed here in August 2019, to satisfy consumer demands.

The fuel for this consumer spending can be seen through return of liquidity to the real economy expressed through the continued growth of broad money, or M2 as a proxy for economic activity, due to its sensitivity to oil revenues (chart below). The healing effects of a benign oil pricing environment, in which the trailing twelve-month average Brent crude price is about USD 63/bbl, provided the wherewithal for the government to implement its expansionary budget for 2019, and probably into 2020.



(Source: Central Bank of Iraq, Iraq’s Ministry of Oil, Asia Frontier Capital)
(Note: M2 as of Sep. with AFC estimates for Oct.; Oil revenues as of Nov.)


The growth in M2, as reported here earlier in the year, first accelerated in May 2018 with a pick-up in year-over-year change every month as can be seen from the above chart. However, the current figures for M2 are stronger than discussed here earlier, as the Central Bank of Iraq (CBI) upwardly revised the figures for M2 for each month for the last few- as outlined in the summer release of its “Annual Statistical Bulletin for 2018”. The upshot is that M2’s recovery, while slightly less in year-over-year growth, is taking place from a higher base, and thus the amount of liquidity in the economy is larger than believed earlier.

Some of the effects of this liquidity were seen in the return of construction activity in Baghdad as reported here in AFC’s Iraq travel report in the summer. While this would be overshadowed by the demonstrations in Baghdad and the south of the country, this construction activity continues at an accelerated pace in the semi-autonomous Kurdistan Region of Iraq (KRI), which has not seen any demonstrations. While a far cry from pre-crisis boom, the return of such activity is remarkable and promising for the region’s economy. Moreover, it should have positive implications for banks’ non-performing loans (NPL’s) given the size of construction related loans.

The stock market continues to look through the political developments, and is probably beginning to take note of the return of this liquidity to the economy, as it spent most of the month, as measured by the Rabee Securities RSISX USD Index (RSISUSD), at between –2.0% and –1.0% of the close of the previous month, to end the month down –1.5%, and down –3.8% for the year. The AFC Iraq Fund, on the other hand, recovered from its prior underperformance in October, and ended up +0.8% for the month, and up +5.9% for the year.

Encouragingly, the stock market’s dynamics followed through with the improvement discussed here over the last few months, as its breadth continued to broaden with a number of small industrial companies experiencing meaningful year-to-date gains. Like the healthcare providers covered in this report last month, small industrial companies experienced the best gains in the last few months in which the overall market began to stabilize. This dynamic can be seen in the performance of National Chemical & Plastic (INCP), Metallic & Bicycles Industries (IMIB) and Modern Sewing (IMOS), up +95.6%, +34.3% and +62.9% respectively for the year by end of November.


Year to date indexed performance: National Chemical & Plastic – INCP (green), Metallic & Bicycles Industries -IMIB (dark brown) and Modern Sewing - IMOS (blue)

(Source: Bloomberg)


Moreover, like the healthcare providers, the stock market is focusing on a revival in earnings for these companies even though the earning results for them show no evidence of such an earnings recovery. It should be noted that the stock prices of these companies benefit from their illiquidity- in particular IMIB did not trade between early August 2018 and early March 2019, and the +34.3% YTD change used is based on the last traded price of the stock in 2018.

A broadening market breadth as well as its increasingly discriminating nature, add to signs that it is bottoming after a brutal bear market in which the current YTD decline of –3.8% is on the back of –15.0% decline in 2018, –11.8% in 2017, –17.3% in 2016, –22.7% in 2015, and –25.4% in 2014. A recovery following this bottom formation could see the market, as measured by the Rabee Securities RSISX USD Index (RSISUSD), claw back some of the −67.0% decline from the peak in early 2014 to November 2019 closing levels.

As of the end of November 2019, the AFC Iraq Fund was invested in 14 names and held 8.9% in cash. 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 are Iraq (88.5%), Norway (1.9%), and the UK (0.7%). The sectors with the largest allocation of assets were financials (46.1%) and consumer (19.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 13.44x, the estimated weighted harmonic average P/B ratio was 0.64x and the estimated weighted average portfolio dividend yield was 5.81%.

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AFC Vietnam Fund - Manager Comment




The AFC Vietnam Fund declined by −2.2% in November with a NAV of USD 1,748.46, bringing the return since inception to +74.8%. This represents an annualized return of +9.9% p.a.

