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Asia Frontier Capital (AFC) - June 2019

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

− Paul Samuelson, American economist and Nobel Laureate


AFC Asia Frontier Fund USD A1,309.34−0.4%−4.0%+30.9%
AFC Frontier Asia Adjusted Index2 9.3%11.8%5.6%
AFC Iraq Fund USD D622.23−0.9%+5.9%−37.8%
Rabee RSISX Index (in USD) −0.7%+0.4%−51.7%
AFC Uzbekistan Fund1,063.50+1.9%+6.3%4+6.3%
AFC Vietnam Fund USD C1,815.41+2.0%+2.2%+81.5%
Ho Chi Minh City VN Index (in USD) 0.6%+6.3%+69.2%
  1. 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.
  2. The index was adjusted since 1st June 2017. Prior to that it reflects 100% of the MSCI Frontier Markets Asia Net Total Return USD Index, and after 1st June 2017 it is 37% of that index and 63% of the Karachi Stock Exchange 100 index in USD.
  3. NAV and performance figures are all net of fees.
  4. YTD only since 1st April 2019

Trade tensions continued to weigh on market sentiment this month, but there was a reprieve at the end of the month when President Trump and President Xi Jinping decided to get both sides back to the negotiating table. Though this is a positive, export and manufacturing growth are going through a soft patch in Asia but despite this softness, two Asian frontier markets stand out from this trend. Both Vietnam and Bangladesh have continued to see their exports grow this year while Vietnam was one of the few countries in South East Asia that posted strong manufacturing growth in June 2019 based on data from the Purchasing Managers Index. Furthermore, Vietnam made additional inroads into global trade with the signing of the free trade agreement with the European Union which will be positive for the country’s garment, footwear, electronics and seafood industries.

There was a negative “tweet” this month by President Trump with respect to trade practices in Vietnam as a few Chinese companies are circumventing U.S. tariffs by shipping their goods through the country by just using a “Made in Vietnam” label even though the goods originate in China. It is important to put this in perspective as foreign enterprises which are usually well-established blue-chip companies like Samsung and LG account for 70% of total Vietnamese exports. Hence, this issue of re-labelling does not appear to be out of control and the Vietnamese authorities are already taking action against such defaulting parties as they understand the important role exports play for overall economic growth. Taking the issue of transshipment to the U.S. via Vietnam further, duties of more than 400% were imposed on certain Vietnamese steel products. However, steel exports account for less than 2% of total Vietnamese exports and steel exports have come under U.S. duties in the past as well and therefore this issue should not be blown out of proportion.


(Source: Bloomberg, General Statistics Office of Vietnam, Export Promotion Bureau of Bangladesh)


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. .



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Upcoming AFC Travel

Thomas Hugger, Ruchir Desai, and Peter de Vries are based in Hong Kong, while Andreas Vogelsanger is based in Bangkok and Ahmed Tabaqchali in Iraq and London. If you have an interest in meeting with our team at their home ports or during their travels, please contact Peter de Vries at This email address is being protected from spambots. You need JavaScript enabled to view it. .



Sulaimani/Baghdad/Erbil   11th – 28th July   Ahmed Tabaqchali
London   16th – 17th July   Andreas Vogelsanger
Singapore   21st – 28th July   Scott Osheroff
London   28th July – 28th August   Ahmed Tabaqchali
Yangon, Myanmar   28th July – 7th August   Scott Osheroff
Kiev, Ukraine   8th August   Scott Osheroff
Hong Kong   15th – 29th August   Andreas Vogelsanger
Sulaimani/Baghdad/Erbil   28th August – 30th September   Ahmed Tabaqchali
Yangon, Myanmar   9th August – 30th September   Scott Osheroff
Zurich, Geneva, Basle, Zug, Lucerne 5th – 16th August   Thomas Hugger
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AFC Vietnam Fund - Manager Comment



The AFC Vietnam Fund returned +2.0 % in June with a NAV of USD 1,815.41, bringing the return since inception to +81.5%. This represents an annualized return of +11.4% p.a. The Ho Chi Minh City VN Index in USD lost −0.6%, while the Hanoi VH Index lost −0.3% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.60%, a high Sharpe ratio of 1.22, and a low correlation of the fund versus the MSCI World Index USD of 0.29, all based on monthly observations.

