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Asia Frontier Capital (AFC) - March 2019

“ The single greatest edge an investor can have is a long-term orientation ." - Seth Klarman, American Hedge Fund Manager

The single greatest edge an investor can have is a long-term orientation."

- Seth Klarman, American Hedge Fund Manager


AFC Asia Frontier Fund USD A1,361.900.1%0.2%+36.2%
AFC Frontier Asia Adjusted Index2 1.4%+6.2%+13.7%
AFC Iraq Fund USD D536.580.9%8.7%46.3%
Rabee RSISX Index (in USD) 1.7%-13.9%−58.6%
AFC Vietnam Fund USD C1,826.89+1.6%+2.8%+82.7%
Ho Chi Minh City VN Index (in USD) +1.6%+10.4%+75.5%
  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.

AFC Uzbekistan Fund launched

The new AFC Uzbekistan Fund was successfully launched on 29th March 2019 with strong interest from our existing investors and new clients allocating to the new fund. The repatriation test that we conducted last month was a success with proceeds of a sale of shares being successfully converted into USD and remitted back to the fund’s Hong Kong bank account. Consequently, we have eliminated the two-year lockup of the fund. The fund remains open for additional investment with monthly subscriptions and redemptions, whereby redemptions require a 3-month notice.

The future of the capital markets continues to look bright with multiple IPO’s and SPO’s planned for 2019. Over the past month the government has announced the sell down of a further 20% of listed glass manufacturer, Kvarts, which was the first IPO in Uzbekistan's history, in April 2018, when 5.2% of the company was sold. The President has also signed a decree for the privatization of the plastics industry which will see at least one company IPO on the Tashkent Stock Exchange—a company which was ranked the second largest plastic film and pipe producer in the former Soviet Union.

The electricity sector was previously 100% state owned, though in the coming months the government monopoly will be broken up into three separate companies operating in electricity generation, transmission and sales. It is expected this has been done to increase the competitiveness of the sector as well as to increase FDI through joint ventures, specifically in solar power generation, as Uzbekistan is among the most carbon intensive economies in the world on a per capita basis. This will also enable Uzbekistan to consume less of its natural gas reserves (ranked 19th in global reserves) and focus on value added production of fertilizers and other petrochemicals while likely increasing exports to China through its pipeline network.

In regards to the government’s attempts to streamline the economy and eliminate government bureaucracy, the early stages of tax legislation reform, in order to formalize the grey market economy, seem to be bearing fruit. During the first quarter of 2019 tax collections increased 150% YoY to UZS 1.2 trillion. The new tax code is expected to be passed and to come into force by the end of the third quarter 2019 which is expected to both result in lower taxes for corporates and simplify the overly complex existing legislation which is burdened with Soviet-era complexities.

You can obtain the following information about the AFC Uzbekistan Fund:

AFC Uzbekistan Fund - Summary

AFC Uzbekistan Fund - Investor Presentation

If you have an interest in our AFC Uzbekistan Fund, please drop us a line at This email address is being protected from spambots. You need JavaScript enabled to view it. so we can send you further details about the fund.


Asia Frontier Capital celebrates the 7th anniversary of its flagship AFC Asia Frontier Fund



The AFC Asia Frontier Fund was launched on 30th March 2012. Since then, it has been the only true pure Asian regional frontier equity fund that invests in listed equities. Since launch, the fund has generated an annualized return of +4.5% p.a. in USD despite the volatility in 2018. In addition to this the fund has managed to maintain a very low annualised volatility of 9.08% while its correlation with the MSCI World Index is at 0.35.

The fund, and its fund manager, Thomas Hugger, who is also CEO of Asia Frontier Capital, have received numerous awards including:

  • HFM Week Asia Hedge Funds Performance Awards 2017.
  • Investors Choice Awards 2015 and 2017.
  • Asia Asset Management 2016 Best of the Best Awards.
  • Citywire Top Performing Frontier Markets Equity Manager ranking 2017.
  • Preqin Top Performing Fund ranking 2014.
  • Barclay Hedge Recognition Awards.

