ASF header

Asia Frontier Capital (AFC) - November 2020 Update

“To lose patience is to lose the battle.” ― Mahatma Gandhi


“To lose patience is to lose the battle.”

― Mahatma Gandhi

AFC Asia Frontier Fund USD A 1,267.14+6.3%−0.5%+26.7%
AFC Frontier Asia Adjusted Index2 +4.3%+1.3%+10.3%
AFC Iraq Fund USD D598.93+2.4%−4.5%−40.1%
Rabee RSISX Index (in USD) +1.0%−0.6%−52.8%
AFC Uzbekistan Fund USD F1,296.73+10.4%+18.6%+29.7%

     Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C2,025.53+6.9%+13.2%+102.6%
Ho Chi Minh City VN Index (in USD) +8.6%+4.6%+79.9%
  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.

All AFC funds have a positive month as global equities rally

An expected win for Joe Biden in the U.S. presidential election and a high probability of effective COVID-19 vaccines being rolled out in the first half of 2021 led global equity markets to rally very strongly, resulting in a positive performance for all our funds with the AFC Uzbekistan Fund and AFC Vietnam Fund both reaching an all-time high NAV.

With these positive developments and an investor shift towards markets which have lagged in the last few years, as well as a rotation into the markets which are in the “value” category, it seems the tide is turning for frontier markets and more specifically Asian frontier markets as they have witnessed a strong rally in the last three quarters of 2020 with Bangladesh, Pakistan, Sri Lanka and Vietnam now all posting positive year to date returns in USD terms.

We expect market sentiment to remain buoyant going into 2021 and we would like to use the beginning of a period of optimism to wish you and your family Happy Holidays and a healthier and less-socially distanced 2021!

Below please find the manager comments relating to each of our four funds for the month of November 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. .



 Back To Top 




 Back To Top 



AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund (Non-US) Class F shares returned +10.4% in November with a NAV of USD 1,296.73, a new all-time high, bringing the return since inception (29th March 2019) to +29.7%, outperforming the Tashkent Stock Exchange Index which is down 15.6% in USD terms in the same time period. Year to date, the fund returned +18.6% versus the Tashkent Stock Exchange Index which is down 8.4% in USD terms in the same time period. On an annualized basis, the fund returned +16.8% with a Sharpe ratio of 1.22.

November saw strong third quarter earnings results for many of the fund’s holdings, a continued increase in participation among local and foreign investors in the market and a 29.6% increase in the share price of Qizilqum Cement, which is the fund’s largest holding at 34.6%. 

AFC Uzbekistan Fund valuations as of 30th November 2020:

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


Estimated weighted harmonic average P/B:


Estimated weighted portfolio dividend yield:



The re-rating of Uzbekistan’s equity market remains in its infancy

With the fund experiencing strong performance over the past two months, it’s worth taking a moment to reflect on the evolution of the Tashkent Stock Exchange and the broader economy to emphasize why we continue to believe that the once-in-a-generation re-rating of Uzbek assets is still in its early days.

While people are inherently programmed to avoid risk, in relation to investing, emotion and psychology often get the best of investors, causing them to miss out on secular bull markets. Investors may see the price of an asset break out, which prevents them from participating, thinking they missed the opportunity. However, a more pragmatic way to view asset price breakouts is to understand how much longer the thesis has to play out. If in the early stages, then one should not be wary of having “missed” an early move as much larger upside likely awaits.

Due to the fund’s early presence in the market, and superior selection of high quality “blue-chip” companies, the fund has been able to markedly outperform the Tashkent Stock Exchange Index. In due course, we expect the rest of the market to play “catch-up” which should further accelerate the fund’s performance.

Phase I of a three-phase re-rating

While the AFC Uzbekistan Fund has experienced strong performance over the past two months, we believe that potential investors have missed out on very little of what is likely to be a three-to-five-year re-rating of listed equities on the Tashkent Stock Exchange, and an even longer re-rating of the overall economy and real estate market. The fund’s recent performance is merely confirmation of “Phase I” of our broader investment thesis — Phase I can be summed up as the initial re-rating of existing listed equities from being “unreasonably cheap” to “deeply undervalued”. The re-rating has already begun and is being accelerated by the inflation, central bank policy and bank term deposit rates all falling, thereby making listed equities increasingly attractive to local and foreign investors.



