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Asia Frontier Capital (AFC) - May 2020 

“"Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do." ― Mark Twain -

“"Twenty years from now you will be more disappointed by
the things that you didn't do than by the ones you did do."

Mark Twain - American writer and entrepreneur. 

Year to dateSince
AFC Asia Frontier Fund USD A1,106.21+4.1%-13.1%+10.6%
AFC Frontier Asia Adjusted Index2 +3.2%-17.0%-9.7%
AFC Iraq Fund USD D511.39+10.2%-18.4%-48.9%
Rabee RSISX Index (in USD) +10.6%-17.6%-60.9%
AFC Uzbekistan Fund USD F991.09+3.3%-9.4%-0.9%
AFC Vietnam Fund USD C1,624.75+4.3%-9.2%+62.5%
Ho Chi Minh City VN Index (in USD) +13.1%-10.5%+54.1%
  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 on 1st June 2017. Prior to that it consisted 100% of the MSCI Frontier Markets Asia Net Total Return USD Index, and after 1st June 2017 it consists of 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.

Asian frontier markets continue to rebound

Extremely attractive valuations and a gradual reopening of economies led to another good month for Asian frontier markets. Both Bangladesh and Sri Lanka reopened for trading this month with the Colombo All Share Index gaining 6% and the Sri Lankan Rupee appreciating by 2.5% during the month. Vietnam’s good run continued with a gain of 12.4% for the VN Index, taking its gains to 30% since 31st March 2020.

Investor attention could shift to attractively valued markets relative to growth stories as the global economy slows

Over the past few years, frontier markets, in general, have been valued very attractively but growth stocks have stolen the limelight with the MSCI World Growth Index outperforming the MSCI World Value Index by a large margin since 2015. With economic slowdowns looming globally there is a possibility that a lot of this exuberance in growth stocks could be tested, which could lead to more attention being directed towards value stocks, which have been ignored.

When value stocks come back into favour, it will be positive for Asian frontier markets as they are not only valued very attractively but have also been ignored over the past few years, despite an outlook for stable long term economic growth, extremely favourable demographics and benefitting from a manufacturing shift from China. 


Growth stocks have significantly outperformed value stocks over the last five years (% change)

(Source: Bloomberg)


Valuation gap between growth and value stocks is highest in a decade

(Source: Bloomberg)



(Source: Asia Frontier Capital, Bloomberg)


Asian frontier markets offer untapped opportunity for Mobile Financial Services

Though lockdowns and social distancing have inhibited normal economic activity, one industry which is expected to do well in the post-pandemic world is mobile financial services and digital payments as banking customers look to increase their exposure to contactless payments and transactions. Asian frontier markets are very well suited for the growth of mobile financial services as cash is still a widely used mode of payment while traditional banking penetration remains low.

In markets like Bangladesh and Pakistan, mobile financial services applications like Bkash (a subsidiary of BRAC Bank) and Easy Paisa (a subsidiary of Telenor Pakistan) have attracted a large number of users, which has led to investments by Ant Financial into both these companies.

Another market in the Asian frontier universe which is witnessing a large uptick in mobile financial services (MFS) is Myanmar and the market there is being led by Wave Money, a joint venture between Yoma Strategic Holdings, Telenor and since recently Ant Financial. When Ant Financial acquired stakes in MFS players in Bangladesh and Pakistan in 2018, we had written in our April 2018 newsletter that we would not be surprised if Ant Financial acquired stakes in MFS players in other Asian frontier markets given the opportunity.

Last month Ant Financial announced that it would take a 33% stake in Wave Money and this investment and partnership should help Wave Money further improve their technological and digital payments capability which should lead to increased usage of digital payments in Myanmar. Post pandemic, the government of Myanmar has now made it a policy to actively promote digital-led payments due to the still low banking penetration in the country and has considered MFS companies as an “essential business”.

To gauge the potential that MFS holds in Asian frontier markets, one can make a comparison with Kenya which has achieved large scale MFS penetration primarily through Safaricom’s M-Pesa application. This has led to total MFS transactions of USD 83 bln which is 94% of Kenya’s GDP. We believe the MFS story in Asian frontier markets is only beginning and the AFC Asia Frontier Fund is well positioned for the growth of this industry as it is invested in BRAC Bank (the parent company of Bkash) and Yoma Strategic Holdings (the JV partner in Wave Money).


Low banking penetration and the pandemic leaves a lot of room for growth for Mobile Financial Services in Myanmar

(Source: Nikkei Asian Review)



(Source: Wave Money)



(Source: Wave Money, State Bank of Pakistan, Bangladesh Bank, Communications Authority of Kenya, *only applies to Wave Money)




We hope you and your loved ones are safe and healthy in these times of Coronavirus and while measures are being relaxed in several places where we work, we at Asia Frontier Capital continue to operate both onsite, as well as remotely (currently from 6 different countries), taking into account social distancing and disinfection practices. From the onset of the COVID-19 crisis we have had continuous and uninterrupted access to our systems from all of our offsite locations and we have been able to continue managing all of our funds smoothly and communicate with our counterparties to receive and give timely information and updates.

