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AFC Uzbekistan Fund December 2021 Update


Dear Investors and Friends,

December concludes what has been another fantastic year for Uzbekistan and its opening to the world. 2021 was also the best year of performance for the AFC Uzbekistan Fund so far. While it would have been nice to have ended 2021 on a high note, market activity during the month was muted, causing equities to drift lower in light holiday trading, exacerbated by usual profit-taking around holidays as locals sell shares to finance celebratory family gatherings. Nonetheless, Uzbekistan finished 2021 with GDP growth of 7%, well in excess of the World Bank’s forecast of +6.2%, and inflation of 9.98%, positioning the country for significant catalysts in the capital markets in the New Year. The December 2021 fund NAV fell to an estimated USD 1,991 (-3.7%) or +99.1% since inception on 29th March 2019.


AFC Uzbekistan Fund valuations as of 31st December 2021:

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

 Estimated weighted harmonic average P/B: 1.34x
 Estimated weighted portfolio dividend yield: 5.29%


2021 Review

The AFC Uzbekistan fund finished 2021 up an estimated 48.4%, compared to +22.7% in 2020, as the country saw continued foreign direct investments and diversification of its economy. The Fund’s performance in December was negatively affected by end of year profit-taking and weakness in listed cement companies as the government announced that the elimination of import duties on cement would be extended into 2022 in order to tame inflationary pressures in the construction industry. The country remains a net importer of cement, importing 2.5 mln tons valued at USD 122 mln in 11-months 2021. The government has been laser-focused on bringing inflation below 10% which has contributed to such policies of eliminating import duties. Conveniently, Uzbekistan ended 2021 with an inflation rate of 9.98%, achieving its inflation target. Disinflation should lead the Central Bank of Uzbekistan (CBU) to eventually loosen lending restrictions on banks, enabling accelerated credit growth, and consider a decrease in the policy rate which currently stands at 14%.

2021 can best be characterized as a transition year for Uzbekistan. The country’s GDP grew by 1.6% in 2020, even with pandemic pressures, though 2021 saw a strong rebound in growth to +7% as the country was only minimally impacted by COVID-19 due to its effective policies making the virus all but an afterthought, allowing life to return to normal and for the economy to continue its upward trajectory. Further, President Mirziyoyev won re-election in October which should provide continued regional stability in addition to consistency in government policy and economic liberalisation during his second term.

In the first 11 months of 2021, Uzbekistan’s foreign trade increased 15% to USD 37.9 bln (USD 15.46 bln of exports (+8.9%) and USD 22.48 bln of imports (+19.7%) leading to a trade deficit of USD 7.02 bln. However, remittances from Uzbekistan’s multi-million strong overseas workforce were USD 4.5 bln (+21% growth YoY) and helped to keep the trade deficit in check (it is our view that as Uzbekistan’s export sector continues to flourish, over the coming years the country’s trade deficit will return to a surplus). On this note, it is encouraging to see the country’s share of gold in its export mix having decreased from 40.9% to 26.6%, confirming Uzbekistan’s export base is both diversifying and expanding. The growth in non-gold exports and movement toward a trade surplus over the coming years is likely to also support the currency, the Uzbek Som.

In 2019 depreciation of the Som versus the USD was 13.9%. Comparably, in 2020 and 2021 deprecation was 10.2% and 3.4% respectively. As inflation continues to slow, the trade deficit narrows, and as the CBU lowers its policy rate, we expect to see continued stabilization in the currency.

While 2021 may have been a transition year on the way to significant capital markets catalysts in 2022, it was anything but quiet. Earnings growth for companies listed on the Tashkent Stock Exchange continued their strong growth. Some of the standout holdings of the AFC Uzbekistan Fund are shown below with 9-month 2021 earnings per share growth versus 2020 and third quarter 2021 book value per share growth versus 2020.



(Source: Tashkent Stock Exchange, AFC Research)



New Year catalysts

2022 is the year the new securities legislation will be passed, bringing much-needed modernity to the country’s antiquated capital markets legislation. The new legislation will coincide with the government’s privatisation programme, where the country’s “crown jewel” assets will be sold off. These companies include Almalyk Mining and Metallurgical Kombinat (Uzbekistan’s largest copper-gold miner), Uzmetkombinat (Uzbekistan’s largest steel producer), UzAvto (the producer of Chevrolet vehicles), and the Navoi Mining and Metallurgical Kombinat (which owns the world’s largest open-pit gold mine—Muruntau) among several others. This privatisation programme coincides with our prior mentions of “Phase II” of our investment thesis for Uzbekistan which will see state-owned companies privatise and which should attract significant local and global attention to the Tashkent Stock Exchange. Uzbekistan has all of the ingredients for a prolonged runway of growth and the 2022 privatisation programme will be encouraging to both watch unfold and participate in.

Concluding this month’s update, below are two photos of Kampir Tepe I took in December while visiting Termez City in Surkhandarya region which shares a border with Afghanistan.

Kampir Tepe is thought to be the lost city of Alexandria on the Oxus (now the Amu Darya) river, and was branded as the “Pompeii of Central Asia” by the Telegraph newspaper. Construction of the city is estimated to have started in the 4th Century B.C., coinciding with Alexander the Great’s invasion of Central Asia. Kampir Tepe is a rarely discussed tourist treasure in Uzbekistan. For those who prefer the road less travelled, during my visit the archaeological site was utterly void of people, aside from myself and my taxi driver. This made the journey that much more exciting, knowing there are still parts of the world (and certainly in Uzbekistan) which are waiting to be discovered by the rest of the world. We are confident that Uzbekistan’s breakout moment and best days are still ahead of it, with the 2022-2025 period to be exciting years of development for the country and its capital markets.

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 2022!


Kampir Tepe

(Source: AFC Research)



(Source: AFC Research)


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

Bootstrapping Uzbekistan's finances

Uzbekistan launches first gas to liquids plant

DP World and Uzbekistan sign deal to boost trade

Rejuviation of Uzbekistan's NavoiAzot chemical works

AFC Uzbekistan Fund Marketing Information as of the end of November 2021