The strategy of the fund has remained consistent since its inception and the key elements which are expected to drive future returns are:

  • Robust GDP growth rates in Asian frontier markets relative to other regions in the World – most Asian frontier markets are amongst the fastest growing globally.
  • Extremely favourable demographics with large, young populations and rising disposable incomes.
  • A manufacturing shift from China into lower cost locations – Vietnam and Bangladesh are key beneficiaries of this multi decade trend.
  • Reforms and infrastructure investments which should also unlock growth.
  • More importantly, valuations are currently very attractive with the AFC Asia Frontier Fund trading at a trailing twelve months P/E of 12.7x, a discount to most frontier and emerging markets.
  • We believe that over the coming years the above factors will provide a steady tailwind for the AFC Asia Frontier Fund to generate consistent long-term returns, and provide a less correlated investment vehicle for international investors to allocate part of their portfolio to, and benefit from increased returns and well-managed risk.

Turning to the markets in March 2019, global frontier and emerging markets began the month on a positive note including our large markets like Bangladesh and Vietnam. However, towards the latter part of the month sentiment turned as investors worried about the prospects for future U.S. economic growth given the U.S. Fed’s decision to go slow on any future rate hikes as well as due to the inversion of the U.S. treasury yield curve.

Rising U.S. interest rates were one of the main fears last year amongst frontier and emerging market investors and with a softer outlook for interest rate increases in the U.S, investor focus can move more towards the fundamentals of companies especially within some Asian frontier markets like Bangladesh and Vietnam whose economies are expected to post GDP growth rates of 6.5-7% over the next five years and which exhibit better macroeconomic stability relative to peers.

Given the consumption and economic opportunity that Asian frontier markets like Bangladesh provide, it is not surprising that Arcelik, the leading Turkish consumer appliance company has acquired a controlling stake in Singer Bangladesh – one of the leading consumer appliance manufacturers and retailers in the country.

Bangladesh offers an untapped consumer demand opportunity as disposable incomes rise from a low base which are supported by very favourable demographics - a population of 165 mln people with a median age of 26. This acquisition of Singer Bangladesh by Arcelik follows its 2016 acquisition of Dawlance Pakistan and together these moves reflect the long-term attractiveness of growing consumption in Asian frontier markets.

The charts below provide more details on the consumer opportunity Bangladesh offers and which is the second biggest weight in the AFC Asia Frontier Fund. You can also read more about our visit to Dhaka last year here.


(Source: Boston Consulting Group)


(Source: Asia Frontier Capital)




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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 homeports 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..



Tashkent, Uzbekistan   14th – 17th April   Scott Osheroff
Almaty, Kazakhstan   17th – 20th April   Scott Osheroff
Zurich   17th April   Thomas Hugger
Tashkent, Uzbekistan   21st April – 20th May   Scott Osheroff
Hong Kong    29th April – 3rd May    Andreas Vogelsanger
Tashkent, Uzbekistan   30th April – 5th May   Ruchir Desai
Uzbekistan   1st  – 4th May   Thomas Hugger
Myanmar   21st – 31st May   Scott Osheroff
Hanoi   21st – 24th May   Ruchir Desai
Colombo   9th – 12th June   Ruchir Desai
New York   17th – 22nd June   Thomas Hugger
Toronto   20th June   Thomas Hugger

AFC Asia Frontier Fund - Manager Comment



The AFC Asia Frontier Fund (AAFF) USD A-shares declined −0.1% in March 2019. The fund outperformed the AFC Frontier Asia Adjusted Index (−1.4%) and the MSCI Frontier Markets Asia Net Total Return USD Index (−0.2%), but underperformed the MSCI Frontier Markets Net Total Return USD Index (+1.2%) and the MSCI World Net Total Return USD Index (+1.3%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +36.2% versus the AFC Frontier Asia Adjusted Index, which is up +13.7% during the same time period. The fund’s annualized performance since inception is +4.5%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 9.08%, a Sharpe ratio of 0.43 and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.35, all based on monthly observations since inception.

The month began on a positive note across the fund’s larger country weightings as well as in frontier and emerging markets in general but towards the latter part of the month sentiment weakened as investors worried about slowing U.S. economic growth as the U.S. Fed continued to make dovish comments with possibly no rate hikes in 2019. However, economic growth in the fund’s key markets remains robust with Vietnam reporting 1Q19 GDP growth of 6.8% (ahead of expectations) while Bangladesh is expected to post its highest ever GDP growth of 8.1% in the financial year ending June 2019.

Performance was led by Vietnam this month with returns being led by an insurance company, an industrial park developer, a construction company, a cargo handling company and an automotive holding company. This resulted in the fund’s Vietnamese holdings returning +3.7% in USD terms this month, well above the Ho Chi Minh VN Index return of +1.6%.

