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Asia Frontier Capital (AFC) - January 2018

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“Loss avoidance must be the cornerstone of your investment philosophy.”

- Seth Andrew Klarman, an American value investor, hedge fund manager,
philanthropist, in the hedge fund manager hall of fame,
and founder of the Baupost Group, a Boston-based
private investment partnership


AFC Funds Performance Summary

 (USD)Jan-2018Since Inception
AFC Asia Frontier Fund USD A1,748.11+2.4%+74.8%
AFC Asia Frontier Fund (LUX) USD A997.83+1.3%-0.2%
MSCI Frontier Markets Asia Net
Total Return USD Index
AFC Iraq Fund603.29+6.3%-39.7%
Rabee RSISX Index (in USD) +4.8%-40.6%
AFC Vietnam Fund1,861.70+0.4%+86.2%
Ho Chi Minh City VN Index (in USD) +12.8%+102.9%

*The NAV given is for the main share series for the relevant master fund. Investor’s holdings may be in a different share class or series or currency and have a different NAV. See the factsheets and/or your statement for full details. NAV and performance figures are all net of fees.



The team at Asia Frontier Capital wishes you a happy,
healthy, and prosperous Year of the Dog!

The character of the dog is close to our heart as the Chinese zodiac attributes a highly accurate intuition, and a strong predictive and judgment ability. With this in mind, we should have a wonderful year ahead as we continue to research our markets extensively, and make our investment decisions based on rigorous risk management (aligned with Seth Klarman’s philosophy) and keen market and company research based on fundamentals with value investor principles in mind. We wish the year will be productive and profitable for you and for all of our investor clients.

While the beginning of February shows a much different picture, the year 2018 started very well for most markets. Major indices went up significantly in January, except for the FTSE, which lost 2% in January. The MSCI World Net Total Return USD Index rose +5.3% with some markets setting new all-time highs, while frontier markets overall also fared well. The MSCI Frontier Markets Net Total Return USD Index gained +5.7% last month, while the MSCI Frontier Markets Asia Net Total Return USD Index soared +8.9%. The MSCI Emerging Markets Net Total Return USD Index went up by +8.3% last month.

The AFC Asia Frontier Fund returned +2.4% in January, and is now up +74.8% since inception, which corresponds to a healthy annualized return of +10.0% p.a. since inception, reflecting the strategy’s ability to generate consistent long-term returns.

The AFC Iraq Fund returned +6.3% in January, outperforming the benchmark, the Rabee USD index, which gained +4.8%.

The AFC Vietnam Fund rose +0.4% in January, underperforming the VN-Index in USD terms which rose +12.8% as a few select index heavyweights, with high valuations, performed strongly. The fund is now up +86.2% since inception, representing an impressive annualized return of +16.3% p.a.

Pansy Wong joins as Middle Office Manager

We are very pleased to announce that our team in Hong Kong has been strengthened, with Pansy Wong joining in a newly created role as “Middle Office Manager”. She has 25 years of experience in similar roles in the fund services industry at companies such as HSBC and Bank of East Asia. Pansy has an MBA from the University of Ballarat (Australia) and is a Certified Financial Planner. Pansy will be an important asset in further institutionalizing our team for future growth of the organization. Her full bio can be seen on our website.

Ahmed Tabaqchali to speak at Iraq Petroleum Conference

The AFC Iraq Fund CIO Ahmed Tabaqchali will speak at the Iraq Petroleum 2018 Conference to be held on the 27th – 28th February 2018 at the Hilton in Berlin, Germany. More information on the conference can be found here:

If you have any questions about our funds or would like to receive additional information, please be in touch with our team at This email address is being protected from spambots. You need JavaScript enabled to view it..

AFC Travel

Yangon, Myanmar 10th February – 10th April Scott Osheroff
Hong Kong 11th – 16th February Andreas Vogelsanger
11th – 17th February Ahmed Tabaqchali
Berlin 26th – 28th February Ahmed Tabaqchali
Dubai 27th February – 1st March Thomas Hugger
Dubai 28th February – 1st March Ruchir Desai
Baghdad/Sulaimani/Erbil 3rd – 21st March Ahmed Tabaqchali
Japan 6th – 9th March Andreas Vogelsanger
Ho Chi Minh City 11th – 16th March Andreas Vogelsanger
Ho Chi Minh City 12th – 16th March Ruchir Desai
Zurich/Geneva 21st – 23rd March Thomas Hugger
Hong Kong 25th – 30th March Andreas Vogelsanger
Helsinki 26th – 27th March Thomas Hugger
London 9th – 10th April Thomas Hugger
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AFC Asia Frontier Fund - Manager Comment