Market Developments

Despite continuing uncertainties on Trump’s trade war and increasing risks of a real war with Iran, markets were calm. Outbreaks of military conflict are usually not a major disruptor for financial markets (except typically higher volatility in the first few days), as long as production and transportation of oil is not severely affected. Also, in the current conflict with Iran this does not seem to be the case, especially since trade with Iran has been sanctioned for some time already. Therefore, investors continue to look at other issues with the exception of US investors, who seemingly have no concerns at all. Otherwise, it is very hard to understand why some US indices just made new all-time highs while Europe continues to underperform and Emerging Markets trade at the same low levels as one and five years ago.

For that reason, we continue to see improving risk-reward ratios for selected Emerging Markets, especially for Vietnam.


One-Year Performance of MSCI Emerging Markets (green) and S&P 500 (maroon)

(Source: Bloomberg)



Five-Year Performance of MSCI Emerging Markets (green) and S&P 500 (maroon)

(Source: Bloomberg)


After years of US outperformance, it may be nearing time for a new cycle to start, as we see possible turns in other markets like a strengthening gold price and a weakening Dollar where the latter is usually supportive for Emerging Markets.

Year to Date Performance of the Dollar Index (green) and the Euro/USD (maroon)

(Source: Bloomberg)


MSCI Emerging Markets Index Review

In September 2018, FTSE already added Vietnam to its watch list for a potential upgrade to “emerging market” status but Vietnam failed so far to be added by MSCI. Many experts believe that the two main reasons are foreign ownership limitations and the ease of capital flows. But the Vietnamese Government is aware of this and is continuously improving on all fronts in order to please MSCI and meet its requirements. Vietnam plans to pass a new securities law soon which will help to loosen foreign ownership limits and ease capital flows.

The Vietnamese government already relaxed foreign ownership limits some time ago, and investors are now able to buy up to 100% in listed companies (except for strategic sectors, such as banks, insurance companies, finance companies, etc.) as long as individual companies are willing to do so. But unfortunately, most listed companies are reluctant to increase their foreign ownership limits since they are afraid of being taken over by a foreign company. However, the new securities law would address this issue with the introduction of non-voting depository receipts (NVDR) for foreign investors.

Vietnam also needs to improve the ease of capital flows and revise its policies about foreign exchange and foreign reserves. Although foreign reserves in Vietnam have risen considerably in recent years, the Vietnamese government still would like to see further improvements in order to be more comfortable in times of potential turbulence in financial markets and is hence keeping a tight control of currency in- and out-flows.

The MSCI Global Market Accessibility Review on 1st June 2019 revealed that Vietnam already meets all quantitative requirements. Although MSCI so far didn’t change its classification of Vietnam as a frontier market, it commented the following:

MSCI sees a lot of improvements in Vietnam’s equity market compared to a previous assessment in June 2018. On 24th January 2019, Vietnam announced that it plans to set up the Vietnam Stock Exchange (VSE), which would combine both the Ho Chi Minh and Hanoi Stock Exchanges into VSE. The plan also includes establishing a CCP (central counterparty clearing and risk management system) for the Vietnam Securities Depository (VSD). Along with establishing the VSE, the government also announced plans to complete its legal framework to increase foreign ownership limits in sectors that do not require state ownership and promote administrative reforms to create conditions for foreign investors to access Vietnam's stock market.

Regarding the need to ease capital flows, MSCI did not mention “low liquidity” in its latest report, something which it used to and is thus a positive sign for the Vietnamese market.

The MSCI Emerging Markets Index captures large and mid-cap representation across 26 Emerging Market (EM) countries. With 1,198 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. At the end of May 2019, the total market cap of MSCI Emerging Markets Index reached USD 5,221 bln, of which China contributes 31.11%.

Top five countries in the MSCI Emerging Markets Index

(Source: MSCI Emerging Markets Index – USD in May 2019)


Given that Kuwait will most likely be upgraded from a frontier to an emerging market status by the end of this year, Vietnam will see inflows as it most likely will become the largest constituent in the MSCI Frontier Markets Index and its weighting will increase from currently 18.2% to around 26.5%.



Summer holiday – New lifestyle

It is very hot in Vietnam during the period of June-August, around 35-40 degrees Celsius. It is easy to understand why thousands of people flee to some of the famous beaches such as Danang or Nha Trang. These days, Vietnamese families also spend their summer holidays on the beach, but only about ten years ago, a summer holiday was considered very luxurious for Vietnamese families because of money and time. However, life is changing, and after a decade, income levels are steadily increasing along with the economic growth and consequently summer holidays are becoming an increasing norm.