The fund invested into the largest mall operator in Vietnam to gain further exposure to growing consumer discretionary spending and the penetration of modern retail. We believe this mall operator with the largest retail floor space in the country and with access to its parent company’s anchor tenants provides a good proxy to increasing modern retail penetration in the country which is still significantly below peers such as Thailand and the Philippines.

Vietnam’s macro numbers broadly continue to be robust with manufacturing growth of 12.4% in 1Q19. The manufacturing sector leads the economy due to the country’s attractiveness as a low cost manufacturing hub and this has resulted in foreign direct investments (FDI) increasing by 6.2% YoY in 1Q19 to USD 4.2 bln.

Export growth, after being soft in the first two months of the year, picked up in March with a growth of 5.4% YoY, although this growth is lower than the 14% growth in exports seen in 2018. Slower mobile phone exports which accounted for 21% of total exports this year are the main cause of slower export growth as Samsung, which constitutes a majority of Vietnam’s mobile phone exports, is going through competitive pressures in key markets such as China.

However, other major export segments like textiles, footwear and other electronics have been holding up very well with growth rates of 13%, 15% and 9% respectively so far in 2019. Furthermore, mobile phone exports have been weak now for the past six months but overall export growth has been in line with our expectations of mid-single digit growth. In addition, Vietnam’s exports relative to the region are still growing.

Bangladesh continued to contribute positively to fund performance with this month’s gains being led by a tobacco company (+22.3%) as it declared good quarterly results and a 200% bonus issue (an event that local investors seem to like). So far this year, the fund’s Bangladeshi holdings have returned +7.4% in USD terms while the Dhaka Stock Exchange Broad Index has gained +1.5% in USD terms. This outperformance over the country index is due to investments in strong consumer related franchises which are expected to benefit from growing demand given an outlook of average GDP growth of 7% over the next five years. This economic growth is reflected in the quarterly results of the fund’s Bangladeshi holdings which have grown earnings on average by 14.4% in 4Q18.

Given the outlook for growing demand for consumer goods in Bangladesh it is not surprising that Arcelik, the leading Turkish consumer appliance company, announced its intention to acquire a controlling stake in Singer Bangladesh which has a very strong position in the Bangladeshi consumer appliance industry and whose shares the fund holds. This is Arcelik’s second acquisition in an Asian frontier market after its acquisition of Dawlance Pakistan in 2016 – a sign of the large consumption opportunity in Asian frontier markets.

Not surprisingly, due to rising inflation and the large current account deficit, the State Bank of Pakistan raised benchmark interest rates by 50 basis points taking cumulative rate increases to 475 basis points since January 2018. There are talks of an IMF deal being announced in the coming weeks and though this will strengthen the balance of payments position of the country it may also lead to further fiscal and monetary consolidation measures i.e. tax increases, gas/electricity price increases, reduction in development expenditure and further interest rate hikes and currency weakness. We maintain our underweight position in Pakistan.

The fund’s Kazakh bank holding declared very good results which were ahead of expectations. The fundamentals of this bank remain very sound and it is well placed to take advantage of its size and market share to capture the opportunities that future economic growth in Kazakhstan and the Central Asian region offer.

Mongolia was a detractor to performance in March despite some the fund’s Mongolian consumer holdings declaring excellent results for 2018, notably a bakery company and a cashmere company. The optimism was short lived as political noise around some of the country’s mining operations and an ongoing anti-corruption campaign continued to weigh on the market and investor sentiment.

The best performing indexes in the AAFF universe in March were Kazakhstan (+4.0%), Laos (+2.2%) and Vietnam (+1.6%). The poorest performing markets were Sri Lanka (4.5%) and Bangladesh (3.9%). The top-performing portfolio stocks this month were an engineering company from Uzbekistan (+34.8%), a Vietnamese insurance company (+28.8%), a Mongolian coal mine (+27.4%), a Vietnamese brewery (+27.3%) and a Bangladeshi tobacco company (+22.3%).

In March, we added to existing positions in Mongolia, Uzbekistan, and Vietnam and added a Vietnamese retail property company and an Uzbek alcohol producer. We exited a diversified holding company in Vietnam. We partially sold each one company in Bangladesh and Vietnam.