The AFC Asia Frontier Fund (AAFF) USD A-shares gained +2.4% in January 2018. The fund underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+8.9%), the MSCI Frontier Markets Net Total Return USD Index (+5.7%), and the MSCI World Net Total Return USD Index, which was up +5.3%. The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +74.8% versus the MSCI Frontier Markets Asia Net Total Return USD Index, which is up +115.6%, and the MSCI Frontier Markets Net Total Return USD Index (+69.9%) during the same time period. The fund’s annualized performance since inception is +10.0% p.a. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 8.87%, a Sharpe ratio of 1.10, and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.32, all based on monthly observations since inception.
The year began on a positive note for the fund with gains being led by Pakistan. With the KSE-100 Index beginning the year at valuations which were close to a five-year low and continued positive political developments, it was not a surprise to see the KSE-100 Index rally by 8.8% for the month making it one of the top performing markets in Asia. Gains this month for the fund in Pakistan were led by a consumer appliance company, a bank and cement stocks, all of which have extremely attractive valuations. On the political front, the Senate elections are expected to be held in the first week of March 2018, which will give investors more comfort with respect to the upcoming national elections in August 2018, as the political events over the past six months had led to some amount of political uncertainty.
Though macro stability is still not in the comfort zone and barring the political noise, economic activity continues to progress with auto sales, domestic cement sales and private sector credit showing strong growth. The Pakistani Rupee depreciation in December 2017, as well as higher crude oil prices, is expected to lead to an uptick in inflation this year which led the Central Bank to increase benchmark rates by 25 basis points this month, with consensus expecting another 150 basis point increase over the next 18 months. The rising trend of interest rates should not have a significant impact on the economy as a 150 basis point increase would still keep rates below the highs seen in 2011-2013.
Bangladesh also led gains this month for the fund, despite the broader Bangladeshi market correcting by 3.3%, as the fund’s pharmaceutical, consumer staple and telecom holdings did well on the back of good quarterly numbers. Banking stocks led the correction in Bangladesh as the Central Bank looks to cool down credit growth by reducing loan to deposit ratios which could impact the banking sector’s profit margins, leading to a sell off over the past month in these stocks. Further, investor sentiment is somewhat dampened by the political tension due to the conviction of the leader of the opposition party, Khaleda Zia. We have witnessed such political events in Bangladesh in the past and though near-term volatility on the ground, as well as in the stock market, could increase, we continue to like the long-term story of Bangladesh due to its large untapped consumer market.
Vietnam continued its bull run into 2018 with the VN Index gaining 12.8% this month, led by large caps whose valuations have reached regional comparisons with not much room for earnings disappointment. For the fund, gains in Vietnam were led by an industrial park operator, a construction services company, and an air cargo terminal operator. The the fund exited a mid-end real estate developer and based on our visit to Ho Chi Minh City during the month, we initiated a positon in an air cargo terminal operator which is only one of two operators at Tan Son Nhat airport (Ho Chi Minh City) and has the second highest market share. This company is expected to see its volumes grow due to the growth of export/import trade in Vietnam and also due to the fact that this is the only player with available area to expand capacity in the near term. We also initiated a positon in an airport services company which runs retail shops and restaurants at important airports and also provides catering services to airlines. This company is also looking to expand into other airports and provides exposure to the robust growth in foreign tourists and domestic passengers going through Vietnam’s airports.
Gains in Sri Lanka were led by a consumer conglomerate and the recent signing of the free trade agreement between Sri Lanka and Singapore can be a long term positive as Sri Lanka is also looking to sign free trade agreements with India and China.
Mongolia showed continued signs of recovery last month and on 18th January Moody’s upgraded Mongolia’s long-term issuer rating to B3 from Caa1. During the month, the Prime Minister and Minister of Mining also spoke out separately on the need to connect Tavan Tolgoi, the country’s 8bln ton coal deposit, to China via rail, in addition to building a mine-mouth power plant to supply Rio Tinto’s Oyu Tolgoi copper mine with electricity. Earnings season for companies listed on the Mongolian Stock Exchange has begun and we are expecting positive results, specifically for commodity producers, and will be looking for signs that the macro recovery is trickling down to the real economy in the consumer related companies results.
The best performing indexes in the AAFF universe in January were Vietnam (+12.8%), Pakistan (+8.8%), and Iraq (+4.8%). The poorest performing markets were Laos (-4.2%) and Bangladesh (-3.3%). The top-performing portfolio stocks this month were a Mongolia bakery company (+35.4%), a Pakistani consumer appliance company (+27.9%), a Mongolian coal miner (+22.6%), a Vietnamese medical equipment distributor (+22.4%), and a Pakistani pharmaceutical company (+20.3%).
In January, we bought an air cargo terminal operator and an airport services company in Vietnam and exited a real estate developer in Vietnam. The fund added to existing positions in Mongolia, Pakistan, Papua New Guinea, and Vietnam while partially reducing the fund’s holding each in one company in Mongolia and Vietnam.
As of 31st January 2018, the portfolio was invested in 115 companies, 1 fund and held 1.3% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (8.3%) and a pump manufacturer from Vietnam (3.1%). The countries with the largest asset allocation include Vietnam (27.1%), Pakistan (21.5%), and Bangladesh (18.2%). The sectors with the largest allocations of assets are consumer goods (29.6%) and industrials (17.2%). The estimated weighted average trailing portfolio P/E ratio (only companies with profit) was 14.20x, the estimated weighted average P/B ratio was 2.73x, and the estimated portfolio dividend yield was 3.59%.

