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Dear Investor,

The AFC Iraq Fund was up 0.4% in February 2025, outperforming its benchmark, the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), which was flat. For the year, the AFC Iraq Fund was down 0.3%, outperforming its benchmark, which declined by 1.4%. The AFC Iraq Fund was up 43.5% in 2024, 110.4% in 2023, and 104.7% since inception, while its benchmark was up 44.8%, 97.2%, and 47.8%, respectively. 

The RSISX USD Index continued with the process of consolidating its gains that started in December 2024, following a blistering 35.9% rally since late August 2024, and just as in January 2025, spent the month in a tight range of + 1.8% and -0.8% around its prior month’s close. While this consolidation could continue over the next few weeks, the market’s technical picture continues to be positive, and the likely consolidation or pullback should be within its multi-month uptrend as much as the prior consolidations and pullbacks have done over the prior months. Trading volumes continue to support this thesis, as the average daily turnover for the month followed the patterns discussed last month in “Trading Volumes Support Market’s Uptrend” (chart below, adjusted for block trades*).

Rabee Securities U.S. Dollar Equity Index and Daily Turnover

For the second year in a row, the top banks in the country reported outstanding net profit and equity growth in 2024, building upon a similarly outstanding growth in 2023 as reported last year in “Banks End the Year with a Bang”.

Year-over-Year Comparisons

As discussed in “What Next After Two Gangbuster Years?”, the growth of bank net profit and equity growth in 2025 will be from a much higher base, and the acceleration should slow down from the heady rates of the past two years, leading to a new normal for the group. In this new normal, the future growth trajectories of the top banks will be from a much higher base and from a significantly improved financial position. Moreover, this new normal will be marked by an increased adoption of banking and formality, coupled with a move away from the dominance of cash and informality -developments that the investment thesis for the banking sector contends would come with growth in bank lending, resulting in an expansion of the money circulating in the economy and consequently to a meaningful increase in non-oil GDP (**). Over time, this should support the growth in top banks’ net profits and ultimately feed into higher stock market valuations -driven by net-profit growth and by the increases in market multiples placed upon these net profits.

We continue to believe that the upside opportunity for the AFC Iraq Fund will come about as the RSISX USD Index, having surpassed its 2014 peak by 5.4% by the end of February 2025, rallies further reflecting the powerful dynamics discussed here over the last few months. However, risks remain given Iraq’s recent history of conflict, extreme leverage to volatile oil prices, as well as the risk that a widening of the current Middle East conflict will not be contained and evolve to destabilise the region –even though the temporary ceasefires in Gaza and in Lebanon, as well as the developments in Syria lowered the likelihood of a widening.

Note:

(*)     Daily market turnover is first adjusted by removing block, pre-arranged trades conducted during the special session following the regular trading session; subsequently, it is adjusted further by removing high-volume trades during regular market hours that show a pattern consistent with those of pre-arranged trades. High-volume trades are defined as those that are significantly higher than a given stock’s average daily turnover; and as such are subjective. Moreover, trading volumes, and trading turnovers are used interchangeably here, and defined as the values of trading turnovers in Iraqi Dinars (IQD).

(**)         Banking and the banking investment thesis were reviewed in:

• • “Banks and the Iraq investment thesis’, February 2022
    • “The opportunity in retail banking” April 2022
    • “Banks and the predictability of earnings”, November 2022
  • “Banks to fuel the market’s next phase”. September 2023
  • “Private sector loan growth to fuel Iraq’s economic recovery”, October 2023
  • “Banks end the year with a bang”, April 2024
  • “An unfolding structural economic transformation”, July 2024

AFC Iraq Fund Marketing Information as of 31^st January 2025

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NAV as of 28^th February 2025 and performance table since inception

Regards
 
Ahmed Tabaqchali
Chief Strategist AFC Iraq Fund
This email address is being protected from spambots. You need JavaScript enabled to view it. 
 

Disclaimer:

This Newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this Newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this Newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

The AFC Iraq Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. The Fund has appointed Acolin Fund Services AG, Maintower, Thurgauerstrasse 36/38, 8050 Zurich, Switzerland, as its Swiss Representative. NPB Neue Privat Bank AG, Limmatquai 1 /am Bellevue, CH – 8024 Zürich, Switzerland is the Swiss Paying Agent. In Switzerland, shares shall be distributed exclusively to qualified investors.  The fund offering documents, articles of association and audited financial statements can be obtained free of charge from the Representative. The place of performance with respect to shares distributed in or from Switzerland is the registered office of the Representative.

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