Asia Frontier Capital (AFC) - June 2016 Newsletter
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June was another successful month for AFC. The AFC Asia Frontier Fund is now up +5.5% in USD terms while the MSCI World Index is down -0.6%. A significant difference. The AFC Vietnam Fund gained +5.0% and is now up +14.8% YTD, outperforming its benchmark, which is up by +10.1%. It is tantamount to our strategy that we consistently outperform our benchmarks. It is therefore no surprise that we have once again been awarded several relevant accolades. This month we won two TOP-10 awards from Barclay Hedge for the performance of the AFC Asia Frontier Fund, as well as the Wealth & Finance 2016 Hedgefund Excellence Award, which recognized Asia Frontier Capital as the Best High Growth Asian Frontier Investor.
These recognitions are very meaningful to us, as they show that our relentless pursuit for excellence both in risk management as well as in stock selection is paying off in terms of net performance and low volatility for our investors. These awards are based on actual confirmed performance figures, and give credence to our strategy. We focus on careful top-down asset allocation, skilled stock selection based on tedious first hand research - including many on the ground company visits – and careful analysis to obtain an outstanding risk adjusted return. The investment team of the AFC Asia Frontier Fund is doing just that, and delivering on its premise to generate long term capital gains for our investors. AFC’s AUM is growing at a healthy pitch, partly as result of healthy investment performance, and also as a result of increased investor appetite that generated significant fund inflows, especially in the AFC Vietnam Fund that currently has an AUM of USD 27.8 million.
On 23rd June 2016 the people of the UK voted in favour of leaving the European Union (EU), which they joined in 1973. The UK is a very important partner in the EU. Important politically in a triangle of main powers with Germany and France, with Germany being the most populous and economically the strongest. So undoubtedly there is a significant impact to be expected in the relative power position of the countries in the EU. Trade will change, the regional headquarters of multinationals could move, and migration between the UK and EU countries may change.
In Asia, the effects of the impending Brexit are also being felt. Initially, the reaction was simply through contagion in the currency, fixed income, and equity markets. This contagion has been relatively muted so far, as can be seen from the below chart. It shows various currencies including the GBP with its strong decline spilling over into the Euro, and also the Chinese Yuan which also lost value, but to a lesser extent. Three out of the four main currencies in our frontier universe hardly moved while the Sri Lankan Rupee gained value by +1.0%.
Brexit - Contagion in the Currency Markets
Though Brexit has not had any significant impact on the currencies or equity markets of our universe, it is still too early to comment on what the longer term consequences are for global markets and economies in general but based on trade data, a majority of our universe does not have a very high exposure to trade with the UK as is illustrated in the AFC Asia Frontier Fund Manager Comment.
The obvious repercussions of the Brexit are that the UK will no longer trade with the 27 remaining countries in the EU with the same terms and use the trade agreements the EU has negotiated with other countries. For example, the EU-Vietnam FTA completed between Vietnam and the EU will not be available to the UK anymore post Brexit. However, the UK will certainly seek to join other trade pacts, or make bilateral free trade agreements so as to seek beneficial trade terms with the countries it trades with most, recovering part of this negative factor in years to come. Experts expect a softening of the UK economy by as much as 1.5% in 2017 and the sterling’s depreciation would make imports more expensive. So it is likely that exports into the UK from Asian frontier markets will be reduced. However these exports are just a relatively small portion of GDP for these countries – more details on that further below in the AFC Asia Frontier Fund Manager Comment.
The effect of Brexit does not stop at exposure to trade with the UK. There could be an additional effect as a result of lower growth in Europe which is expected to be adjusted by some -0.4% as a result of the Brexit and therefore result in a reduction of its imports generally. Europe is an important trading partner for some frontier markets in Asia and a decrease in the EU’s GDP growth rate could impact exports from Asian frontier markets. However, exports are not the only factor driving economic growth in these countries. Economic growth in Asian frontier markets is being driven by a variety of factors such as foreign direct investment, domestic consumption, infrastructure development, and economic reform. Therefore, though Brexit could have a negative impact on the UK and the EU, the relative impact on Asian frontier markets would be felt to a lesser extent.