The downtrend continued in November despite a one-day spike by the heavily weighted Vingroup-stocks. After surging 3% in the first few trading days, the index lost nearly 6% for the month. Negative sentiment among foreigners was seen both in blue chips and smaller names, with indices down across the board. In November 2019, the indices in HCMC and Hanoi were down −2.8% in HCMC and −2.6% Hanoi respectively (in USD terms) while losses in small- and mid-caps occurred at the beginning of the month, affecting the performance of the fund. The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.57%, a Sharpe ratio of 1.03, and a low correlation of the fund versus the MSCI World Index USD of 0.24, all based on monthly observations.

Market Developments

2019 will be another success story for the Vietnamese economy, although we have seen a few mixed economic signals in recent weeks. We have to keep in mind that this year Vietnam, like every other country in the region, was confronted with several headwinds. A worldwide economic slowdown following lower trade, after an intensifying trade war between the USA and China, led to sharply reduced growth for most Asian economies, with Vietnam being one of the few outstanding exceptions. On the domestic front, the delayed issuance of licensing permits for many construction projects lowered the potential of even higher GDP growth. However, other indicators like FDI still confirm the strong underlying growth we see in Vietnam.


FDI disbursement 2018-2019 (Cumulative in USD bln)

(Source: AFC Research, General Statistics Office of Vietnam (GSO))


Both negative factors could potentially fade out in 2020, so any weakness in underlying growth should be compensated and supported by either a recovery in world trade on a US-Chinese trade pact or higher approval rates in domestic construction projects, or both. Unfortunately, the stock market did not factor in any of the many positive developments in 2019 such as compelling GDP growth numbers or rising foreign direct investments, and any rally attempt was cut short. A handful of stocks pushed the index up in October, but on the first trading day of November Vingroup stocks once again pushed the index up strongly while the majority of stocks fell. On that day alone Vingroup and bank stocks led to an outperformance of the HSX "benchmark" index of 2% against the small cap index (+1.68% versus -0.30%). In the following weeks the gain in the HSX Index reversed into an overall monthly loss, so the only difference is - once again – higher volatility in the so-called safer blue chips.

Those unfortunate short-term swings are neither helpful, nor are they easily explainable with Vietnam’s atypical market structure (index weightings and foreign ownership limits), especially for non-professional investors.

Since the launch of the AFC Vietnam Fund back in December 2013, we have always focused on the long-term potential of Vietnam and also many of our investors told us that they don’t need bi-monthly updates. We therefore have decided to stop publishing an interim report by the end of this year, but are always happy to answer our client’s questions whenever they arise.


VN Index, August 2019 - November 2019

(Source: Bloomberg)


The positive news is that the HSX Index has now turned from an overbought to an oversold level which we have not seen since the lows at the beginning of the year.

Vietnam’s internet economy is booming!

According to an economic internet report issued by Google and Temasek in 2019, the internet economy in Vietnam will grow to USD 43 bln by 2025, up from just USD 3 bln in 2015, with E-commerce contributing USD 23 bln or more than half of this increase. Vietnam, with almost 100 mln inhabitants, is becoming one of the fastest growing internet economies in the world.

Vietnam internet economy value (USD bln)


(Source: Temasek & Google Report, AFC Research)

A lot of international E-commerce players, such as Lazada, Shopee, Tiki and Sendo, have dipped their toes into Vietnam in order to explore this promising market. The booming E-commerce market also helped another industry to flourish - the delivery business. Many companies and investors are investing heavily in this sector in order to capture the enormous growth. Currently some of the key players are:


(Source: AFC Research, Lazada, Shopee, Tiki, Sendo)


The two traditional delivery companies, VNpost and Viettel, which were set up in 1997 and 2005 respectively, have built a wide delivery network in 63 provinces in Vietnam, including in very rural mountainous and forested regions. However, their disadvantages are low technology penetration and long delivery times. If a client wants to deliver something, he/she has to go to his/her closest office instead of somebody picking up the client’s goods at home. Therefore, most of the clients are offline business retailers. Recently, VNpost and Viettel started to work with E-commerce platforms such as Lazada, Shopee, Sendo or Tiki, but the volume is still small, mainly due to unreliable customer care services.