(Source:, AFC Research)


When Thomas and I first visited Uzbekistan in May 2018, the once-in-a-generation valuations of the majority of listed equities made it abundantly clear that they couldn’t get much cheaper. The country, and its equity market in particular, had been “left for dead” by foreign investors following the global financial crisis of 2009, while local investors preferred bank term deposits which at the time paid annualized interest rates of up to 22% in local currency terms.

To quote Jim Rogers who famously said, “I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up”, AFC and a fellow frontier markets investor from Taiwan were the first foreign institutional investors to re-enter the market in 2018 and build large positions in “blue-chip” equities. Regarded as “crazy” by some of our local contacts for acquiring shares in listed companies, and in some cases willing to buy large blocks of shares at prices they deemed “expensive”, we were gifted the opportunity of ample weak hands willing to sell their shares to us at “deal of the decade” prices. We were comfortable paying what appeared to be high prices at the time to build our initial positions, knowing that as local and foreign investors caught on to what we saw, the stampede to acquire shares would drive prices higher; we wanted to be positioned to benefit from this and thus early positioning was imperative. Several of the fund’s current holdings at the time had up to 70% of their market capitalization in cash with zero debt and were growing their earnings by several hundred percent per annum; some even hosted dividend yields as high as 50%. While share prices have certainly risen and dividend yields have compressed, for the majority of the fund’s positions, they have merely gone from being “unreasonably cheap” to “deeply undervalued”, meaning there should be several more years of upside ahead.

Phase II approaches

As “Phase I” of our thesis continues to unfold, we believe “Phase II” is approaching as large and high-quality state-owned enterprises gradually advance towards privatization through the stock market.

When speaking with investors, we are often asked what percentage of listed companies are wholly privately owned. The answer is very few since Uzbekistan was a centrally planned economy until 2016 with the State heavily involved. Since the fall of the Soviet Union, and subsequent launch of the Tashkent Stock Exchange on 8th April 1994, state-owned enterprises have been partially privatized through the exchange, which today hosts 144 companies and a market capitalization of USD 5 bln. Historically, listed equity valuations have been so cheap (attractive for us) that private companies were unwilling to sell equity through the exchange. Instead, they have opted for private equity investment to obtain higher valuations; this is the opposite of what typically happens around the world as listed companies usually trade at higher valuations due to their liquidity premium.

Once the initial re-rating phase of existing listed companies further matures, we expect to start seeing high-quality state-owned enterprises IPO or be privatized through the stock market (Phase II of our thesis). The liquidity and market participation generated by these privatizations and higher valuations should in due course trigger Phase III of our thesis which is for private companies to pursue IPO’s. Listing costs on the Tashkent Stock Exchange are very affordable, and it will provide companies with a straightforward avenue for financing, relative to private equity or debt financing from banks which often come with restrictive conditions.

Back to Phase II, before private companies aggressively participate in the market, several large state-owned companies in the commodities sector are expected to IPO which should transform the capital markets of Uzbekistan by attracting new institutional capital, as well as dramatically increasing the market capitalization and liquidity of the exchange. In mid-November, one of the most notable (and highest quality) state-owned enterprises finalized its consolidated IFRS reports which were audited by Ernst & Young. The company has also retained KPMG for pre-IPO analysis before a planned IPO in 2023. The company is Olmaliq Kon-Metallurgiya Kombinati (TSE: AGMK), a large mining company producing copper, zinc, molybdenum, gold and silver. AGMK also accounts for 90% and 20% of Uzbekistan’s silver and gold production respectively. Scheduled for privatization in 2023 through an international IPO and secondary offering of existing shares though the Tashkent Stock Exchange, the company’s valuation has not been publicly disclosed, but it is expected to be several billion dollars which would nearly double the current market capitalization of the exchange. Several other such companies (including Navoi Metallurgical Mining Kombinati which operates the largest open-pit gold mine in the world—Muruntau) are scheduled for similar privatization towards the middle of the decade. They should help to accelerate foreign investor attention to the very attractive and highly diversified economy of Uzbekistan.