AFC Asia Frontier Fund (AAFF) USD A-shares gained +1.9% in June 2016. This month, the fund underperformed the MSCI Frontier Markets Asia Index (+3.1%) but outperformed the MSCI Frontier Markets Index (-3.7%) and the MSCI World Index (-1.3%). The USD A shares achieved an NAV of USD 1,467.65, which is a new all-time high (the previous high was in May 2016 with USD 1,440.99). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +46.8% versus the MSCI Frontier Markets Asia Index, which is up +8.3%, and the MSCI Frontier Index (+0.7%) during the same time period.
This was another month of continued positive performance for the fund and if it was not for the volatility which was caused by “Brexit” in the last week of the month, returns would have been higher. The fund lost some performance due its largest position, a Bangladeshi pharmaceutical company, whose GDR shares are traded in London and thus are denominated in GBP which depreciated by ~11% post Brexit until the end of the month. Though Brexit created initial panic in global markets, the fund still ended positive for the month in spite of setbacks to performance in the last week of the month.
With respect to the impact of Brexit on the fund’s universe, the country with the largest exposure to the UK is Sri Lanka, which gets ~10% of export revenues from the UK. Bangladeshi exports to the UK could also face some impact as the country generates ~8% of its export revenue from the UK. Though there is a risk of slowdown in exports to the UK, these exports account for a small percentage of GDP of the respective countries’ economies. Whether Brexit will lead to a further slowdown in Europe is a possible risk, but the fund is not heavily invested in companies that depend primarily on exports. Instead, the fund is invested in companies and industries that are growing due to domestic demand.
The other major event during the month was the upgrade of Pakistan to Emerging Market status from Frontier Market status by MSCI. This was expected for the past few months but the official announcement led to a 1,000+ point rally on the day of the announcement. Nine Pakistani companies will be included in the MSCI Emerging Market Index from May 2017 of which three are banks. This was one of the reasons the fund underperformed the benchmark as it does not hold Pakistani banks and these three banks saw a rally post announcement. The upgrade to Emerging Market status will add to the positive sentiment surrounding Pakistan as its fundamentals have been improving on the back of lower commodity prices, economic reform, CPEC (China Pakistan Economic Corridor) related investments, and an improving security environment.
On 29th June 2016, Mongolia held Parliamentary elections which saw the opposition, the Mongolian People’s Party (MPP), win 65 of 76 seats. A pro-business political party, it is anticipated the MPP will be proactive in seeing significant infrastructure and mining projects advance to benefit the country’s fiscal situation and image. This would provide a much needed uplift in confidence for Mongolians as well as foreign investors.
Though the fund has been underweight Pakistani banks for the past year, Pakistan was a key contributor to performance for the month primarily due to positive moves in a pharmaceutical company and cement companies. Performance was led by Vietnam due to positive moves in a pharmaceutical company, an automotive battery company, a taxi company, a construction company, and a lighting company. The fund has been building positions in some of these names over the past few months due to our positive view on Vietnam.
The fund continued to reduce its exposure to Sri Lanka given the macro headwinds it will likely face this year due to its fiscal deficit and balance of payments issues, something which we have touched upon in previous manager comments.
The best performing indexes in the AAFF universe in June were Mongolia (+11.2%), Iraq (+8.6%) and Pakistan with +4.8%. The poorest performing markets were Sri Lanka (-4.1%) and Laos (-1.4%). The top-performing portfolio stocks were a Vietnamese battery producer (+30.6%), followed by a Mongolian construction material company (+30.0%), a Vietnamese food producer (+28.0%), and a Vietnamese pharmaceutical company (+27.8%).
In June, we added to existing positions in Cambodia, Mongolia, and Vietnam and we reduced our existing holdings in Mongolian, Sri Lankan, and Vietnamese companies. Newly added to the portfolio were a Mongolian property company and a Pakistani food producer. We completely exited a Bangladeshi textile company, a Sri Lankan hotel chain, a Sri Lankan beverage company, a Vietnamese cement company, and a Vietnamese beverage company.