(Source: GSO, VCB, SBV, AFC Research)


At the end of June 2019, the fund’s largest positions were: Sametel Corporation (4.4%) – a manufacturer of electrical and telecom equipment, Agriculture Bank Insurance JSC (4.2%) – an insurance company, Phu Tai JSC (3.5%) – a home and office furnishings company, Idico Urban and House Development JSC (2.7%) – an energy, construction, and real estate business, and Vietnam Container Shipping JSC (2.6%) – a container port management company.

The portfolio was invested in 63 names and held 7.4% in cash. The sectors with the largest allocation of assets were industrials (34.2%) and consumer goods (29.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.04x, the estimated weighted harmonic average P/B ratio was 1.08x and the estimated weighted average portfolio dividend yield was 6.72%.


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AFC Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund returned +1.9% in June with a NAV of USD 1,063.50, bringing the return since inception (29 March 2019) to +6.3%.

Trading in the first half of June continued to be very quiet as the Uzbek securities regulator requires all public companies to hold AGM’s (annual general meetings) by the end of June each calendar year. Thus, many investors were likely waiting to hear earnings and dividend results from management before deciding to buy and sell. However, as we progressed towards month’s end, trading activity rose sharply and we witnessed significant liquidity in certain names which are often rather quiet.

Regional investors beginning to take notice of Uzbekistan

On 19th June 2019 I was invited to Tbilisi, Georgia to speak at the Business Information Agency (BIA) Forum, a regional investment forum focused on doing business in FSU (Former Soviet Union) countries. The forum was attended by approximately 300 people mainly from Eastern Europe and the Caucuses. During the conference we received further validation that our bullish call on Uzbekistan is correct as regional investors are increasingly expressing their interest in pursuing business in the country.

When we first visited Uzbekistan in May 2018, we knew we were early as almost no one was actively investing in the country, let alone discussing it internationally. Increasingly, however, more investors have been taking notice and it is becoming apparent that there seems to be roughly three categories of investors in regards to Uzbekistan. First, there are those who are still unaware of the economic renaissance under way. Second, there are those who are enticed by what is unfolding but are yet to actively place capital. Lastly, there are those who have spent time or done business in Uzbekistan and who are as upbeat as us.

At the conference in Tbilisi I met several regional investors, most of whom fall into the second category and who seem to be salivating, though are yet to pull the trigger. We launched the AFC Uzbekistan Fund on 29th March 2019, and became the first mover in the market, well ahead of the second category. When they do place capital, specifically in the stock market, it will result in increased liquidity and higher valuation multiples. The positive effects of this type of revaluation is something we think about regularly as it is already underway in certain sectors and companies, discussed further below.

Price liberalization is one of several catalysts to drive growth

As discussed before, the government of Uzbekistan is embarking on a drastic privatization effort as it transforms into what should resemble a relatively free-market economy in the coming several years. In doing so, price ceilings (i.e. forced subsidies) in several sectors are being lifted.

A good example of the direct impact the lifting of price ceilings can have on companies is in the production of white spirits. Biokimyo (TSE: BIOK), the AFC Uzbekistan Fund’s second largest holding, is one such producer of white spirits which are used in the beverage and pharmaceutical industries, representing 85% and 15% of BIOK’s respective revenues. BIOK is one of four white spirits producers in Uzbekistan with a duopoly in the Tashkent region. With the government having gradually lifted the price ceiling on white spirits in the first quarter of 2019 (and the expected full removal of the ceiling by year end) BIOK reported 214% earnings growth year over year.

As a result of the gradual price liberalization of white spirits in the first quarter of 2019, BIOK’s share price rallied. From 30th September 2018 to 30th June 2019, BIOK shares have climbed 296%, from UZS 12,500 to UZS 37,000, and are now trading at a P/E of 8.76x and a dividend yield of 4.08%. In the 12-months to 31st March 2019, BIOK grew its earnings by 82%. BIOK is still relatively cheap when considering the rapid pace of earnings growth, but certainly more expensive relative to other Uzbek equities.  


(Source: UZSE, AFC Research)

With the government continuing to remove itself from multiple industries and allowing the private sector to operate freely, we expect revaluations like the one which occurred in BIOK to take place in other companies as well, helping to drive the fund’s performance.