Portfolio companies report strong third-quarter earnings growth

Uzbekistan is projected to grow 0.7% in 2020 with growth rebounding to 5% in 2021, according to the IMF. While large portions of the global economy are unfortunately being subjected to varying degrees of government-mandated restrictions, in Uzbekistan it very much feels like January 2020. COVID-19 is undoubtedly an issue in Uzbekistan, though it appears the government has accepted the fact that the virus can’t be stopped through quarantines (of which there were two earlier this year) and has opted to open the economy instead rather than smother it. The decision by the Mirziyoyev administration can be clearly felt. Construction sites are buzzing, schools are all back in session, foreign tourists are welcomed, cafes, restaurants and pubs are open, and there is no “social distancing”. This response by the government, one of the best in the region, is likely what has translated into a very positive third-quarter earnings season, with many of the fund’s holdings having reported superb results.

The below table shows several of the AFC Uzbekistan Fund’s holdings and their earnings growth on a trailing twelve months basis and for the third quarter YoY. Valuations for the majority of the portfolio remain far too cheap. Continued growth expectations will be supported by the further liberalization and diversification of the economy, rising foreign direct investments, exports and improved purchasing power among the local population.

Third Quarter YoY Earnings Growth


Q3 YoY EPS Growth

TTM EPS Growth

Market Cap
(mln USD)



Dividend Yield















Steel Cable Producer














Spirits Producer







Financial Services







Consumer Goods Conglomerate







(Source: Tashkent Stock Exchange, AFC Research)

It is still “January 2020” in Uzbekistan

In our view, with the government of Uzbekistan having been one of the few countries around the world to not smother its economy in response to COVID-19, its re-opening of the entire economy from the summer has led to a significant rebound.

During the two month-long quarantines in March and June, many shops and individuals suffered a loss of business, as is unfortunately being seen worldwide. Storefronts emptied out and “for rent” signs appeared with activity remaining dormant for several months. Then, due to the government's smart decision to open the economy and let life revert to normal, it has been amazing to see how quickly Tashkent and consumer activity have rebounded, with an interesting indication being the number of stores celebrating grand-openings. Cafes, pubs, education centres, retail stores and salons all seem to be sprouting up like seeds which is a good indication that people are hungry to work and that there is demand for goods and services. This resilience excites us, further increasing our confidence that Uzbekistan will continue its capitalist, free-market drive, making it an island of macro-stability and growth amid an increasingly uncertain global economic climate.



(Source: AFC Research)



(Source: AFC Research)


At the end of November 2020, the fund was invested in 26 names and held 5.6% in cash. The markets with the largest asset allocation were Uzbekistan (93.0%) and Kyrgyzstan (1.4%). The sectors with the largest allocation of assets were materials (58.4%) and consumer (15.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.59x, the estimated weighted harmonic average P/B ratio was 0.85x, and the estimated weighted average portfolio dividend yield was 9.99%.

 Back To Top 



AFC Vietnam Fund - Manager Comment


The AFC Vietnam Fund gained 6.9% in November with a NAV of USD 2,025.53, a new all-time high NAV, bringing the return since inception to +102.6%. This represents an annualized return of +10.8% p.a. The Ho Chi Minh City VN Index in USD rose 8.6%, while the Hanoi VH Index gained 9.3% (in USD terms) in November 2020. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 12.96%, a Sharpe ratio of 0.76, and a low correlation of the fund versus the MSCI World Index USD of 0.56, all based on monthly observations.

The Vietnamese market continued to perform very well after a brief correction in October. Vietnam still seems to be an excellent bet on a global economic recovery in 2021 on the back of already astonishing economic performance in 2020, at least on a relative basis. Small and mid-cap stocks have shown similar gains, which brought the indices into positive territory for the year. Although the main index closed above 1,000 for the first time since November 2019, the index is still 17% below its all-time high from early 2018 and almost unchanged compared to 3 years ago. During the last month, we exited some of the initial small-cap positions and increased positions in some of the mid-cap stock holdings, while also entering a few new investments where we are now taking into account socially responsible investment criteria (ESG).