As of 30th June 2016, the portfolio was invested in 98 companies, 1 fund, and held 10.8% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (6.1%) and a Pakistani pharmaceutical company (5.2%). The countries with the largest asset allocation include Vietnam (29.0%), Pakistan (21.1%), and Bangladesh (14.9%). The sectors with the largest allocation of assets are consumer goods (34.6%) and healthcare (18.3%). The estimated weighted average trailing portfolio P/E ratio (only companies with profit) was 17.25x, the estimated weighted average P/B ratio was 1.46x and the estimated portfolio dividend yield was 2.94%.
For more information about Asia Frontier Capital’s Asia Frontier Fund please click the following links:
AFC Iraq Fund Class D shares returned +7.3% in June 2016 with an NAV of USD 598.62, an underperformance of -1.3% vs. the Rabee RSISX USD Index (RSISUSD) which returned +8.6% in USD terms. The fund has outperformed the RSISUSD by +11.8% YTD and +8.8% since inception.
The disconnect between oil prices and the domestic equity markets seemed to come to an end this month with the market halting its relentless 5-month decline and at least for now reasserting, with a time lag, the correlation with oil prices. However, well before the market responded, Iraq’s USD Bond (USD 2.7 billion bond issued in 2006, due in 2028 with a 5.8% coupon) rallied at the same time as oil prices did and marched in tandem with oil prices, as can be seen from the chart below.
Rabee Securities’ RSISUSD Index, Iraq’s USD 2.7 bn Bond and Brent Crude
This bond trades institutionally & internationally and is not subject to the constraints of the local liquidity crises that have continued to restrain the local markets. It is logical to assume that with the recovery in oil prices and with the gains in the war against ISIS that fixed income institutional investors are buying into the Iraq story or at least are buying the idea that the collapse since mid-2014 was overdone. However, this has yet to translate to foreign inflows into the Iraqi equity markets which have seen consistent multi-month outflows, reflecting Iraq risk aversion compounded by special factors of a fund liquidating and HSBC’s sale of its stake in an Iraqi bank as covered in detail in our March newsletter.
The local liquidity crisis is still in force, as it will take time for foreign aid and higher government revenues to filter into the wider economy, but it does not seem to be getting worse. Daily trading action show a tempering of the intensity of foreign selling, which for the most part is mirrored by a moderation in local selling which has contributed to the recovery of the market. In particular, lower priced stocks are showing a significantly better price performance as a few price upticks can translate into large percentage moves benefitting from the same forces that exaggerated earlier declines, which is positive for local sentiment. Further boosting local sentiment is that some companies are continuing the pay-out of dividends, first with Baghdad Soft Drinks declaring a 5.1% dividend after agreeing to acquire a licensed Aquafina private company in order to widen its product line and offer a fuller range of PepsiCo licensed products. Secondly, Gulf Commercial Bank is proposing a 7.7% dividend in its upcoming AGM which is an encouraging sign given that the bank had a tough 2015 and likely a tough 2016 as the local liquidity crisis negatively affected loan and deposit growth.
Finally, a possible leading indicator for the improvement in local liquidity is the market exchange rate of the Iraqi Dinar (IQD) vs the USD, which appreciated by about 2.6% in June after it depreciated at the worst point by about -5.9% for the year. Its recovery is a result of higher government revenues, over 90% of which come from oil sales.
The liberation of the city of Fallujah, ISIS’s first stronghold in early 2014, was relatively straightforward and importantly, neither the fears of fierce destructive battles nor sharply inflamed sectarian tensions materialized, which is positive for the future of the country. In the wider regional conflict, a significant realignment is taking place with the reconciliation between Russia & Turkey from supporting extreme sides in the Syrian conflict to coordinating policies. Added to reports of potential US & Russian joint action against Al-Qaeda affiliates in Syria, the realignment clearly shows a desire to hasten the resolution of the conflict. The main consequence is to force the local sides in the conflict to resume the abandoned peace process and a united, intensified anti-ISIS campaign. In all, the end of the conflict could happen sooner than expected and with it the massive reconstruction investment cycle. However, the government of Iraq still faces significant political challenges with the stalled reform process and the likely resumption of demonstrations which were put on hold during the holy month of Ramadan and the battle for Fallujah. Additionally, the coming summer months will likely see a replay of the failures of services that led to the demonstrations in the first place.