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AFC Iraq Fund - Manager Comment



The AFC Iraq Fund Class D shares returned +6.3% in January with a NAV of USD 603.29 which is an out-performance versus its benchmark, the RSISUSD index, which gained +4.8%.

The market in January was a tale of two halves. The first half started with a whimper with turnover declining 40% from December’s levels and prices drifting lower taking the market, as measured by the RSISUSD Index, to a decline of over -4% by around mid-month. The second half was almost the opposite, with prices recovering steadily and turnover doubling from the that of the first half.

However, the average daily turnover for the full month was anaemic at 90% of the average of that of the last 12 months, itself a low figure to start with. This indicates that the recovery is in the early tentative stages, but supports the case that the correction that began in March of last year has run its course by October, and that the market could play catch up as discussed in the “Outlook for 2018 and Review of 2017” in last month’s newsletter.


Turnover Index on the ISX (green bars) vs its 10-day moving average (red line)

(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital (AFC))


Early, but narrow, market leadership by high-quality names such as mobile operator Asiacell (TASC) and Pepsi bottler Baghdad Soft Drinks (IBSD), up +13.3% and +21.3% for the month, was behind the recovery in turnover and in the market’s overall performance. While most of the source of funds was a continuation of the reinvestment of dividends, there were clear signs of new foreign inflows, small yet consistent, into the equity market and mostly into these two names over the last two months.

Fundamental reasons fuelled the buying, in the case of IBSD it was expectations of a positive outlook on the back of continued strong performance throughout the ISIS conflict. IBSD had year-on-year sales growth of 12%, 10%, and 14%, with gross margins of 22.3%, 21.6%, and 19.5% for 2017, 2016, and 2015 respectively. While for TASC, it followed a declaration of a 14% dividend yield while priced at under 2x trailing 12 months EV/EBITDA with signs of improving fundamentals as the company shows signs of recovery from the triple whammy that the ISIS conflict brought: The loss of a third of the country accompanied by subscriber losses and higher operating costs, decreasing ARPU’s (average revenue per user) that accompanied the roll out of 3G in 2015, and finally weakened consumer spending made worse by the introduction of VAT on SIM cards in 2016.

Foreign selling continued along the same levels witnessed over the last few months and as such, the revival in foreign inflows is still in the nascent early stages. Yet, overall foreign buying on the ISX for the few months up to end of January, as a percentage of buying has been increasing consistently and is more meaningful that of a similar period up to January of 2017. As a comparison, the market was up +29% in July 2016-January 2017, while it was up +9% in July 2017-January 2018. However, the overall level of turnover is still low and thus requires a return of liquidity for the recovery to sustain itself.


Index of foreign buying (green) & selling (red) as a percentage of buying & selling respectively on the ISX

(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital (AFC))


There are increasing signs of the beginning of an increase in liquidity in the economy as implied by the performance of the Iraqi Dinar (IQD) vs. the USD. Given the dollarization of the economy, it follows that the strength or weakness of the IQD is a function of the demand-supply balance for IQD and not a specific USD weakness or strength. During the month, the market price of the IQD vs the USD improved by about +1.5% lowering the premium over the official exchange rate to 4.5% from just under 6% at the end of 2017, and bringing it closer to the normal range of 2-4%.

A great deal of this recovery is related to the recovery in oil prices, and thus government finances, that began in November 2016 as evidenced by the gradual decline of the premium over the official exchange rate from 10% in November 2016 to about 5-7% throughout most of 2017. The first visible beneficiaries were foreign reserves, which increased to USD 49.0bn by end of November 2017 vs USD 45.2bn at end of 2016, and IMF’s estimates of USD 41.5bn by end of 2017.

Arguably, the changed dynamics of the oil market, with a likely medium-term range of USD 55-60/bbl for Brent, should result in a sustainable positive effect on government finances. Combined with the positive effects of the declining costs of war, they argue for a return of liquidity to the economy and money supply which should become visible over the coming months.


Iraqi Dinar (IQD) exchange rate vs the USD Jan 2014 – Jan 2018

(Source: Central Bank of Iraq, Iraqi currency exchange houses, Asia Frontier Capital)

(Note: The Spike in 2015 was due to a CBI policy that restricted the sale of USD, but was abandoned after causing a rise in parallel rates)



The improvement in liquidity in the broader economy will eventually filter down to the equity market but we are not there yet as the anaemic market turnover demonstrates. Nevertheless, the market is showing signs of resuming its correlation with the country’s oil revenues (chart below). However, liquidity in the form of both increased local and foreign inflows, needs to translate into higher market turnover for the market’s recovery to be sustainable. Given the time lag, the recovery will likely be in fits and starts with plenty of zig-zags along the way, which underscores the opportunity to acquire attractive assets that have yet to discount a sustainable economic recovery. The prospects of the economic recovery following the ISIS conflict are discussed in AFC’s Ahmed Tabaqchali’s research piece as a non-resident fellow at the Institute of Regional and International Studies (IRIS): “Iraq's Economy after ISIS: An Investor's Perspective".