Market Developments

The correction in October was short-lived and with continued positive economic news in Vietnam, as well as encouraging COVID-19 vaccine results, stocks continued to improve mostly from local demand on increasing trading volume. While foreigners have been massive sellers year to date, we are now starting to see a more balanced picture of foreign flows after a full month (October) of net selling every single day (!). 

As mentioned above, with some strong moves in the market and our portfolio, we continued to “modernize” our portfolio to what we see as a necessity considering a changing investor base and decision-making process. One of the most recognizable trends globally over the past few years has been socially responsible investing. While the concept is not really new (formerly corporate social responsibility—CSR) and started decades ago, it is only in the past few years that global investors have pushed companies and industries to integrate Environmental, Social and Governance (ESG) aspects into their way of doing business, with studies also showing that the long-term effect on portfolio returns is positive. While Vietnam is certainly hard to compare to the Western world, we strongly believe that implementing ESG principles will not only have a growing positive impact on the business culture in Vietnam and its environment, but we are also sure that measuring and including ESG factors in our investment process will benefit the risk and return profile of our portfolio.

Start of a new cycle?

2020 was certainly not a year for the faint-hearted. Panic-selling on the back of COVID-19 was met with unprecedented countermeasures from governments and central banks globally. With vaccines now likely to be available in sufficient quantities in mid-2021, investor focus is again turning to find value investment opportunities after the pandemic. Interestingly enough, a recent fund manager survey showed that Emerging Markets are expected to be the biggest winner next year, while they were the biggest sellers of this asset class in 2020 – and if they follow their own forecasts, they will have to buy back heavily into the sphere next year!



We certainly do not want to challenge this positive outlook as we see the most value on a global basis in Emerging Markets, and in countries like Vietnam in particular. It is therefore well worth mentioning that the valuation of our portfolio, investing in probably one of the most interesting markets worldwide, is still very attractive and trades at a 50% discount to the market in Vietnam, and an astonishing 70% discount when compared to markets in the US, Europe or Japan – and that even after our strong performance recently:

  • An estimated weighted harmonic average trailing 12 months P/E ratio was 7.8x
  • An estimated weighted harmonic average P/B ratio was 1.1x 
  • An estimated weighted average portfolio dividend yield was 6.5%

P/E and P/B for selected markets since 2019 (dashed lines are P/B)

(Source: Bloomberg)


Although the fund NAV has doubled in USD-terms since inception 7 years ago, the fund's valuation has has hardly changed since then, when our ratios for P/E and P/B were a comparable 6.2x and 0.9x. Our early investors might remember the Hanoi-Index-chart we always presented, which showed clearly that we see multi-year upside potential in this market – and an updated chart shows and confirms that we should still have plenty of upside in the years ahead.


Hanoi Index since 2006

(Source: Bloomberg)


Biden’s Presidency is expected to be positive for the Vietnamese stock market 

With Joe Biden widely expected to become the 46th President of the USA, renewed hopes are surfacing that his administration will consider re-joining the Trans-Pacific Partnership Agreement (TPP) which was subsequently changed to CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). This would be good news for Vietnam and many sectors would benefit from this change, such as furniture, shoes, seafood and particularly textiles and garments.


Top export countries of Vietnam in 2019 (USD bln)

(Source: GSO, AFC Research)


Top export products to the USA in 2019 (revenues in USD bln)

(Source: GSO, AFC Research)


Vietnam was one of the largest textiles and garment exporters to the USA in 2019. 


Furniture exports (accumulated, USD bln)

(Source: GSO, AFC Research)


With the USA potentially re-joining CPTPP, China's President Xi Jinping recently mentioned in a press conference that China is also considering joining the CPTPP. China certainly does not want to be left out and wants to continue playing an important role in Asia. China, therefore, used the momentum from the Trump administration’s withdrawal of its economic presence in Asia and pushed for the Regional Comprehensive Economic Partnership (RCEP) to be signed by all members. On 15th November 2020 this finally happened, and all 15 countries signed the RCEP - China, Japan, South Korea, Australia, New Zealand, Indonesia, Thailand, Vietnam, Malaysia, Singapore, Philippines, Myanmar, Laos, Cambodia, and Brunei. RCEP is the biggest free trade agreement in the world – ever! It removes up to 90 per cent of tariffs for trade between these 15 economies - involving 2.2 bln people, a combined GDP worth USD 26 trn, 30 per cent of the global economy and 40 per cent of global manufacturing. 