At the weekend, and just as the holy month of Ramadan was coming to a close, a massive blast ripped through the heart of Baghdad in the middle-class district of Karrada. The population expressed frustrations with the country's leadership by pelting the PM's convoy with shoes and rocks on his visit to the scene of the devastation, as it was the failure of the security apparatus that allowed this and the other daily bombings in Baghdad. A symbol of the corruption was a fake bomb detector which the PM announced would be removed and called for an overdue investigation into its procurement. The device was banned from export by the British government in 2010 & its promoter jailed in 2014 for fraud, yet the Iraqi government continued using it. The severity of the damage coupled with the security failure will add fuel to the resumption of demonstrations as discussed earlier and will likely lead to the revival of demands for genuine reforms.
Combined with the bombing of Islam's second-holiest site in the Saudi city of Medina in the days that followed, this could very well be such an extreme atrocity by ISIS that will hasten its end much as its predecessor’s dominance ended in 2007 when its supporters/sympathizers couldn't support its savagery and turned against it.
While the global effects on Brexit are yet to unfold, it is clear that developed markets’ central banks are likely to maintain or enhance loose monetary policy which is a positive backdrop to emerging and frontier markets. Supporting this view is early data showing strong inflows into emerging market funds in the week following Brexit. Additionally, institutional asset allocators are likely to reduce exposure to developed markets and to increase exposure to emerging & frontier markets for similar reasons plus viewing risks to be higher in developed markets. These developments support the argument made here in April which proposed that the five-year bear market in emerging markets and industrial commodities including oil was coming to end and that the significant rallies from January's lows are part of a multi-month bottoming process. This still seems to be the case as most have pulled back from the extreme highs but still maintaining large parts of the gains. The chart below shows that Copper, Iron ore, Brent crude, and the MSCI Emerging Markets Index are still between 32-60% below the peak of early 2011. The implication being that the MSCI Frontier Markets Index, which peaked in 2014, could likely see a similar bottoming process over the next few months.
Copper, Iron Ore, Brent Crude, MSCI EM & FM indices rebased to 2011
The combination of all the developments cited above should provide a positive backdrop for the Iraqi equity markets which should begin a bottoming out process and look forward to the country’s post conflict recovery.
As of 30th June 2016, the AFC Iraq Fund was invested in 14 names and held 2.1% in cash. As the fund invests in both local and foreign listed companies that have the majority of their business activities in Iraq, the countries with the largest asset allocation were Iraq (93.1%), Norway (5.4%), and the UK (1.5%). The sectors with the largest allocation of assets were financials (50.1%) and consumer staples (24.1%). The estimated weighted average trailing portfolio P/E ratio (only companies with profit) was 16.13x, the estimated weighted average P/B ratio was 1.01x, and the estimated portfolio dividend yield was 2.99%.
For more information about Asia Frontier Capital’s Iraq Fund, please click the following links:
The AFC Vietnam Fund gained +5.0% in June to reach a new high NAV of USD 1,628.75, bringing the year to date net return to +14.8% and the net return since inception to +62.9% or +20.8% annualized. By comparison, the June performance of the Ho Chi Minh City VN Index was up +2.6% while the Hanoi VH Index increased by +3.8% (in USD terms). Since inception, the AFC Vietnam Fund has outperformed the VN and VH Indices by +45.2% and +45.5% respectively (in USD terms).
The turbulence surrounding the exit of Great Britain from the EU resulted in slightly higher volatility in the Vietnamese stock markets although the HCMC index continued to climb by +2.2% in June. Smaller stocks on the Hanoi stock exchange did even better and the index gained +3.4%. Many of our companies were bought heavily over the past few weeks and with a slightly firmer Dong versus the US dollar - and an extremely firm Dong versus the British pound!