As of 31st March 2019, the portfolio was invested in 86 companies, 2 funds and held 3.9% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (7.2%) and a pump manufacturer from Vietnam (5.4%). The countries with the largest asset allocation include Vietnam (27.1%), Bangladesh (20.5%), and Mongolia (17.2%). The sectors with the largest allocations of assets are consumer goods (27.9%) and industrials (20.9%). The estimated weighted average trailing portfolio P/E ratio (only companies with profit) was 12.73x, the estimated weighted average P/B ratio was 2.02x, and the estimated portfolio dividend yield was 4.14%.


AFC Iraq Fund - Manager Comment




The AFC Iraq Fund Class D shares returned −0.9% in March with a NAV of USD 536.58 which is an out-performance versus its benchmark, the Rabee USD Index (RSISUSD) which returned −1.7% for the month. Year to date the RSISUSD is down -13.9%, while the fund lost −8.7%.

Turnover, while up +23% from February’s dismal levels, was still mostly in-line with the historic lows of the last few months. Foreign selling, the cause of the last few weeks’ declines, continued along the recent low levels dragging prices lower given the overall low market liquidity.

The market’s obliviousness to the increasing signs of the return of liquidity to the economy has extended into neglecting solid earnings growth for one of the market’s top banks - an earnings growth that has all the characterises of a classic banking recovery after a severe economic contraction.

It was argued here in November 2018, following the earnings recovery of mobile operator AsiaCell, that “The next few quarters should see a similar recovery for the battered banking sector, with probably the first indicator to recover being the quality of loans. A return of liquidity and an economic pick-up should be followed by a recovery in the quality of bad loans and the reversal of NPL’s (non-preforming loans) with past provisions becoming earnings, thus providing the first boost to earnings recovery. This should be followed by growth in loans and deposits …”.

Mansour Bank’s (BMNS) 2018 results provide a textbook example of the above arguments in action. BMNS reported revenue and income growth of +28.1% and +42.6% respectively for 2018 over 2017. Both revenues and net income were helped by a reversal of some of the past provisions for NPL’s (non-preforming loans) as some clients, helped by the economic pick-up, began to pay back loans that were classified as non-performing. However, even without this reversal of provisions, both revenues and earnings would have been up +13.1% and +15.5% respectively on the back of strong underlying metrics.

The first of these underlying metrics was a deposit growth of +25.8% in 2018 versus 2017, driven by the growth in private sector deposits. This lends support to the argument, made here in January 2019, that the growth in the monetary base M0 is an early indicator of a recovery in private sector deposit growth. The second and most promising metric is an acceleration of loan growth to +6.1% in 2018 over 2017, after an almost flattish trend. BMNS’s management underlined its confidence in its future outlook by declaring a 40% higher dividend which is equal to a 9.7% dividend yield.

BMNS’s financial performance during the years of conflict up to 2017 was reviewed here in October 2018 after it was caught in the selloff that engulfed the banks during the second half of 2018. The improvement in 2018 suggests the end of the tough times for the bank, and potentially for other well managed banks in general.

BMNS’ financial performance during the years of conflict, the stability of 2017 and the start of the recovery in 2018 can be seen through the two charts below that look at loans/non-performing loans (NPL’s), and deposits and their association with government budget surpluses/deficits given the central role that government spending plays in the economy. BMNS’ loan and NPL data were supplied by the research team at Rabee Securities which is gratefully acknowledged, while other data were taken from the Ministry of Finance, the Central Bank of Iraq, the Iraq Stock Exchange and company reports. Data from 2010-2014 are based on Iraqi accounting standards, while data from 2015-2018 are based on IFRS, and all calculations use the official USD/IQD exchange rate.

BMNS’ loan book growth peaked in 2015 at the same time that NPL’s peaked. Unlike many other banks in the sector, its loan book was almost flat during 2015-2017, and started to pick up in 2018. NPL’s as a percentage of loans declined by over 60% from the peak (chart below).


Mansour Bank: Loans & NPL’s 2011-2018

(Source: Ministry of Finance, Central Bank of Iraq, Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)


Unlike, almost all other banks in the sector, BMNS experienced deposit growth throughout the crisis, which accelerated during the relative stability in 2017, and continued into 2018. A flat loan book and sharply increasing deposits resulted in a very low loan/deposit ratio allowing BMNS the opportunity to grow its loan book. Moreover, most of these loans are collateralized by property, as most of the loans are in Iraq, where the norm for collateral value is at 2x the loan. It should be noted, that most of these deposits are in the form of current accounts, followed by on-demand deposits underscoring the nascent nature of the Iraqi banking system and the opportunity for future growth as the society adopts banking culture.