Vietnam is in a unique situation and will benefit nicely from all these large economic agreements they are part of, such as RCEP, ASEAN, EVFTA or CPTPP. The very stable currency already reflects this positive picture. Just a week ago the Central Bank lowered the reference rate for the Vietnamese Dong for the first time in ten months, with the Dong now trading unchanged for the year. Strong inflows in 2020 also resulted in the biggest ever increase in foreign reserves so far, which jumped from USD 73 bln at the end of last year to currently USD 92 bln.



With Biden’s Presidency it is expected that there will be a less volatile relationship in the Asian political landscape and capital flows into the Vietnamese stock market could increase strongly. We are therefore quite optimistic about the 2021 outlook for the Vietnamese stock market. We do not try to forecast how well the stock market will perform next year, but we think it wouldn’t be a surprise if the VN-index hits a new all-time high.

At the end of November 2020, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.2%) – an insurance company, Dinh Vu Port Investment & Development JSC (4.7%) – owner/operator of the Dinh Vu Port, LienViet Post Joint Stock Commercial Bank (4.5%) – a bank, Phu Tai JSC (3.7%) – a home and office furnishings company, and Tien Phong Commercial Joint Stock Bank (3.5%) – a bank.

The portfolio was invested in 45 names and held 4.7% in cash. The sectors with the largest allocation of assets were financials (33.4%) and industrials (26.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.83x, the estimated weighted harmonic average P/B ratio was 1.14x, and the estimated weighted average portfolio dividend yield was 6.46%.

 Back To Top 



AFC Asia Frontier Fund - Manager Comment


The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 6.3% in November 2020 with a NAV of USD 1,267.14. The fund outperformed the AFC Frontier Asia Adjusted Index (+4.3%), the MSCI Frontier Markets Asia Net Total Return USD Index (+5.1%), the MSCI Frontier Markets Net Total Return USD Index (+4.1%) but underperformed the MSCI World Net Total Return USD Index (+12.8%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +26.7% versus the AFC Frontier Asia Adjusted Index, which is up by +10.3% during the same period. The fund’s annualized performance since inception is +2.8%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.66% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.54, all based on monthly observations since inception.

Global equity markets rallied in November on the positive news of COVID-19 vaccine developments and an expected win for Joe Biden in the U.S. presidential elections. Performance for the fund was led by Bangladesh, Vietnam, Sri Lanka, and Uzbekistan.

Beximco Pharmaceuticals, the fund’s largest position in Bangladesh, rallied by +61.9% this month on the back of excellent quarterly results and the potential benefits it will gain from distributing the AstraZeneca-Oxford-Serum Institute of India developed COVID-19 vaccine in Bangladesh. Net profit growth for the September quarter outperformed other listed peers and grew by 24.7% YoY. The fund holds the London listed GDR which still trades at a 29% discount to the local listing.

Contrary to initial fears when the pandemic first hit, worker remittances to Bangladesh have grown by +18.3% YoY so far in 2020 with November’s remittances growing by 33% YoY. Overseas worker remittances have historically supported domestic consumption in Bangladesh, and this increase over the past few months should support a recovery in consumer spending as the country re-opens its economy.



(Source: Bangladesh Bank)


Sri Lanka was the best performing market in the AFC Asia Frontier Fund's universe with a gain of +9.0% on the back of a very strong quarterly results season, and no significant negatives in the annual budget. A full quarter of economic reopening led to QoQ net profits for the fund’s Sri Lankan holdings to double on average while on a YoY basis average net profits for these holdings grew by +126% as profitability recovers from the impacts of the 2019 Easter Sunday attacks and the pandemic.