Oil Revenues (green) vs the RSISUSD Index (red)

(Source: Iraq Stock Exchange (ISX), Iraq’s Ministry of Oil, Rabee Securities, AFC)
(Oil revenues as of Dec. with AFC est.’s for Jan.)


As of 31st January 2018, the AFC Iraq Fund was invested in 14 names and held 2.7% in cash. The fund invests in both local and foreign listed companies that have the majority of their business activities in Iraq. The markets with the largest asset allocation were Iraq (97.2%), Norway (2.3%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (50.2%) and consumer staples (25.5%). The estimated trailing median portfolio P/E ratio was 11.65x, the estimated trailing weighted average P/B ratio was 0.95x, and the estimated portfolio dividend yield was 5.14%.

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AFC Vietnam Fund - Manager Comment



The AFC Vietnam Fund returned +0.4% in January with a NAV of USD 1,862.70, having a return since inception of +86.2%. This represents an annualised return of +16.3% p.a. The January performance of the Ho Chi Minh City VN Index in USD was +12.8%, while the Hanoi VH Index gained +7.8% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.89%, a high Sharpe ratio of 1.81, and a low correlation of the fund versus the MSCI World Index USD of 0.25, all based on monthly observations.

The positive momentum in the largest companies continued throughout January. On the back of many solid earnings reports many index stocks reached new highs. Though, despite those index gains, the market breadth deteriorated considerably again in the second half of the month, as described further below.

Market Developments



Petrovietnam Gas – 4th biggest stock, avoided for years

(Source: Bloomberg)


The current market situation can be easily described as follows:

  • passive investments are still favored worldwide over value investing
  • foreigners continue to invest into Vietnam
  • large investment funds have to invest their cash into the big and highly liquid companies
  • analysts have called for a correction in many of those stocks for some time now

All of these facts have resulted in a market rally which looks rather unreal for many long-term market observers. Unlike in other broad based, healthy bull markets where on days with strong index gains the majority of stocks also participate in the rally, the current sharp index increase in Vietnam is best described as panic buying, triggered by new overseas money and local retail investors jumping on the bandwagon. The below breakdown of the trading day on 25th January – after a two-day break caused by technical problems on the Ho Chi Minh Stock Exchange – gives an excellent example of how distorted the market currently is.


Performance concentrated in a few large cap stocks – 25th January 2018 

(Source: Vietstock, AFC Research)




Out of more than 350 stocks listed on the HCMC stock exchange, the 22 stocks which each have a market capitalization of more than USD 1bn were almost solely responsible for one of the highest one-day index gains we have witnessed so far this year (+1.6%). While we can understand the reasoning behind this action, it is very unusual for an emerging market to act in such a manner. Even in bigger and better diversified developed markets in Europe or the USA, an index gain of 1-2% would result in many more winners than losers and not with negative market breadth like we have repeatedly seen in Vietnam over the past few months. We still see people capitulating and selling undervalued and nicely growing small and mid-cap stocks in order to rotate into expensive large-caps. While analysts and strategists are now recommending the famous “buying on weakness”, what does that mean when a stock is trading at 30x earnings, while it was trading at 15x just a year ago – waiting for a 50% correction or buying at a still expensive 27x earnings after a 10% correction?

With 2017 earnings announcements slowly coming to an end, we can have a look now at the top ten 10 holdings which have already reported. Net of extraordinary income or provisioning, we saw very strong earnings growth in our 10 top holdings, averaging 38% for 2017. These 10 stocks (similar to to the rest of our portfolio) are trading on an average valuation of just 9.4x 2017 earnings which puts us in a completely different world than the biggest 22 stocks in HCMC which are trading on a trailing PE of 38x, and many of which haven’t reported their results yet. Even excluding FLC Faros Construction (Stockcode ROS), which boasts a PE of 197x, the big caps would still be trading at 27x earnings. Investing in those expensive stocks would make us very nervous on any onset of a market correction when investors just don’t care about market cap.

The mining sector was a drag on Vietnam’s 2017 GDP growth

Vietnam’s economy had a strong recovery in 2017 with a GDP growth rate at 6.8%, beating all analyst forecasts, as well as the government target of 6.7%. The only sector which performed quite poorly was mining, which declined by 7.1% yoy. 


Key sectors of Vietnam economy in 2017

(Source: GSO, AFC Research)


Among the 23 main sectors of the economy, manufacturing played the most important role representing 17.4% of GDP. The weakest of all industries was mining, which has a weight of 6.6% of GDP, but which had negative growth of -7.1% yoy, dragging down overall GDP growth. According to SSI research center, GDP growth excluding mining reached 7.95% in 2017, compared to 7.14% in 2016.