Of course also in Vietnam, Brexit dominated the news headlines in recent days. We cannot and will not make any predictions about the future development in this regard, but we would like to highlight some facts, which could be crucial for the future development of the stock markets. Once again, almost the entire guild of pollsters and investment professionals positioned themselves wrongly before the vote and the strong reaction of financial markets was inevitable after the surprising referendum result. As always, the biggest enemy of successful investing is emotion; it therefore makes sense to look closer at the post Brexit market movements in comparison to the previous month. Amazingly "the market" has adjusted very reasonably, considering the jumps in the days shortly before the referendum results. The German stock market probably took the hardest hit with a decline of 5% since last month (May 24th – June 24th), given that they are considered the export world champion, while in the US the S&P 500 has only lost a mere -1.7% over the same period. Even the UK stock market has only lost -1.3%, but of course the GBP declined by -6.5% (while the Euro in the same period was almost unchanged). Future UK exports to the EU might be more difficult but at the same time the weaker pound might partially offset this. Vietnam, with only about 3% of total exports going to the UK, even managed to advance by +1.5% (Ho Chi Minh City Index) during the period of May 24th – June 24th.
The crucial point is that even with a 20% decline of Vietnam's foreign trade with the UK, it would only equate to 0.6% of total exports. UK’s exit from the EU will realistically take at least 2 years and until then, Great Britain remains a full member of the EU. Over that transition period there might be even some benefits for its export industry due to the weaker pound. At this point it is rather difficult to forecast how quickly the UK will negotiate trade agreements with the EU, but given that it is in both their economic interests, one would not expect a disaster, as long as the EU leaders have learned their lessons from past events. This means that all analyst company forecasts which came out immediately after polling day are complete nonsense. Absolutely no one knows when and under what conditions UK companies will be able to operate and hence I ask myself on what assumptions they base their calculations on? Undoubtedly some sectors, such as the British financial industry, will be affected more than others given all these upcoming changes, but long-term winners and losers will only emerge in the distant future.
The real danger lies rather in a possible domino effect within the remaining nations. The shock in the EU and even among the British Brexit supporters was clearly felt after the referendum result, which led to wishes of Scotland remaining in the EU to sometimes absurd demands such as to repeat the referendum or even for London to exit (?!) the UK. This could therefore even lead to a strengthening of cohesion among the remaining EU member states and maybe even new opportunities for the EU overall will arise, should those in charge be willing to embrace economic reforms. Ok, enough of my wishful thinking ...
The price declines in European stock markets will certainly be remembered as a sharp correction, but definitely can’t be described as a disaster. If you would be drinking a coffee somewhere in London or Berlin, two topics would be dominating the discussion - Brexit and the European Football Championship. If, however you would be drinking a coffee in Saigon, you would be hearing many talking points - including football. And precisely those are the people which are buying the same stocks as our fund does, and not the anxious European investors which are uncertain about their political future. Emerging economies could be even benefitting by the once again postponed expectation of a US rate hike. Recent volatility in most emerging and frontier markets was certainly much lower than those of the developed markets.
From an AFC perspective, June was in many ways a much more positive month than for the rest of the industry. Same as with many previous corrections, the volatility of Vietnam and our fund was much lower compared to international stock markets. On Brexit-day the fund lost around -1.5% in USD terms (HCMC index -2%), and for our Swiss Franc and Euro-based investors it was even a flat day due to the strengthening of the USD. Slowly but surely we are getting closer to the market break out level, which we mentioned so many times before. Given the continuation of the outperformance of smaller stocks in Hanoi, both indices are now only about 3% below the famous break out point.