The fund’s Sri Lankan holdings returned +13% in November with gains being led by two consumer and healthcare focused conglomerates which saw their stock prices increase by +31.5% and 30.2% respectively. During the month the fund exited the latex glove manufacturer which was purchased in July 2020 with a gain of +156% as potentially more positive news on vaccine developments could limit further upside in this stock.

A very strong quarterly results season led to a 9% rally in the Colombo All Share Index and is now positive for the year



(Source: Bloomberg)


With the possibility of a viable vaccine being rolled out in the first half of 2021, the fund bought a hotel resort operator listed in Sri Lanka which generates the majority of its revenue from Maldivian resorts while also managing resort properties in Sri Lanka. The international airport in the Maldives has been open for tourist arrivals since July 2020 while the international airport in Sri Lanka is expected to open to tourists in the first quarter of 2021.

Both the Maldives and Sri Lanka have historically attracted a lot of extended-stay European tourists and with the potential for a viable vaccine and international airports opening for arrivals, this resort operator could see a major recovery in profitability as occupancies rebound. Furthermore, the Maldives could get a significant tourist arrival boost from the upcoming Christmas and New Year Holiday Season as it is one of the very few Asian countries which will be open for foreign tourists this holiday season.



(Source: Sri Lanka Tourism Development Authority, Maldives Ministry of Tourism)


Vietnam’s good run continued with the VN-Index increasing by +8.4%, which has now taken the VN-Index into positive territory for the year with a year-to-date increase of +4.4%. The fund’s Vietnamese holdings witnessed an all-round rally with both its mid-cap and large-cap holdings increasing by +10-25% this month. The strongest performers in Vietnam were a construction contractor (+25.4%), an automobile company (+14.7%), an industrial park developer (+14.4%) and a mall operator (+11.5%).

Macro indicators in Vietnam remain robust with industrial production and exports for November growing by 9.2% YoY and 8.8% YoY respectively, and more importantly, retail sales continue to show improvement with a growth of 8.5% YoY in November which reflects more positive consumer sentiment.

Vietnam is also a signatory to this month’s finalisation of the Regional Comprehensive Economic Partnership (RCEP), which will further integrate Vietnam into the regional and global economy. With a period of sustained post-pandemic economic growth expected, we remain optimistic about our holdings in the auto, modern retail, beverages and industrial parks space.



(Source: General Statistics Office of Vietnam)


Passenger car sales in Pakistan showed a robust increase of 29% YoY for the month of October with the newly launched Toyota Yaris continuing to outshine the competition and thanks to the low-interest rates we expect passenger car sales to continue their momentum over the next few quarters. The fund remains invested in two auto companies in Pakistan.



(Source: Topline Securities)


Pakistan’s textile and garment exports also continue to impress and are now higher than pre-pandemic levels. A much weaker currency compared to a few years ago is possibly leading to market share gains. Additionally, most textile and garment companies have their order books full until March 2021 which should keep overall Pakistani exports healthy going forward.



(Source: Topline Securities)


In Myanmar, the Aung San Suu Kyi led National League for Democracy (NLD) swept the parliamentary elections held on 8th November and with 396 seats won a bigger majority than from the previous election. We are hopeful that this victory will lead to a continuation of economic reforms and momentum in policymaking as there remains a large unmet economic potential in the country.

The best performing indexes in the AAFF universe in November were Sri Lanka (+9.0%) and Vietnam (+8.4%). The poorest performing markets were Cambodia (−1.0%) and Laos (+0.1%). The top-performing portfolio stocks this month were a Bangladeshi pharmaceutical company (+61.9%), a Mongolia concrete producer (+52.6%), a Sri Lankan consumer and healthcare holding company (+31.5%), another Sri Lankan consumer and healthcare conglomerate (+30.2%), and a Vietnamese construction contractor (+25.4%).

In November, the fund bought a Maldivian resort operator, added to existing positions in Mongolia, exited a Sri Lankan latex glove manufacturer, and reduced holdings in Bangladesh, Mongolia, and Vietnam.