Mansour Bank: Loans & NPL’s 2011-2018

(Source: Ministry of Finance, Central Bank of Iraq, Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)

While not all of the other banks enjoy the same financial strength as BMNS, the macro forces that contributed to BMNS’s recovery are the same for the sector as a whole and should therefore create the conditions for a recovery in the sector. These macro forces are boosted by the December data from the Ministry of Finance which shows that the government recorded a budget surplus of about USD 22.9 bln for 2018, or a two-year surplus of USD 24.4 bln as at the end of 2018.

The government’s 2019 non-oil investment programme is about USD 12.5 bln, which would be equivalent to about a 7.5% stimulus to the estimated non-oil GDP for 2019. While it is highly unlikely that this would be immediately spent, the spending should start with a trickle but grow as investment spending gets underway- and should therefore provide a further boost to the expected banking sector recovery.

The market has made a mockery of expectations, made here over the last few months, that its divergence from its past close relationship with oil revenues (a proxy for the forces driving the economy) should come to an end. Nevertheless, the strong fundamentals of the market’s leading stocks such as Pepsi bottler Baghdad Soft Drinks (IBSD), mobile operator AsiaCell (TASC), and Mansour Bank (BMNS) coupled with resuming growth in oil revenues only add to the unsustainability of this divergence (see chart below).


(Source: Iraq’s Ministry of Oil, Rabee Securities, Asia Frontier Capital)
(Note: Oil revenues as of March.)

As of 31st March 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 (91.0%), Norway (4.3%), and the UK (0.8%). The sectors with the largest allocation of assets were financials (46.1%) and communications (22.5%). The estimated trailing weighted average portfolio P/E ratio was 17.43x, the estimated trailing weighted average P/B ratio was 0.82x, and the estimated portfolio dividend yield was 8.41%.

 Factsheet AFC Iraq Fund
 Factsheet AFC Iraq Fund (non-US)
 Presentation AFC Iraq Fund



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AFC Vietnam Fund - Manager Comment


The AFC Vietnam Fund gained +1.6% in March with a NAV of USD 1,826.89, bringing the return since inception to +82.7%. This represents an annualized return of +12.1% p.a. The Ho Chi Minh City VN Index in USD gained +1.6%, while the Hanoi VH Index added +1.5% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.58%, a high Sharpe ratio of 1.31, and a low correlation of the fund versus the MSCI World Index USD of 0.26, all based on monthly observations.

Market Developments

Once again, the largest companies showed the highest volatility over the past month. Some of the highest weighted stocks surged 8-10% early in the month but gave everything back in the second half, before moving up slightly again in the last few days.

With the continued volatility in blue chips we are asking ourselves what kind of return the average non-institutional investor is looking for? Sure, everybody would like to earn 20% in a 0%-interest rate environment which would translate into around 1.6% a month without much fluctuation or volatility. The reality, as we know, is quite different. Just a few months ago, back in November 2018, the end seemed to be near and people were scared to death to lose their shirts. But after a big Christmas feast and a fancy New Year’s celebration investors seemed to have forgotten their worries and jumped right back into the stock market. After some gains they even became excited and bullish again.

Over the past few days a correction set in which was triggered by fears of a slowing global economy (again!) and after interest rate expectations for the USA slowly reversed. In late fall, investors feared that the FED would continue raising interest rates with at least two increases in 2019 (which would have been negative for Emerging Markets). Now people are scared of the idea that the FED could even have to lower interest rates because of the same fears investors had a few months ago – a slowing global economy.

Vietnam Index February 2018 – March 2019

(Source: Bloomberg)


With a slowing economy in the USA and a systemically weak economy in Europe, we also see a weakening of many Asian economies. How can it be that Vietnam is still able to show good growth and other macro numbers in this environment? While Vietnam would certainly not be immune to a massive economic shock as we saw 10 years ago, current and future growth is based on two strong factors which shield the country mostly from a regular cyclical slowdown in global economic activities: First is the manufacturing shift from other countries into Vietnam and second, and not less important, is the growing domestic demand from a vastly increasing consumer base of nearly 100 mln people who care little about consumer concerns around the world.