More modern retail and food and beverage entering Uzbekistan

On 14th June 2019 it was announced that the Russian retail chain “Fix Price” (the Dollar Tree equivalent in USA) is entering Uzbekistan and will begin recruiting its corporate team. Founded in 2007, Fix Price operates 2,600 discount stores across Belarus, Georgia, Kazakhstan, Latvia and Russia. This type of retail concept does not yet exist in Uzbekistan, with their direct competition being local bazaars where haggling is the norm. The introduction of modern, fixed-price, discount retail is a game changer in Uzbekistan and will help to formalize the retail sector away from mom and pop shops, something we have seen in other frontier markets such as Vietnam, Cambodia and Pakistan where modern retail options increasingly gain market share from mom and pop sellers.

On 18th June 2019 another international food and beverage (F&B) chain opened its doors in Uzbekistan: Wendy’s, a fast food hamburger restaurant from the USA. Their first location is in the newest mall in Tashkent, Compass, while a second location is under construction in Samarkand Darvoza, currently the largest mall in Uzbekistan. The consumer is largely untapped in regards to F&B options, especially outside of Tashkent where often the only option is national food.

The demand for alternative retail and F&B options is high in the country and as such we expect the pace of new foreign chains entering the Uzbek market to accelerate and first spread west to the tourist cities of Samarkand and Bukhara before advancing into the eastern portion of the country, the Fergana Valley, which hosts the majority of the population.



As of 30th June 2019, the AFC Uzbekistan Fund was invested in 26 names and held 11.5% in cash. The best performing companies for the month were two spirit producers which were up +68% and +48% while a vegetable oil producer rose by +29%. The countries with the largest asset allocation were Uzbekistan (84.3%) and Kyrgyzstan (4.2%). The sectors with the largest allocation of assets were materials (52.2%) and industrials (16.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.44x, the estimated weighted harmonic average P/B ratio was 0.61x and the estimated weighted average portfolio dividend yield was 8.82%.

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AFC Asia Frontier Fund - Manager Comment


The AFC Asia Frontier Fund (AAFF) USD A-shares declined −0.4% in June 2019 with a NAV of 1,309.34. The fund outperformed the AFC Frontier Asia Adjusted Index (−9.3%) while performance was similar to the MSCI Frontier Markets Asia Net Total Return USD Index (−0.4%), however the fund underperformed the MSCI Frontier Markets Net Total Return USD Index (+2.3%) and the MSCI World Net Total Return USD Index (+6.6%).The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +30.9% versus the AFC Frontier Asia Adjusted Index, which is down −5.6% during the same time period. The fund’s annualized performance since inception is +3.8%, while its 2019 year to date performance stands at −4.0%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 9.00%, a Sharpe ratio of 0.35 and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.33, all based on monthly observations since inception.

This was a mixed month for Asian frontier markets as trade tensions continued to negatively impact market sentiment in Vietnam while Bangladesh had another positive month of returns. Furthermore, Kazakhstan and Sri Lanka had a good rebound in their markets and macro concerns continued to have a major impact on sentiment at the Pakistan Stock Exchange. However, at the end of the month there was respite for trade dependent South East Asian economies as President Trump and President Xi Jinping agreed to re-start trade talks at their much-awaited G-20 meeting.

Performance this month was both supported and negatively impacted by individual stocks. In Vietnam, despite the Ho Chi Minh VN Index losing −1.0%, the fund’s Vietnamese holdings did well relative to the market due to good moves in an airport operator (+19.6%), an automotive holding company (+10.1%) and an insurance company (+8.8%). This led to the fund’s Vietnamese holdings returning approximately +1.5% this month compared to a loss for the Ho Chi Minh VN Index.

On the macro front, the economic momentum in Vietnam continues with 2Q19 GDP growth of 6.7% which was in-line with expectations as the manufacturing sector continued being the growth driver at +11.2% YoY. Another big macro positive for Vietnam is the free trade agreement between the country and the European Union which was signed on 30th June 2019 – this agreement should further support major Vietnamese export categories such as garments, footwear, electronics and seafood.

Bangladesh had another positive month and broadly the fund’s Bangladeshi holdings continued to do well but similar to last month, the fund’s biggest position, a pharmaceutical company, impacted performance negatively by approximately 85 basis points. As discussed in last month’s manager comment, the weakness in this company’s stock price has very little to do with fundamentals as its earnings have grown on average by 15.6% over the last four quarters and in the March 2019 quarter, the company’s sales and net profits grew by 26.3% and 22.2% respectively, much ahead of peer growth. The fund holds the London-listed GDR of this company which trades at a 54% discount to the local listing in Dhaka.