At the end of November 2020, the portfolio was invested in 74 companies, 2 funds and held 4.6% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.4%), and a pharmaceutical company in Bangladesh (4.8%). The countries with the largest asset allocation were Mongolia (18.8%), Vietnam (16.6%), and Uzbekistan (12.9%). The sectors with the largest allocation of assets were consumer goods (27.4%) and industrials (14.1%). The fund’s estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.48x, the estimated weighted harmonic average P/B ratio was 0.82x, and the estimated weighted average portfolio dividend yield was 4.12%.

 Back To Top 




The AFC Iraq Fund Class D shares returned +2.4% in November with a NAV of USD 598.93 outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which went up by 1.0% during the month. Since inception, the RSISUSD is down 52.8% while the fund lost 40.1%.

Private Sector Deposit and Loan Growth Continues

November showed what is likely to be a continuation of the consolidation of recent gains that began in October with the pause of the five-month recovery from the multi-year lows reached in April. 

The market continued to follow through with both the multi-month gradual recovery in daily turnover and the active participation of foreigners as net buyers, as discussed last month. Economic activity, in-line with the improved market sentiment, has mostly returned to the levels that prevailed before the great lockdown in March, as can be seen Google’s mobility report (chart below). 



(Baseline is the median, for the corresponding day of the week, during 3rd January – 6th February, 
Source: Google, data as of 24th November 2020


However, even though this high-frequency data is a positive early economic indicator, it does not confirm that the increased activity will translate into a similar increase in economic transactions. Demand for the USD is yet to show any improvement from the lower-than-normal pace of the last few months – average daily volumes in the period from July to November are running at about 84% of those that prevailed in the period January to mid-March. This can be seen from the volumes for USD-Iraqi Dinar (IQD) transactions (chart below) as conducted by the Central Bank of Iraq (CBI) in its weekly USD sales (transfers to facilitate foreign trade transactions as indicated by green bars and to satisfy the need for physical USD for Iraqi’s travelling abroad as indicated by the red bars).



(Source: Central Bank of Iraq (CBI), AFC Research, data as of 30th November 2020)


Demand for USD in the CBI’s transactions is a reasonable proxy for consumer demand given the country’s high dependence on imports to satisfy domestic consumption of goods and services. However, the usual time lag between domestic consumer purchases and increased demand for exports implies that it is too early to reach any conclusions on whether domestic consumption has recovered or not.

While more economic data is needed for a complete picture to emerge, one positive indicator is that private sector deposit and loan growth, in effect from early 2018, has continued throughout 2020 with loan growth finally catching up with deposit growth in early 2020, according to the latest CBI data as of the end of July (chart below).



(Source: Central Bank of Iraq (CBI), AFC Research, data as of 30th July 2020)


The data shows strong multi-year growth in private sector deposits and loans having peaked at the onset of the twin crises of the ISIS invasion and the fall in oil prices in 2014 and stagnating afterwards throughout the economic crisis of 2014-2017. The recovery in oil prices and the end of the conflict by 2018 led to gradual growth in private sector deposits that accelerated from early 2019. Loans to the private sector, while similarly recovering gradually, only picked up again in 2020. The current loan/deposit ratio of 0.70x is low relative to the average of the prior few years of 0.75-0.80x, which suggests that present deposits can support continued loan growth.

The acceleration in private sector deposit growth in 2019 was spurred by a consumer spending-led economic expansion because of the expansionary 2019 budget. While the continued growth in private sector deposits and the pick-up in loans in 2020 was spurred by the adoption of an accommodative monetary policy by the Central Bank of Iraq (CBI) to counter the effects of the pandemic-induced disruptions to the economy, as reported by the World Bank in its latest report on Iraq. As a consequence, one of the main changes was reducing banks’ reserve requirement from 15% to 13% to boost loan growth, as well as other measures to ease the loan servicing burdens for the private sector – in particular for the micro-, small- and medium-sized enterprises (MSME) which constitute the bulk of the private sector. These were complemented by government measures to offset some of the worst effects of the pandemic on the most vulnerable members of society.

However, this revival of private sector deposit and loan growth, as positive as it is, did not, with a few exceptions, benefit the commercial banking sector as the private sector shifted more to the state banks at the expense of the commercial banks given the perceived security provided by implicit government guarantees (chart below). The root cause of this has been the damage done to the banking sector, and in particular to the commercial banks during the 2014-2017 crisis that saw the non-oil economy contract by 3.9% and 14.4% in 2014 and 2015 respectively, grow by 1.3% in 2016, only to contract again by 0.6% in 2017.



