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Positive performance for December rounds out a great year for the AFC Uzbekistan Fund.


AFC Uzbekistan Fund December 2020 Update


Dear Investors and Friends,

December rounded out a great overall year for Uzbekistan. The country has benefitted greatly from its decision to not institute an indefinite shutdown of its economy in response to COVID-19 and let the virus spread naturally, a contradiction to most Western countries, and as a result is expected to report positive GDP growth for the year of 0.6%. 2020 appears to also have been the breakout year for the local capital markets with broad performance among listed companies and continued robust earnings growth. The December fund NAV increased to an estimated USD 1,334.4 (+2.9%), while the year-to-date performance of the fund is up approximately +22.0%, according to internal estimates.

  AFC Uzbekistan Fund valuations as of 31st December 2020:

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

 Estimated weighted harmonic average P/B: 0.92x
 Estimated weighted portfolio dividend yield: 9.53%


A breakout year in the capital markets

2020 appears to have been the breakout year for the Tashkent Stock Exchange as increasing market participation and continued strong earnings growth saw the market capitalization of the exchange increase to USD 5.1 bln, in light of a 10.2% depreciation in the Uzbek Som versus the US Dollar.

The rate of currency depreciation slowed year over year, to 10.2% in 2020 versus 14% in 2019. Though, the currency would have been much more stable and in line with our expectations for a 5% to 7% depreciation had oil prices not crashed in April 2020 which led the currencies of two of Uzbekistan’s largest trading partners—Russia and Kazakhstan—to fall precipitously; during April the Uzbek Som depreciated 5.6% as a result. Save for this one-off occurrence, the currency performed much as expected and we anticipate over the coming years for the rate of depreciation to continue to moderate as the Central Bank of Uzbekistan has greater ability to lower its policy rate from the current 14% as inflation trends closer to its 10% target (inflation reached 11.1% in 2020).


(Source: AFC Research, Tashkent Stock Exchange)



USD:UZS 1-Year Chart

*(Source: Bloomberg)


The annual presidential speech

Every year at the end of December the President of Uzbekistan gives a speech to the Oliy Majlis (Parliament), discussing what the government achieved over the previous year as well as plans for the following year. President Mirziyoyev’s recent address, held on 29th December 2020 designated 2021 as the “Year of support for youth and health restoration”.

What was of specific interest to us in this speech, which lasted nearly three hours and was broadcast in Uzbek, Russian and English, were the economic and privatization targets. The government remains focused on achieving 10% or lower inflation, prominent state-owned companies including the gold producer Navoi Mining and Metallurgical Kombinat (NMMC) and UzbekNefteGaz are expected to issue Eurobonds, at least one state-owned bank is expected to be fully privatized, the oil and gas sector will be transitioned to public private partnerships and mineral licenses will be auctioned off to investors.

Importantly, the extensive restructuring of UzbekNefteGaz will continue and in due course the company will only be responsible for the transportation of gas, while the gas itself will be marketed separately. State-owned UzAvto which has a de facto monopoly in the automobile industry (through its production of Chevrolet vehicles) will see its monopolistic powers decrease as new automakers compete in the market as it was announced the auto plant, Roodell ADM-Jizzakh, in Jizzakh region will invest an estimated USD 70 mln between 2021 and 2023 to establish annual production capacity of 100,000 Lada and Renault cars.

Strengthening corporate governance in the capital markets

On corporate governance in the capital markets, from 1st January 2021 all listed companies on the Tashkent Stock Exchange will be required to file IFRS-compliant annual and semi-annual financial results. Ahead of this change, many of our portfolio companies and all listed banks had reported 2019 IFRS-compliant annual results. The strengthening of corporate governance and transparency among local companies is vital to ensure companies comply with the existing securities law and that minority shareholders are protected. Strong enforcement by the forward-thinking regulatory body, the Capital Markets Development Agency (CMDA), led by former European Bank for Reconstruction and Development banker, Atabek Nazirov, has contributed enormously to this progress, though of course with much more to be accomplished.

For further viewing here are some interesting, relevant news links related to Uzbekistan

Uzbekistan to hold presidential election in 2021

Uzbekistan’s Makro positions itself for growth in a more competitive market

On behalf of the entire team at Asia Frontier Capital, I would like to wish you and your loved ones a Happy New Year and a wonderful start to 2021. Wrapping up this month’s update, below are two photos I took in the last week of December while skiing at the Amirsoy Mountain Resort, 90 minutes away by car from Tashkent, which don’t do justice in showcasing just how beautiful Uzbekistan is in winter.


(Source: AFC Research)



(Source: AFC Research)