This month also witnessed the announcement of the annual Bangladesh budget which is a positive for the manufacturing sector as the government continues to provide tax and duty incentives for the local assembly/manufacturing of consumer appliances, automobiles and mobile phones. This is important as the country looks to reduce the concentration of the garment industry in the manufacturing sector. These tax and duty incentives are already having a positive impact as Samsung has begun assembling mobile phones for the domestic market at its Bangladesh plant since last year while Honda has also recently set up a local motorcycle assembly plant.

This year’s budget increased cigarette prices for the legal tobacco sector once again and we expect this to continue to hurt volumes for the legal tobacco industry which has seen an increasing threat from the illicit cigarette-trade over the past year with the illicit segment accounting for approximately 7% of total cigarette volume from 2% a few years ago. This is still lower than other markets like Sri Lanka and Malaysia where illicit cigarettes account for 14% and 64% of total industry volumes, however, the continued increase in prices is expected to harm volume growth further. As a result, the fund exited its position in British American Tobacco Bangladesh given the move towards an uncertain and unfriendly policy for the tobacco industry in Bangladesh.

The fund’s position in Kazakhstan, Halyk Bank, helped nicely with performance as this stock rallied by +11.7% after the bank guided towards a higher dividend pay-out policy and this is not surprising given the solid capital position of the bank. Its capital adequacy ratio stands at 20.9% with a RoE of 26.8%. At a price to book ratio of 1.2x, valuations continue to be attractive relative to other tier I banks in frontier and emerging markets.

The fund’s position in a Myanmar focused conglomerate, Yoma Strategic Holdings, also added to performance as its stock price ended the month +16.7% as its key segments in food & beverages, financial services and real estate continue to gain traction given the largely untapped consumer opportunity in Myanmar.

A Mongolian junior copper explorer saw its stock rally by +52.9% this month as it announced the start of drilling, however the positive move in this stock was negated by a correction in a Mongolian coal producer as well as a junior copper/gold explorer that the fund holds in Mongolia.

Pakistan also saw the announcement of its annual budget this month and not surprisingly, due to the size of its fiscal deficit, there were both tax increase measures as well as removal/reduction of tax incentives for certain industries as well as for individuals. In addition to this, gas prices have also been raised once again which will most likely deal another blow to disposable incomes and corporate profitability. Due to the increase in gas prices as well as further weakness in the Pakistani Rupee which depreciated by 8.5% this month, inflation is expected to rise further going forward which would continue to be a negative for consumer and stock market sentiment. In light of this, we maintain our underweight position in Pakistan.

The best performing indexes in the AAFF universe in June were Mongolia (+3.9%), Kazakhstan (+1.4%) and Sri Lanka (+1.2%). The poorest performing markets were Pakistan (5.8%) and Kyrgyzstan (−5.6%). The top-performing portfolio stocks this month were a Mongolian junior copper explorer (+52.9%), a Vietnamese airport operator (+19.6%), a Myanmar focused conglomerate (+16.7%), a Mongolian property company (+15.0%) and a Mongolian hardware store (+12.2%).

In June, we added to existing positions in Mongolia and Vietnam and we partially exited two companies in Bangladesh and Laos and exited a tobacco company in Bangladesh, a bank in Papua New Guinea and a leather producer in Mongolia.

As of 30th June 2019, the portfolio was invested in 81 companies, 2 funds and held 11.3% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (6.6%) and a pharmaceutical company in Bangladesh (6.5%). The countries with the largest asset allocation include Vietnam (27.5%), Mongolia (16.2%), and Bangladesh (14.8%). The sectors with the largest allocations of assets are industrials (21.6%) and consumer goods (21.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.92x, the estimated weighted harmonic average P/B ratio was 0.82x and the estimated weighted average portfolio dividend yield was 4.42%.

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AFC Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned −0.9% in June with a NAV of USD 622.23 which is an underperformance versus its benchmark, the Rabee Securities RSISX USD Index (RSISUSD Index) which returned −0.7% for the month. Year to date the RSISUSD Index is up +0.4% while the fund is up +5.9% YTD.

