Key information in your language

Dear Investor,

The AFC Iraq Fund closed at an all-time high for April 2025, in which it was up 3.3%, while its benchmark, the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index) also closed at an all-time monthly high, with a 3.0% increase. For the year, the AFC Iraq Fund is up 3.4%, while its benchmark is up 3.3%.

The market was closed in the first week of the month in observance of the Eid holidays, and so it missed out on the global market mayhem in response to the unveiling of the U.S.’s “reciprocal” tariffs on its trading partners. Once trading resumed, it, to some extent, joined its global peers in being down 1.0% for two days until the announcement of the 90-day suspension of tariffs, after which it ticked upwards to close at an all-time monthly high –although the all-time daily high was mid-month (chart below). The market’s technical picture continues to be positive, and the consolidation of the last few weeks is likely to continue for some time, given the uncertainty over the direction of the world’s economy from the evolving U.S. sanctions –a great deal of uncertainty remains, in which the positives of the 90 day tariff suspension, might be replaced by a U.S.-China trade war, or the 90 days will lapse before “beautiful” deals are agreed on.

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

The market’s action in closing at an all-time-high, stands in sharp contrast to those of other global markets, which have recouped their “liberation day” losses, yet remain down year to date. Moreover, it is remarkable considering the potential negative effects from Iraq’s leverage to global oil demand. As reasoned last month, irrespective of the evolving U.S. tariff policy, their direct impact on Iraq is almost zero, as oil constitutes almost all of its exports to the U.S., which are exempt from reciprocal tariffs, but, the impact will be indirect and felt through a lower Iraqi oil price as a consequence of expected lower global demand for oil. On the one hand, this negative is aggravated by increased supply in the form of OPEC+’s aggressive unwinding of its prior production cuts for May and June, that probably will be repeated for the next few months as well. On the other hand, the positives are the U.S.’s increasing tough line against Iranian oil (crude, and products) exports to China, which would more than offset OPEC+’s increased production, should they be fully implemented, so is the potential decline of high-cost U.S. shale production, as well as the low levels of global oil stocks. However, there is a great deal of uncertainty over how these factors will play out as well as on the direction of the global economy, with the result that oil markets are in unchartered territory, and so oil prices continue to head lower, with Brent crude trading at four-year lows. Mirroring these concerns, the IMF, as part of lowering its global growth forecasts for 2025-26 in response to the U.S.’s tariffs, lowered those for oil exporters even more reflecting the added effects of lower oil prices, with its forecasts for Iraq lowered more than those of its peers among oil exporters (table below).

IMF’s Iraq’s growth forecasts for 2025-26 versus growth figures for 2023-24

The obvious question is: what gives? Especially considering that investors on the Iraq Stock Exchange, whether locals or the handful of foreigners, are fully aware of the effects of lower prices on Iraq, and should have reacted negatively without waiting for the oil market’s weird dynamics or for the IMF’s forecast downgrade. The logical answer, as asserted here in the past, most recently in “What Next After Two Gangbuster Years?”, is that Iraq’s economy is undergoing a significant structural transformation, following the country’s decades of conflict, driven by two key dynamics –the cumulative positive effects of the country’s relative stability and the acceleration of banking adoption instead of cash and informality that dominated the economy, that are in the early stages of their transformation of the economy.

One such manifestation of the increased adoption of banking,  last discussed under a year ago in “An Unfolding Structural Economic Transformation”, is the significant growth, year-over-year and month-over-month, in the monthly values of Iraqi Dinar (IQD) transactions through cards (prepaid, debit, and credit) and e-wallets (chart below).  These are at the early stages of the transition to the use of the banking system in the payments for transactions, and while from a small base, the trends are clear and mirror, with a time lag, those that took place elsewhere in emerging and frontier economies. It is this increased adoption of banking, that stands out as a positive in the IMF’s updated forecasts, as seen through the figures for broad money growth (table above). While they were lowered from 6.4% to 4.3%, they still show solid growth as a reflection of the increased adoption of banking and the role that banks play in the expansion of the money supply.

Card and E-wallet Monthly IQD Transactions

Finally, the market’s positive performance, despite such negatives, should be seen in the context of a market that last peaked in January 2014, followed by a brutal seven-year bear market in which the RSISX USD Index was down 25.4% in 2014, 22.7% in 2015, 17.4% in 2016%, 11.8% in 2017, 15.0% in 2018, 1.3% in 2019, and 5.4% in 2020 –for a cumulative decline of 66.6%; and only surpassed the 2014 peak over a decade later in October 2024.

Nevertheless, the negative effects of lower oil prices on the economy will become a headwind, reversing the positive tailwind of the past two years. Yet, the secular positives of the economic transformation should overcome the drag from the cyclical negatives and thus continue to drive the market’s direction. 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 10.3% by the end of April 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, especially in the current uncertain global environment, as well as the risk that a widening of the current Middle East conflict will not be contained and evolve to destabilise the region.

Notes:

1. 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).

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

Subscriptions

The next cutoff date for subscriptions will be 26^th May 2025. If you would like any assistance with 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. .

NAV as of 30^th April 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.

By accessing information contained herein, users are deemed to be representing and warranting that they are either a Hong Kong Professional Investor or are observing the applicable laws and regulations of their relevant jurisdictions.

© Asia Frontier Capital Ltd. All rights reserved

Privacy Policy