Dear Investors and Friends,
September saw more double-digit dividend yield announcements among the fund’s holdings. Some of these yields are now markedly higher than the average one-year Uzbek Som term deposit rate offered by local banks and may indicate the tipping point for local investors to start taking a more serious interest in listed equities as an alternative investment strategy. The September NAV of the fund increased to an estimated USD 1,113.50 (+0.50%), according to internal calculations.
AFC Uzbekistan Fund valuations as of 30th September 2020:
Estimated weighted harmonic average trailing P/E (only companies with profit):
| Estimated weighted harmonic average P/B:
| Estimated weighted portfolio dividend yield:
Uzbekistan’s “Golden Cross”
A "golden cross" is a chart technical analysis term in the investment industry referring to when the short-term moving average of a security crosses over a major long-term moving average, to the upside. Commonly, this is the 50-day moving average crossing above the 100 or 200 day-moving average, indicating bullish momentum and the start of an uptrend from a conservative standpoint as the uptrend would likely already be weeks old at this point.
In reference to Uzbekistan, since Thomas’ and my first trip to Uzbekistan in May 2018 (these were actually two separate trips with me tacking Uzbekistan on to the end of an investment tour to Kazakhstan in early May and Thomas making a trip a few weeks later, allocating some of his time to a side trip to Tashkent from Kazakhstan, after my non-stop talking to him about the potential I saw in Uzbekistan) we have held the view that slowing inflation and an injection of foreign capital into the domestic banking sector would in time enable the Central Bank of Uzbekistan (“CBU”) to lower its policy rate, leading to falling lending and deposit rates by banks, thus increasing the attractiveness of listed equities on the Tashkent Stock Exchange for local investors. To be honest, we were early, but we also knew that the odds of Uzbekistan continuing to open and liberalize were in our favour and that we would benefit from being early in order to build healthy position sizes and a strategically well positioned fund before other foreigners arrived.
Having had the opportunity to live in 6 (5 of them frontier) Asian countries over the past decade, I have experienced first-hand just how (positively) violent economic re-ratings can be, specifically in the equity and real estate markets. For example, I recall looking at real estate (rice paddy at the time) on the outskirts of Phnom Penh, Cambodia in 2014 which was selling for USD 5/sqm, and which today is valued at over USD 200. While in every country a re-rating will vary by both the catalysts which drive it and its intensity, we long believed falling term deposit rates, below dividend yields on listed equities, would be one key spark to light a proverbial fire in the multi-year re-rating process of the equities market. This “golden crossover” if you will has now happened and the spread between deposit rates and dividend yields is expected to continue to widen until more foreigners (who are increasingly taking notice and entering the market through brokerage account openings) and local investors wake up to the realization that one of the best investments to make in Uzbekistan today is in listed equities.