(Source: SSI research, AFC research and GSO)


The most important sub-sector of mining is oil & gas, which decreased 10.8% in 2017. Oil prices however started to recover in the second half of 2017 and if this trend continues we can then expect a positive contribution of mining to GDP growth in 2018 which would be in line with forecasts.


Oil price (WTI, spot price FOB, USD/barrel)

(Source: EIA, AFC research)





(Source: Viet Capital Securities, AFC Research)

Industrial production surged more than 20% in January compared to the same period last year, mainly due to increased production ahead of the TET holiday (Chinese New Year).

At the end of January 2018, the fund’s largest positions were: Agriculture Bank Insurance JSC (3.3%) – an insurance company, LienViet Post Joint Stock Commercial Bank (2.4%) – a bank, VNDirect Securities Corp (2.4%) – an online brokerage firm, Sam Cuong Material Electrical and Telecom Corp (2.3%) – a manufacturer of electrical and telecom equipment, and Danang Housing Investment Development JSC (2.1%) – a real estate company.

The portfolio was invested in 73 names and held 3.9% in cash. The sectors with the largest allocation of assets were consumer goods (34.3%) and industrials (28.5%). The fund’s estimated weighted average trailing P/E ratio was 9.93x, the estimated weighted average P/B ratio was 1.66x and the estimated portfolio dividend yield was 6.37%


AFC Travel Report - Iraq (Part 1)


In line with our process of being on the ground in the countries we invest in, AFC Iraq Fund CIO Ahmed Tabaqchali travelled to Iraq recently for an investment conference. All photos are by Asia Frontier Capital.

While discussing my trip to Iraq with a client over coffee, he suggested writing this for those who don’t know Iraq, other than from what they see or hear in the media, in order to show what life is like there. As an Iraqi expat it is possible for me to assume two personas, as an Iraqi intimately familiar with the culture and the place, as well as a foreigner who mostly sees Iraq through the eyes of intermediaries – the media in this case.

This trip had many purposes, to take part in a Banking conference, meet young Iraqi entrepreneurs, visit companies, and pay a visit to the Iraq Stock Exchange. I also planned to spend time at the Institute of Regional and International Studies (IRIS) and its parent, the American University of Iraq-Sulaimani (AUIS), in Iraq’s Kurdistan to follow up with future direct research projects on Iraq’s economy post ISIS, and to visit one of Kirkuk’s oil fields. The Kurdistan trip will be the subject of our travel report for next month, while this travel report will be focused on Baghdad.

The Royal Jordanian flight was jam packed, but the flipside was that the arrival at 6 am and clear winter skies which provided excellent views of Baghdad. One of the first things that a foreigner notices is how green the city and its environs are, as seen from this aerial photo as the plane made its final approach to Baghdad airport.


Final descent into Baghdad International Airport


While the greenery is not universal in Iraq, it is a defining feature of the areas between the Tigris and Euphrates whose agricultural richness led to the rise of the Mesopotamian civilization. It is still a promising area, even though it has been subjected to years of neglect following migration into the cities, as well as desertification due to drought and dam building by Turkey and Iran.
Baghdad international airport’s (BGW) story mirrors Iraq’s history of conflict. It had its opening delayed until 1982 due to the First Gulf War with Iran. The airport was mostly closed in 1990, leading up to the Second Gulf War. It eventually fully re-opened soon after 2004 following the Third Gulf War. While Iraqi Airways resumed flights soon afterwards, it wasn’t until 2008 that international carriers resumed flights. Today most regional carriers fly to Baghdad such as Qatar Airways, Emirates, and Middle East Airlines to name a few. The airport has been undergoing an upgrade and expansion since 2010 in order to meet expected growth in passenger traffic.



The author at the departure gate of BGW


The upkeep of the airport (terminal, surrounding open spaces, airport road to Baghdad) is an example of the new private sector-government partnerships the government has introduced to keep civil infrastructure well maintained and up to date. The era of lower oil prices led to such partnerships and will likely lead to more down the road.

As the conference was held in the Al Rasheed Hotel, within the heavily fortified Green Zone of Bagdad, the organizers contracted with the travel services team of the much wider Al Burhan Group to arrange a meet and greet service for attendees arriving at the airport. In a pleasant surprise, the team’s leader was familiar with my writings on Iraq and decided to provide a tour of the area and the hospitality at the Al Burhan Centre at the airport zone- a secure, luxurious accommodation compound.

The Green Zone is the common designation of the International Zone of Baghdad, the seat of the government before the 2003 invasion, the headquarters of the Coalition Provisional Authority (CPA) during the occupation and subsequently the seat of the new Iraqi government. It is sealed off from the rest of Baghdad by concrete blast walls, barbed wire fences and Bremer-Walls (portable, steel-reinforced concrete blast walls). I had not been to the Green Zone previously…well, not since before it was designated as the Green Zone, and as such was keen to witness it from the inside.



The Council of Ministers' Building, 14th July Street, Green Zone


The Al Rasheed Hotel sits on the edge of the Green Zone in an area known as the Amber Zone, yet still offers most of the security of the Green Zone. For access to the city, visitors need to park their cars by the entrance to the Green Zone and walk the 20-30 minutes to the hotel.

