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AFC Uzbekistan Fund September 2022 Update


Dear Investors and Friends,

Amid extreme volatility in global financial markets in September as central banks around the world race to raise interest rates in an attempt to stem inflation, while others negotiate IMF bailouts due to collapsing foreign exchange reserves, Uzbekistan, while insulated from this volatility, saw some selling pressure in the stock market during the month. This allowed the AFC Uzbekistan Fund to acquire some blocks of shares at attractive prices, but it nonetheless led the September 2022 fund NAV to fall to an estimated USD 1,730.10 (-5.5%) or +73% since inception on 29th March 2019.


AFC Uzbekistan Fund valuations as of 30th September 2022:

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

 Estimated weighted harmonic average P/B: 0.95x
 Estimated weighted portfolio dividend yield: 2.89%


Uzbekistan heads 22nd meeting of SCO

The Shanghai Cooperation Organisation (“SCO”) was established in 2003 as an amendment to an earlier organisation between China, Russia, and Central Asian countries with a focus on economic, military, and cultural cooperation. An annual meeting is held with all member states which currently includes China, India, Russia, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Iran, and Uzbekistan (observing nations include Afghanistan, Belarus, and Mongolia, with over a dozen other nations as either observers or guest attendees) where various topics on regional cooperation are held.

While the organisation has been argued as being ineffective at driving regional development, the organisation’s membership growth over the years is certainly indicative of a bifurcating world. The SCO now represents the majority of countries in what we refer to as the “New Fertile Crescent” an economic corridor stretching from the Middle East to Central Asia, including Russia and China. This is a region which should see sustained growth over the coming years as it hosts a large, young population, manufacturing infrastructure, is relatively self-sufficient in energy and food, and has varying degrees of protectionist policies to support the domestic economy, rather than playing into the hands of western organisations and opening their economies to free trade as part of the globalisation movement of the past several decades.

The SCO’s 2022 meeting was held on 15th and 16th September 2022 in Samarkand, Uzbekistan the heart of the ancient silk road. Much of the press covered the meeting between Xi Jinping and Vladimir Putin as this was Xi’s first trip abroad (after a visit to Kazakhstan days before) since the start of the COVID-19 pandemic. While the conference was overshadowed by the war in Ukraine, the highlight for Uzbekistan was agreeing with China to increase bilateral trade from USD 8 billion in 2021 to USD 10 billion in 2022. Further, China, Kyrgyzstan, and Uzbekistan signed an agreement to pursue construction of a railroad across Kyrgyzstan which would further integrate Central Asia into the regional economy and lower logistics costs for Uzbekistan.

However, when all is said and done, in our view the biggest takeaway from the conference is that it shined a light on Uzbekistan’s fast-growing and dynamic economy (the Asian Development Bank recently raised its 2023 GDP forecast from 4.5% to 5% and the EBRD did the same, from 5.5% to 6.5%) and should lead to continued foreign investment in the country, namely in the areas of manufacturing, agriculture, and logistics.

In this regard, the most recent high-profile announcement of foreign direct investment came on 29th September 2022 by Mareven Food Holdings, a Japanese-Vietnamese joint-venture which announced a USD 125 million investment in the Angren Free Economic Zone (near the capital city, Tashkent) between 2023 and 2031 for the production of instant noodles, pasta, drinks, canned food, and sauces. 50% of production is expected to be sold in the domestic market with the balance to be exported to neighbouring countries, giving further validation to our viewpoint that Uzbekistan will become the manufacturing and logistical heartland of the greater Central Asian region.

Capital Markets News

As economic growth continues apace, we continue to see positive results from the fund’s holdings. Over the past several weeks, new dividend announcements were made for 2021 earnings distributions. ToshkentVino Kombinat (TKVK) and Biokimyo (BIOK), a consumer goods conglomerate and white spirits producer announced 2021 dividends which translate into dividend yields of 10.74% and 14.61% as of 30th September 2022.

With double-digit dividend yields amid inflation of 12.3% (much better than the situation of double-digit inflation in Europe for example), the fund’s position in TKVK has managed to appreciate by 39%, and 82% for BIOK. This is down from the 20% to 30% yields we saw in the first few years we began investing in Uzbekistan. We therefore expect a further yield decline and overall multiple expansion as stock market liquidity continues to improve, accelerating this early re-rating as investors allocate capital toward “blue-chip” names, which are the core holdings of the fund.



AFC Uzbekistan Fund Marketing Information as of the end of August 2022