If we look at the macroeconomic picture of Vietnam we are very pleased that the outlook has not changed at all. The recently reported GDP growth numbers, which showed that the economy expanded by +5.5% in the first 6 months of this year, putting in doubt that the government's full-year target of +6.7% growth can be reached. The economy will probably still grow at over +6% in 2016, but the half year number was very much affected by weak agriculture business due to the prolonged drought in the whole region. Luckily the start of the rainy season seems to improve the situation bit by bit. Also worth mentioning are the strong consumer demand and new record highs in direct investments.
From today's perspective, we launched our fund back in December 2013 in the "smart money" cycle and are currently in the "institutional investor" phase. This graphic illustrates very well what we are waiting for in the typically 5-10 year lasting market cycle!
Very often financial journalists stimulate the fears of investors by reporting on events or developments on the major stock exchanges. But emerging and frontier markets in particular often have very different market cycles and valuations and should be therefore dealt with selectively. I am definitely not in a position to come up with an accurate forecast of the current slightly above-average valuations of stock markets like USA or Germany, but if the DAX or the Dow Jones are 25% higher or lower in a few years’ time, this should not affect us. After 5 years of dramatic underperformance of emerging markets, we definitely feel that countries like Vietnam could finally take off.
In the coming weeks, publications of the first half-year results are due and we expect further insights in the fundamentals of our portfolio for the 2nd half of the year and we will make appropriate adjustments in due course. As a British investor recently acknowledged: “Brexit has led to a situation in which I now look to Vietnam as a haven of peace and stability!”
At the end of June, the fund’s largest positions were: Sam Cuong Material Electrical and Telecom Corp (2.6%) – a manufacturer of electrical and telecom equipment, Bao Viet Securities JSC (2.2%) – a securities brokerage company, Nui Nho Stone JSC (2.1%) – a stone mining company, Global Electrical Technology JSC (2.0%) – an industrial distribution and rental company and Thien Long Group Corp (1.7%) – an manufacturer of office supplies.
The portfolio was invested in 86 names and held 4.3% in cash. The sectors with the largest allocation of assets were consumer goods (35.7%) and industrials (23.7%). The fund’s estimated weighted average trailing P/E ratio was 8.75x, the estimated weighted average P/B ratio was 1.21x and the estimated portfolio dividend yield was 5.41%.
For more information about Asia Frontier Capital’s Vietnam Fund please click the following links:
In line with our process of being on the ground in the countries we invest in, Ruchir Desai, Senior Investment Analyst for the AFC Asia Frontier Fund, travelled to Sri Lanka last month to attend an investor conference.
This was my third visit to Sri Lanka and this time besides Sri Lankan companies, the conference also had participation from Bangladeshi and Pakistani companies so it was a good opportunity to meet a range of companies over three days. I did not see any significant changes in Colombo as compared to my previous two visits and this is not necessarily a negative sign, but the country is going through a challenging period economically given the issues the country faces over its fiscal deficit and balance of payments.
Investor participation in the conference was good though and the macro headwinds that the country faces could ease a bit in the near term as it will receive USD 1.5 billion from the IMF to overcome the pressure on its balance of payments. Though this is a positive factor, we can expect taxes to increase further given the fiscal deficit as well as the low tax/GDP ratio which the country would need to increase under the agreement for receiving funding from the IMF.
When the new government came to power last year, it decided to balance Sri Lanka’s foreign policy by improving relations with India and the West as the previous government had skewed towards China. Though the country has improved its relations with India and the West, its relations with China have not deteriorated significantly and this is not surprising given the economic and geopolitical influence China enjoys in Asia and also because Sri Lanka requires capital to develop its infrastructure. For instance, some of the infrastructure related projects which were funded by China were stalled when the new government took office but now some of these projects such as highways as well as the Colombo Port City are being executed again.
Though the macro situation in Sri Lanka is challenging it is not all gloom and doom. The tourism industry continues to do well and is seeing double digit growth rates in tourist arrivals with higher growth rates from India and China. Both these countries together now account for ~30% of total tourist arrivals and given the country’s tourist attractions, Sri Lanka still gets a relatively lower number of tourists compared to other tourist destinations in Asia and this could change over the next decade given its proximity to both India and China.