After checking into the hotel, I went with a friend who works in the Green Zone for a long walk to see some of the main sites, but was not sure if I could take photos due to security concerns. I took a couple of photos including one of the 4 soldiers’ memorial looking into 14th July bridge which connects the Green Zone to the rest of Baghdad.



4 Soldiers monument, Baghdad’s Green Zone


The walk took us past Saddam’s abandoned massive concrete bunker that cost about USD 50m, 8 years to build by 1983 and which was designed to withstand chemical and nuclear attacks. It escaped heavy US bombardment unscathed in 2003, but the palace above was not so lucky, suffering from bombardment and years of looting afterwards. Next, was the tomb of Mariam, a local saint, that gave the area its original name “Karradat Mariam”, then Ibn Sina Hospital, famous for the quality of its staff and its reputation for treating all patients equally- US Marines, Iraqi soldiers and insurgents during the early years of insurgency following the invasion. After an HBO 2006 documentary “Baghdad ER” the hospital became known outside of Iraq for its role as a military hospital during the worst year of the insurgency. Our next stop was to the Ziggurat Palace, a beautiful building modelled after the ancient Ziggurats, or temples used by Sumerians, Babylonians and Assyrians of Mesopotamia. The final stretch of the walk took us under the Golden Dome Archway, marked by a striking dome modelled on Jerusalem’s Golden Dome mosque, eventually leading into the Unknown Solider Monument and the parade grounds bracketed by the Arcs of Triumph. The Arc commonly known as the “The crossed swords” which is marked by a couple of massive swords clasped by hands modelled on Saddam’s hands and a symbol of his rule. In 2007 it was due to be dismantled, but work stopped following the removal of the hands after local complains against erasing the city’s history, irrespective of its symbolism. A reconstruction processes began in 2010, as a symbol of Iraq making peace with its past, and the parade ground is once again used- most recently to celebrate the country’s victories against ISIS. While the Green Zone preserves much of Bagdad’s beauty, it is frozen in the past and is very quiet, especially compared to the bustling life in Baghdad across the barricades.


View from the hotel, showing part of the Ziggurat Palace on the right, Honour Camp- A Ministry of Defence annex building- opposite, the rest of Baghdad in the distance


The conference “Iraq Banking and Investment Summit” ran over 2 days and aimed to highlight the banking and investment possibilities post ISIS. My interest was to take part as the CIO of the AFC Iraq Fund within the Iraq Stock Exchange (ISX) session and as a fellow at IRIS to moderate an IRIS session “Venture Capital and Accelerator Programs in Iraq” focusing on Iraq’s start-ups.

At the ISX session I put on the hat of a foreign investor explaining to fellow Iraqis AFC’s investment thesis into post conflict countries, the fund’s long-term investment strategy, as well as the concept of arbitraging the delta between Iraq’s real risk and perceived risk. The presentation was delivered in local Iraqi dialect, a first for me, and it seems a first for the audience used to formal Arabic presentations. I was glad that it was so well received that it might start a trend. For those who are interested, the presentation starts on minute 42 on this YouTube video).

However, the highlight of the conference for me was meeting Iraq’s young entrepreneurs. I first came across Iraq’s nascent, but active, start-up scene at the Fikra Fair in October 2016 and have been fascinated by the young entrepreneurs and how they overcame the tough operating environment. Their visons and business models are no different than similar technology, entertainment & e-commerce start-ups elsewhere in the world, but their challenges are in a league of their own with the lack of security and infrastructure, from banking to internet. However, the most crucial challenge is access to expansion/growth capital in a culture that is not yet familiar with venture capital investing nor with banking, as less than 20% of the population have a bank account. With the organizers and IRIS, I introduced three exciting companies to the audience in Iraq, most of whom were unfamiliar with them, and highlighted the investment opportunity in them. (The presentation starts at minute 39).

While Iraq’s violent history since 2003 has been well documented, little is known about the cultural transformation that has taken place at the same time. Iraqis were virtually cut off from the world during the prior regime’s rule which controlled all communication within Iraq and with the outside world, the latter of which was reinforced by the prohibition on the use of satellite TV, internet and mobile telephony. These entered Iraq in full force after 2003 and spread like wild fire among a population that was also hungry for consumer goods denied to it, especially during the brutal sanction years. However, due to civil conflict following 2003 many activities were consumed in the home. For instance, watching movies in theatres was unknown until recently with the opening up of malls over the last few years. A number of young companies sprang up over the last few years, created by the new technology, entertainment and communication savvy generation to meet the needs of Iraqis, especially the younger generation.