The modern delivery companies are mostly new startups such as GHN, GHTK, Kerry, Ninjavan. Most of them started their businesses along with the E-commerce boom. GHN and GHTK are the two largest key players in this segment with more than 70% market share. They offer a full range of services from pick up, delivery, COD services and insurance. Their superior technologies allow them to capture this fast-growing business segment better. Barcode scanning, online tracking, compensation claims and fast delivery customer care services are high-level services well appreciated by retailers and E-commerce platforms. With their currently limited network, these two delivery companies (GHN and GHTK) are expanding quickly to cover all 63 provinces.

Technology companies, such as Grab and Goviet, are ride hailing apps. Based on their client data, they have started offering fast delivery, within an hour, but only inside major cities. Obviously, the fee is comparably high and is calculated based on distance.

Among the three business segments, only traditional ones are making some profit. The two other segments are burning money aggressively in favour of fast expansion and they are also reducing fees in order gain market share. According to an expert in this sector, it is impossible to make a profit with the current delivery fee structure. GHN and GHTK are charging VND 15,000 including VAT (US cents 64) for delivery within Ho Chi Minh City. This means that revenue before VAT is only VND 13,600 per item. Meanwhile, GHN pays VND 3,800 per item for pick up and VND 3,800 per item for successful delivery. Total cost for the shipper is therefore VND 7,600 per item. These companies get less than VND 6,000 per item for delivery within Ho Chi Minh City. In other words, 4 delivered goods are necessary to make one dollar before all other costs!


Cost structure for delivering an item within Ho Chi Minh City

(Source: GHN, AFC Research)


Of course, this amount is unable to cover all of their expenses. In order to reduce operational costs, most delivery companies do not sign labour contracts with shippers (delivery men) to avoid social contributions and other unexpected costs. Furthermore, they also do not need to invest in typical delivery vehicles such as motorbikes. Instead, shippers have to use their own motorbikes to apply for a job.

Delivery in Ho Chi Minh City versus Europe

    DHL in Paris


GHTK in Ho Chi Minh City

(Source: DHL, GHTK, AFC Research)


Besides high expansion and operational costs, these companies strongly depend on the growth of E-commerce platforms. For example, nearly 90% of the GHN’s total deliveries come from E-commerce platforms. In other words, if E-commerce companies face difficulties, these delivery companies will get into trouble as well. Furthermore, E-commerce companies such as Lazada or Tiki also want to reduce the influence of these delivery companies on their business. A successful order strongly depends on the – sometimes questionable - attitude of a shipper who does not have a committed labour contract with the logistics company. Consequently, E-commerce companies have to build their own delivery companies. Lazada has Lazada Express Logistic (LEL), Tiki has Tiki Express. Besides reducing the influence of delivery companies, E-commerce platforms also want to speed up delivery to within 2-4 hours. If a customer in Ho Chi Minh City buys a product on, Tiki will deliver it within 2 hours with TikiNow service and Lazada within 4 hours with their new express delivery service.


TikiNow versus Lazada Express Delivery



Lazada Vietnam CEO

(Source: Tiki, Lazada, AFC Research)


Regardless of losing money in these delivery companies, venture investors are still investing aggressively as they are making investments into technology start-ups. Recently, GHN successfully raised around USD 100 mln from Temasek, a wholly owned investment company of the Singapore Government. With new injected capital, GHN will increase its appearance in all provinces, including remote mountainous areas. This fast expansion is burning a lot of money at the moment, but if they succeed, they will become “golden unicorns” in Vietnam. If they fail it will just be an adventure for them. However, Temasek’s investment into GHN shows that they want to be a part of this promising business in Vietnam.




(Source: VCB, GSO, SBV, AFC Research)


At the end of November 2019, the fund’s largest positions were: Agriculture Bank Insurance JSC (6.5%) – an insurance company, Phu Tai JSC (4.2%) – a home and office furnishings company, Vietnam Container Shipping JSC (3.7%) – a container port management company, Sametel Corporation (3.5%) – a manufacturer of electrical and telecom equipment, and Idico Urban and House Development JSC (3.4%) – an energy, construction, and real estate business. The portfolio was invested in 62 names and held 3.3% in cash. The sectors with the largest allocation of assets were industrials (33.3%) and consumer goods (30.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.60x, the estimated weighted harmonic average P/B ratio was 0.99x and the estimated weighted average portfolio dividend yield was 7.58%.


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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. .



The entire AFC Team wishes our investors and newsletter readers a peaceful 2019 Holiday Season and a Happy New Year!

With kind regards,
Thomas Hugger
CEO & Fund Manager

This email address is being protected from spambots. You need JavaScript enabled to view it.

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