In Vietnam we see earnings growth of 12-14% for each 2018 and 2019, while in the US, markets fear that there will be zero earnings growth this year while the relative valuation to other markets is higher than at any time over the past several decades. US investors are therefore looking again for companies with technology-like growth and for stocks paying high dividends (average dividend yield of the Dow Jones Industrial Average is around 2.3%) which they think would lower their risk. Well, we have it all here in Vietnam – growth plus dividend yields, reaching around 7-8% on average in our portfolio.

Relative Strength of Small Cap Index vs. Vietnam Index

(Source: HSX, VCSC, AFC Research)


Since the introduction of the Small Cap Index in Vietnam we saw one major underperformance of this index versus the Vietnam Index, which is dominated by a handful of large caps. That is exactly the same time frame where our fund also underperformed. Now we can see a bottoming process of the relative performance of small caps which should help the broader market and also our fund portfolio.

Formula 1 breaks ground in Hanoi ahead of 2020 Vietnam Grand Prix

Formula 1 witnessed a literal ground-breaking event on 21st March 2019 as construction work officially commenced on the Hanoi Motor Sport Circuit, the track that will host the 2020 Vietnam Grand Prix, the country’s first ever F1 race.

Set to become the fourth proper street race on the F1 calendar next year, alongside Monaco, Singapore and Azerbaijan, the Hanoi track will run to 5.57 km and feature 22 corners, some of them borrowing heavily from iconic tracks like Suzuka and the Nuerburgring.

Vietnam is a rather low GDP per capita country compared to other F1 host nations, such as for example Singapore, Japan, South Korea, Malaysia or China. This shows again that Vietnam is becoming a trustworthy partner when it comes to megaprojects – be it in large industrial investment projects, or now in one of the most prestigious sporting events worldwide like Formula 1.

GDP per capita at first year of hosting F1

(Source: F1, AFC Research, IMF)


With a yearly cumulative TV audience of around 1.8 bln people, Formula 1 has 506 mln global fans and an average race attendance of around 200,000 people, creating multiple layers of cultural and economic benefits for a host city. Similarly, a recent study by Price Waterhouse Coopers found that the Azerbaijan Grand Prix in Baku created USD 277.3 mln of increased economic value in 2016 and 2017. Singapore for example benefits every year when the nation hosts more than 450,000 international visitors, who contribute around USD 1.4 bln in incremental tourism revenues. Also, several thousands of jobs are created every year during these races.

Vietnamese IPO’s are not always as hot as people think

In the last eighteen months Vietnam’s stock market saw a big increase in terms of market cap, especially due to a number of companies which went public. Often the pricing of large cap IPOs was very expensive, but investors rushed to buy these stocks anyway as soon as they were listed on the exchange and hence pushed up prices sharply. This also contributed to the rise of the Vietnam index in the period of November 2017 to April 2018 before it dramatically corrected during the remainder of 2018. If you look at the bubble chart below you can see that most IPOs over the last 18 months have shown a negative performance. A lot of investors, including foreigners, were lured into this “IPO fever” and hence suffered losses in due course. We have been asked many times in the past by investors why we never participated in IPO’s. This is due to cumbersome processes for subscription and trading in these stocks (although, this has been improved over the past years), as well as unattractive pricing and the lack of sufficient information before the IPO.


IPO performance (relative performance versus VN-Index)


(Source: Bloomberg, AFC Research)



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


GDP growth in Q1-2019 reached 6.79%, versus estimates of 6.50%. Vietnam continues to be one of the fastest growing economies in the region.

GDP growth in 1st quarter by year (%)

(Source: GSO, AFC Research)


At the end of March 2019, the fund’s largest positions were: Agriculture Bank Insurance JSC (3.7%) – an insurance company, Sametel Corporation (3.5%) – a manufacturer of electrical and telecom equipment, Vietnam Container Shipping JSC (3.1%) – a container port management company, Idico Urban and House Development JSC (2.6%) – an energy, construction, and real estate business, and Viet Tien Garment Corporation JSC (2.5%) – a garment company.

The portfolio was invested in 66 names and held 5.0% in cash. The sectors with the largest allocation of assets were industrials (34.9%) and consumer goods (29.4%). The fund’s estimated weighted average trailing P/E ratio was 8.62x, the estimated weighted average P/B ratio was 1.39x and the estimated portfolio dividend yield was 7.53%.

 Factsheet AFC Vietnam Fund
 Presentation AFC Vietnam Fund



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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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