The first company to present was Escape the Room Iraq, started in mid-2007 to provide a much-needed social activity for the youth and had over 3,000 visitors in its short history, many of whom were repeat visitors. In addition to satisfying the need for entertainment, the company has successfully targeted the business market by offering itself as a team building and training tool which has been well received. This was followed by Mishwar, an online grocery delivery company that provides its services throughout Baghdad. Mishwar was set up by young engineers who sought alternative means of income separate from the state following the economic shock in 2014. It delivers groceries throughout Baghdad and has seen significant growth since it was joined by its current director, who revitalized the company. It reaches a wide audience though creative marketing on Facebook highlighting interesting meals/dishes and providing the ingredients for immediate delivery. Finally, Miswag, an lookalike and the country’s most successful young company, founded about 3 years ago, which by 2017 had grossed about USD 1m in sales and could see sales over of USD 1.3m this year.  It has over 65,000 customers, which will likely grow meaningfully this year as it was chosen by Google, through its AI algorithms, for a pilot project in Iraq as part of its Middle East drive. Basically, Google will provide its services for free in return for showcasing the company’s resultant growth in Iraq. In addition to providing consumer products, the company provides an e-commerce platform for brick-and-mortar companies. All of these companies were funded by capital from friends and family and re-invest their profits to grow, however, all need access to new capital for enhanced growth. While these companies have their websites, Iraq’s rapid adoption of Facebook as a primary means of communication has provided these companies with an excellent, scalable platform to reach and target customers.


“Venture Capital and Accelerator Programs in Iraq” session

Faten Al-Waeli of Escape the Room in the middle, Ammar Ammen of Miswag at her left and Marwan Ahmed of Mishwar second from the left


Later in the day, with my colleagues at IRIS, I left the Green Zone and crossed the Al-Jumariyah bridge into the hip Al Karadah district, a peninsula nestled within a turn of the Tigris river that divides Baghdad into two halves: Karkh on which the city was founded in the 8th century and Rusafa. Karadah is a mixed population of Shias, Christians and Sunnis and one of city’s nine major districts. It is teaming with life from bars, restaurants and cafes to art galleries and bookshops. Karadah’s revival over the years is believed by many to be the symbol of a new Baghdad that reflects the city’s old values of diversity, inclusion and tolerance. However, Karadah’s symbolism has led to some deadly attacks, the biggest of which were the mall bombing in July 2016 that resulted in the death of 324 civilians and the May 2017 bombing of an ice cream parlour that led to 27 deaths. Yet, the district defies terror attacks, continues to boom and rebuild as soon as the dust settles with the ice cream parlour back to full operation within a week (more on this later).

The object of our visit was to meet the founders of the “The Station”, an incubator and the first co-working space for entrepreneurs created to provide them with the resources to launch their business. The founders explained their vison while showing us final construction works on the building, itself among the first wave of the city’s construction activity. The Station is set to begin operations in early February.


The Station, an Iraq security detail can be seen on the extreme right


Next on the Baghdad itinerary was to spend a morning with my friends and colleagues at the Iraq Stock Exchange (ISX). The exchange is in the Alwiya area in Karada and across the road from the beautiful Church of Our Lady of Salvation, an Assyrian Christian church that survived terrible attacks in 2004 & 2010. In 2010 there was a twin attack that started at the ISX and was followed by another at the Church with an attack at Sunday Mass. While the ISX escaped mostly unscathed with the death of 4 guards, the worshippers were not so lucky with 52 deaths. In a spirit that is typical of Iraqi’s, the ISX family went to work the next day as if nothing had happened.


The Church of Our Lady of Salvation surrounded by decorated Bremer-Walls


I always enjoy discussing all aspects of the market with the ISX family and so this visit spent time with senior management, compliance, regulatory oversight, IT, the Iraqi-Depository Centre, legal, as well as brokers and investors.  With the advent of electronic trading in 2009 most investors migrated from watching & trading at the exchange to broker’s offices. However, old habits die hard, and a number of regulars still come to the exchange’s floor to meet, gossip and trade. The exchange has been quiet over the last couple of years reflecting the lack of activity so often described in our newsletters. However, on this visit I could not help but feel that I was in a scene from Jim Rogers’ 1994 book “Investment Biker”, in that the stillness of some places was at such odds with their investment potential. Given the sentiment often expressed in these newsletters over the last few months, the stillness in a similar way is reflected in the valuations of the underlying assets traded on the exchange.


The author watching market quotation screens on the main trading floor of the ISX


Next on the itinerary was a visit to the district of Mansur on the Karkh side of Baghdad, named after Abu Ja'far al-Mansur, the second Abbasid Caliph and the founder of Baghdad. The route from the ISX took us through the still beautiful riverfront Abu Nuwas Street, named after ancient Baghdad’s most famous poet, and an area once full of cafes, restaurants, bars and luxury hotels. However, its location led to its demise as the entertainment heart of city, due to the concentration of the old regime’s seat of power across the river in what has become the Green Zone. Sadly it is still yet to regain its old glamour from 2003.


The view from Baghdad Hotel on Abu Nuwas, across the river on the right is the Ziggurat Palace, the Crossed Swords and Unknown Soldier Monument on the left and further left


Abu Nuwas Street


One of the restaurants in Abu Nuwas Street


The road from Abu Nuwas crosses the Al-Jumariyah bridge and then passes by a massive outdoor entrainment park in the heart of Baghdad, Al Zuwara Park.