(Source: Central Bank of Iraq (CBI), AFC Research, data as of the end of 2019)


Drilling down to company level within the commercial banking sector shows different performances among commercial banks with regards to each bank’s key metrics of private sector deposit and loan growth as can be seen from data on selected Iraq Stock Exchange (ISX) listed banks as provided by Rabee Securities: Bank of Baghdad (BBOB), Commercial Bank of Iraq (BCOI), Gulf Commercial Bank (BGUC), Investment Bank of Iraq (BIBI), Iraqi Middle East Investment Bank (BIME), Kurdistan International Bank (BKUI), Mansour Bank (BMNS), and National Bank of Iraq (BNOI). (charts below).



(Source: Iraq Stock Exchange, Rabee Securities, AFC Research
Note: Year-end data for 2010-2019; latest reported quarterly data for 2020)


Among the top-quality banks, BBOB and BMNS stand out in terms of the size of their deposits in comparison to the other banks, and crucially between each other in terms of their different performances during and after the crisis reflecting their diverse circumstances; and the different post-crisis recovery strategies of each bank (more details for BMNS are provided in April 2019, and for BBOB in May 2019 and August 2020). However, among the top-quality banks, BNOI stands out in terms of the consistently strong growth of its deposits which are up about 125% by the end of September 2020 from the end of 2018 – far outpacing the growth of overall private sector deposits of 24% by the end of July 2020 from the end of 2018 (more details for BNOI are provided in August 2020).

The picture in terms of size and direction of the loan book of these selected ISX-listed banks is very different from that of their deposits, reflecting the different strategies pursued by each bank during the heyday of growth before the onset of the 2014-2017 crisis (chart below). The growth rate and size of each bank’s loan book relative to its deposit base up to the crisis, and the associated risk-profiles, led to different non-performing loans (NPL’s) performance during the crisis and the subsequent recovery trajectory. The picture from 2017 onwards, while no-longer negative, shows that while the conditions were in place for a recovery of the sector given the stability and gradual pick-up in deposits, the overall group is yet to begin loan growth. The exception is BNOI which has grown its loan book by about 281% from the end of 2018 to September 2020, far outpacing the growth of overall private sector loans of 19% by the end of July 2020 from the end of 2018. Its loan/deposit ratio of 0.55x, while high in comparison to other top-quality banks in Iraq (BBOB at 0.16x, BMNS at 0.12x), is low enough to support continued growth in loans as long as they are paced by continued deposit growth. 



(Source: Iraq Stock Exchange, Rabee Securities, AFC Research
Note: Year-end data for 2010-2019; latest reported quarterly data for 2020)


BNOI’s performance highlights the potential loan size and loan book growth rates for BBOB and BMNS should they resume loan growth. The success of BNOI's retail strategy in attracting sticky consumer deposits, and subsequently growing its retail loan book, demonstrates the potential opportunity from banking adoption in Iraq's cash dominated economy. 

Price to book ratios of about 0.4x, 0.5x and 0.6x, and market capitalizations of IQD 100 bn, IQD 145 bn, and IQD 168 bn for BBOB, BMNS and BNOI respectively, reflect the financial performance of each company as can be seen from the above charts. However, they also underscore the relative attractiveness of these stocks within the context of the Iraqi equity market that is at the tail end of a brutal five-year bear market. This is attractive, from a risk-reward perspective, unlike other markets worldwide, most of which have had multi-year bull markets and would need to discount vastly different economic assumptions than those that led to their multi-year rises.

As of the end of November 2020, the AFC Iraq Fund was invested in 14 names and held 9.1% 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 were Iraq (89.1%), Norway (1.2%), and the UK (0.6%). The sectors with the largest allocation of assets were financials (47.9%) and consumer staples (20.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 11.99x, the estimated weighted harmonic average P/B ratio was 0.62x, and the estimated weighted average portfolio dividend yield was 4.35%.

 Back To Top 



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 upcoming 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.