The market took a breather after the blistering May rally. While the average daily turnover, excluding block transactions, followed through with the recovery of last month - a promising development especially as the Eid holidays, marking the end of Ramadan, and the beginning of summer holidays took place early in June. However, turnover is still low relative to that over the five years following the market’s peak in early 2014, with June’s average at about +21% above the average of the last year (chart below). 


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

Trading activity, in the near term, will likely continue to be in-line with that of the last two months, as the holiday season gathers steam with a summer that promises to be hotter than average. June’s daily average temperatures of 48 degrees Celsius, versus prior averages of around 40 degrees Celsius, provided a taste of things to come for the year’s hottest months, i.e. July and August. The chart below of Baghdad’s June 2019 temperatures versus recent average temperatures illustrates the extent of the expected variance between this summer’s temperatures and recent averages. 

Temperature Graph (in °C), Baghdad June 2019

(Source: Accuweather)

June’s searing heat, as well as profit taking, took the shine off the rejuvenated banking sector with the Bank of Baghdad (BBOB) down −12.8% after being up +62.5% in May, while Mansour Bank (BMNS) was −4.2% versus +20.0% in May, National Bank of Iraq (BNOI) flat versus +31.0% in May, and Commercial Bank of Iraq (BCOI) +4.5% versus +10.0% in May. Expectations for the resumption of dividends by the Bank of Baghdad (BBOB), the reasons behind the stock’s stunning May rally, will be put to the test in the next two weeks at the bank’s upcoming AGM later in July. However, as indicated last month, it’s still too early in the year to judge the likelihood of the bank distributing dividends, especially given the size of its non-performing loans (NPL’s) and the potential need for more provisions.  Such caution finds support in the decision by the National Bank of Iraq (BNOI), at its June AGM, not to distribute dividends for a challenging 2018. However, in a sign of the conditions in place for the sector’s recovery, BNOI indicated the possibility of resuming dividend payments for 2019 based on its strong results for the first half of the year as well its expectations for the second half.

Lending support to these expectations for the brighter outlook for the banking sector are figures from the Ministry of Finance (MoF) for the first four months of the year. The figures show that the budget surplus for 2019 continues to grow and is currently at about USD 2.8 bln by end of April, which, based on current spending patterns and reported oil revenues, could grow to about USD 4.2 bln by the end of June. Helped by the healing effects of increasing oil revenues, this surplus is on top of surpluses of USD 1.6 bln for 2017 and USD 21.6 bln for 2018 as the chart below shows.



(Sources: Ministry of Oil, Ministry of Finance, Central Bank of Iraq, AFC)

Current spending patterns, making up the bulk of the 2019 budget spending at about 75% of the total, are steady and consistent with an expansionary budget in which this spending is up +15% over 2018. Investment spending patterns, on the other hand, show a shift in gear as the government began to implement the 2019 budget, which came into law and thus into effect in late February. However, these are from a very low base and are in-line with expectations made here over the last few months that such spending would begin as a trickle but should grow as investment spending gets underway, adding fuel to a consumer led recovery, and ultimately leading to a sustained economic recovery. This potential economic fuel comes from the 2019 budget’s non-oil investment programme at about USD 12.5 bln, which is equivalent to about a 7.5% stimulus to the estimated non-oil GDP for 2019.

The persistent signs of economic recovery continue to be mixed, as they are in this early stage. Nevertheless, they underscore the opportunity to acquire attractive assets that have yet to discount a sustainable economic recovery. The market’s pull-back in June, on the heels of a strong recovery in May on low turnover, suggests the beginning of a consolidation phase which would need a significant recovery in turnover before this recovery can become sustainable and for the market to claw back some of the −65.5% decline from the peak in early 2014 to June 2019 closing levels (as measured by the Rabee Securities RSISX USD Index).

As of 30th June 2019, the AFC Iraq Fund was invested in 14 names and held 3.9% 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 (92.4%), Norway (3.0%), and the UK (0.7%). The sectors with the largest allocation of assets were financials (47.2%) and consumer (21.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 14.40x, the estimated weighted harmonic average P/B ratio was 0.63x and the estimated weighted average portfolio dividend yield was 6.04%.


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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This Newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this Newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this Newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

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AFC Asia Frontier Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. AFC Iraq Fund and AFC Uzbekistan Fund in Singapore, Switzerland, the United Kingdom, and the United States. AFC Vietnam Fund in Japan, Singapore, Switzerland, and the United Kingdom. 

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