The conference allowed me to meet with a range of Sri Lankan companies across the banking, consumer, textile and telecom industries. Though we have met with some of these companies in the past, it is always good to meet them on a regular basis as the fund has invested in some of these names. One of the companies which we like is a consumer and healthcare-focused company with a strong market position in consumer goods such as hair oil, which is a key consumer product in South Asian countries. This company has also ventured into Bangladesh over the past few years where it has managed to get to the number two position in the value added hair oil segment. In the healthcare space, this company is the leading pharmaceutical distribution company in Sri Lanka and it is also now focusing on pharmaceutical manufacturing.
However, even though we do like the companies we have invested in, the fund has taken more of a macro call on the country and we have reduced our positions in Sri Lanka over the past few months as we think it will take some time for the dust to settle from the macro headwinds that the country faces. We (conference attendees) spent one of the post conference evenings at the Galle Face Hotel, one of the oldest hotels in Asia. This hotel is definitely worth a visit due to its location on the sea front. Interestingly, room rates for star hotels in Colombo officially have a floor rate of USD 125 but I am not sure if this is being religiously followed by all the hotels.
There were five Bangladeshi companies and four Pakistani companies which attended the conference and we continue to be positive on both countries. We are positive on Bangladesh due to its large young population and increasing income levels from a low base which should be beneficial for consumer related companies. The government in its recent budget also increased its emphasis on infrastructure development and this is a good sign given that Bangladesh needs to improve its infrastructure relative to its South Asian neighbours. From the Bangladeshi companies which attended, I got the chance to meet with the founder of one of the leading pharmaceutical companies in Bangladesh which happens to be the fund’s largest position. This company has the third highest market share in the domestic market and is also one of the two Bangladeshi companies which recently received the US FDA (US Food & Drug Administration) approval for one of its facilities and besides the domestic market which holds lot of potential, exports are also expected to be a growth driver over the next few years.
We also continue to be positive on Pakistan not only because of the demographics but also because of the improvements in the security situation, historically low interest rates, low commodity prices and infrastructure projects under the China Pakistan Economic Corridor which should help improve the power situation in the country.
This visit gave me the chance to meet with twenty one companies over three days and this adds to the number of companies that we have met so far in 2016, a process which we give lots of importance to while doing our research. I look forward to being back in Sri Lanka and I hope my next visit brings better economic news.
I hope you have enjoyed reading this newsletter. If you would like any further information, please get in touch with me or my colleagues.
With kind regards,
Asia Frontier Capital Limited
This document does not constitute an offer to sell, or a solicitation of an offer to invest in AFC Asia Frontier Fund, AFC Asia Frontier Fund (non-US), AFC Iraq Fund, AFC Iraq Fund (non-US), AFC Vietnam Fund or any other funds sponsored by Asia Frontier Capital Ltd. or its affiliates. We will not make such offer or solicitation prior to the delivery of a definitive offering memorandum and other materials relating to the matters herein. Before making an investment decision with respect to our Funds, we advise potential investors to read carefully the respective offering memorandum, the limited partnership agreement or operating agreement, and the related subscription documents, and to consult with their tax, legal, and financial advisors. We have compiled this information from sources we believe to be reliable, but we cannot guarantee its correctness. We present our opinions without warranty. Past performance is no guarantee of future results. © Asia Frontier Capital Ltd. All rights reserved.
The representative of the funds in Switzerland is Hugo Fund Services SA, 6 Cours de Rive, 1204 Geneva. The distribution of Shares in Switzerland must exclusively be made to qualified investors. The place of performance and jurisdiction for Shares in the Fund distributed in Switzerland are at the registered office of the Representative.
The AFC Asia Frontier Fund and the AFC Vietnam Fund are registered for sale to investors in Japan, Switzerland (qualified investors), Hong Kong & UK (professional investors), Singapore (accredited investors) and USA (accredited investors and qualified purchasers). The AFC Iraq Fund is registered for sale to investors in Switzerland (qualified investors), Hong Kong & UK (professional investors), Singapore (accredited investors) and USA (accredited investors and qualified purchasers)
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