Al Zuwara Park


On the road to Mansur


Mansur, like Karada, has been going through a revival over the years, including my old Mansur (same name) neighbourhood with its shops and restaurants. One of the new restaurants that we headed to was the local branch of the UAE’s Victorian era themed restaurant chain, Shakespeare & Co, one of many such regional franchises.


Shopping area on Mansur Street, Mansur



One of the residential area of Mansur neighbourhood


After lunch, the destination was the same Al Faqma Ice Cream parlour which was bombed in May 2017, though we took the long route through Qadisiyah neighbourhood to get there, passing by a Mandaean temple, one of the world’s most ancient religions. The Mandaean, or Sabis in Arabic, trace their origins to Adam, and although viewed by many as followers of John the Baptist due to the centrality of Baptism in the fresh waters of the Tigris & Euphrates. Yet many of their beliefs and rituals can be traced to the Babylonians. I didn’t stop at the non-descript building whose only evidence as a temple was a modest sign, instead leaving that to one of my next visits. The route then went over the Al Jadriyah Bridge passing over the Um Al Khanzeer island, named after Khanzeer or wild boars who roamed the island before it was converted into what became known as the “Weddings Island”.  Long neglected over the years, used as a US military base until 2010 due to proximity to the Green Zone. There are plans to open Weddings Island for investments to become once again a Tourist Resource with hotels, parks and a nature reserve.

The only visible signs after the deadly attack in May were the Bremer-Walls around the entrance to the strip that houses Al Faqma Ice cream parlour. 





Not many people having ice cream late afternoon in early December at Al Faqma


I could not help but go past the National Theatre whose reopening in 2009 marked the start of a return to normality in Baghdad, six years following the invasion and ensuing civil strife. Though I had no time to watch a play this time, it is high on my agenda for the next trip.



Iraqi National theatre, Fateh Square


Last on the Baghdad itinerary was a visit to the latest mall, Baghdad Mall, and to spend an afternoon with my cousins. The Mall located in Harthiya, opened with too much fanfare in August 2017, with crowds of thousands attending the opening ceremony. Walking across the mall, having coffee and lunch while having free WiFi felt no different than any other large mall worldwide. Baghdad Mall has over one hundred retail outlets, dozens of restaurants and cafés and a luxury five-star hotel. Harthiya, too is seeing a revival and while driving through the area I saw one of the many signs of new construction that reflects the city’s confidence in its future.


New construction in Al Kindi Street, Harthiya, next to Baghdad Mall



Open air food court in Baghdad Mall, quite early on a Friday morning


However, Baghdad is far from being back to normal as the ubiquitous security checkpoints, blast walls and Bremer-Walls serve as a constant reminder of the potential for violence to erupt. Baghdad residents are so used to them that they don’t notice how different this is from the rest of the world. For instance, Iraqi officers’ military equipment is so different from other security officers elsewhere. Every time I pass by them I cannot help but feel that Iraq security officers are like portable armadas with all kinds of imaginable military hardware (Photo below & security detail in The Station photo above).


Iraqi security officer at a checkpoint in Baghdad


As this has been a trip to explore the revival of Baghdad and not a narrative of the city's violent past, I must clarify that I haven’t been to Baghdad’s poor or no-go neighbourhoods which are in worse shape than the run-down street in Karrada seen in the photo below. The reconstruction of the poor and neglected parts of the capital is a massive challenge, yet an essential part to the revival of the city.


Salman Fayeq Street, Karrada, near the ISX


It’s difficult for those who don’t visit Baghdad to imagine that now it’s a thriving city reclaiming the life it lost over the last three decades, especially following the trauma of the brutal 3-year ISIS conflict. Baghdad’s infrastructure was first damaged in the Second Gulf War (1990-1991) from harsh aerial bombardment and then stagnated as the 14-year UN economic sanctions took their toll on the city’s ability to provide services or to maintain its infrastructure. Further damage was inflicted during the ground and air campaign of the Third Gulf War (2003). After that was a repeat of the sanction years as civil strife engulfed the country and the new political class was consumed with sectarian infighting that eventually led to the ISIS occupying a third of the country in 2014.

With the fall in violence over the last few years (chart below), Baghdad and its peoples are reclaiming life. The city, until recently, has seen very selective investment capital to rebuild focusing on malls, residential buildings, and hotels. However, the bulk of the city has not seen much reconstruction and as such there is much promise in the new signs of construction and reconstruction.


UN Casualty figures for Baghdad November 2012 - January 2018

(Source: United Nations Assistance Mission for Iraq (UNAMI), 8 months from 2015, in some cases, UNAMI could only partially verify certain incidents)


I, as a native of Baghdad, despite having spent the bulk of my life in so many beautiful cities in the world, can only marvel at how it maintained its grace, charm and much of its beauty in-spite of all the calamites that have befallen her. I hope the photos and the narrative has shown the promising aspects of Baghdad and its potential.


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,
Thomas Hugger
CEO & Fund Manager

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