Below please find the manager comments relating to each of our 4 funds for the month of May 2020.

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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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 London and Iraq. 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..

Switzerland June 2020 Thomas Hugger
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As May drew to a close the ‘worst-case’ prognosis for Iraq in the wake of the carnage brought about by COVID-19 turned out to not be as bad as originally feared – not by a wide margin. But its equity market is still discounting the worst of possible outcomes, notwithstanding a strong close for the month with the Rabee Securities RSISX USD Index (RSISUSD) up 10.6%, while the fund was up 10.2% with a NAV of USD 511.39.

The first of these negatives, causing the discount in the equities market, was the political chaos that gripped the country for over six months since the youth-led protest movement forced the resignation of the prime minister. The severe crisis brought on by the collapse in oil prices, and the threats – health and economic – of COVID-19, forced the political elite to suspend their quarrels and appoint a prime minister whose reform agenda would threaten their interests. The fundamental governing equations of Iraq’s political system – which largely allowed the political elite to maintain their oversized influence on economic policies – are mostly still functioning. Yet, the scale of the economic crisis is providing the new government the opportunity to pursue meaningful economic reforms. As articulated by the Minister of Finance, these reforms include a fundamental retooling of the budget’s structural imbalances that favoured current spending over investment spending. The first of these are likely to be cuts to public payroll expenditures (at 47% of the 2019 budget), which coupled with other rationalization measures and an improving oil price environment (discussed below) would relieve the pressure on government finances. Crucially, embarking on such reforms would allow a resumption of the dialogue with the IMF, following the straining of the relationships by the prior government’s abandonment of the 2016 Stand-by Agreement. Such a dialogue would allow Iraq access to debt markets as it seeks to restructure its past failed economic model.

The appointment of the new PM was followed by easing of the concerns that prompted the collapse in oil prices to historic lows in late April. The second quarter of 2020 is likely to see a much less dramatic decline in world oil demand, estimated to drop 20% versus last year, whereas expectations were for a drop of 30%.

This was complemented by a surprisingly massive estimated 12% drop in world oil supply in May as the OPEC+ agreement came into effect, as well as a much larger than expected drop in production elsewhere, especially in US shale oil. This combination reduced the severe pressure on global crude storage capacity and provided support for oil prices. 

Finally, like in the rest of the world, Iraq is slowly emerging from lockdown and resuming economic activity, providing much-needed relief to the country’s private sector. While every sector of the economy has felt the effects of the lockdown, the informal sector – dominated by retail trade, transport and hospitality – which accounts for the bulk of private-sector economic activity in Iraq – has been hit particularly hard as seen from the chart below, which shows changes in economic activity compared to the baseline between 3rd January 2020 and 6th February 2020.



(Baseline is the median, for the corresponding day of the week, during 3rd January – 6th February, (Source: Google, data as of 29th May.)


However, economic activity has recovered to about 80% of pre-lockdown levels – with the big drop in late May being due to the Eid holiday. This recovery will likely gradually continue over the coming weeks and will contribute to the healing of the economy. However, it should be repeated that the decline in activity is likely to have been more precipitous than shown in the above chart as activity in the retail, transport and hospitality sectors was subdued during the baseline period given the chilling effects of the dramatic events at beginning of the year. More so, these events came on the back of a slowdown induced by the continued countrywide demonstrations since October 2019. 

The lockdown, for all its ills, brought some unexpected benefits to the beleaguered private sector. Part of the imposed measures were the closure of border posts with neighbouring countries. This provided breathing space for the private sector and an opportunity to grow – an opportunity that is likely to be enhanced as part of the new government program to diversify resources by stricter implementation of tariffs on imported goods.

During May, the Iraq Stock Exchange (ISX) continued operating in-line with the government’s guidance of reduced commercial activity, with three trading days per week down from the prior five – which was further reduced as the market closed on 21st May ahead of the extended Eid holiday. As written in last month's report, the misguided attempt to calm the market’s fears by lowering the daily stock price limit down to 5% from 10%, after leading to a sell-off in the three trading days in April, reversed sharply in May’s nine trading days as the market rose 10.7%.

The not as bad as feared hypothesis notwithstanding, the outlook for Iraq is still fraught with uncertainties. For starters, oil prices have recovered significantly and have begun to discount a supply-demand imbalance in favour of supply sooner than expected. Yet the evolution of the COVID-19 pandemic is uncertain as the world slowly emerges from a global lockdown and the consequences of global economic disruptions in the wake of COVID-19 are still unfolding with significant implications for oil demand. Higher oil prices will also likely bring back some of the shuttered supply – especially relevant in the case of US shale oil given its sensitivity to price. The most likely scenario is still a 12-month average price of USD 30-40 per barrel (/bbl) for Brent crude and USD 45-55/bbl average for the subsequent 12-months.

Additionally, the new government has a herculean task of passing its proposed reforms through a status quo focused and a parliament dominated by the political elite, while at the same time needing acceptance of its austerity program by an alienated population. Finally, the ease of the lockdown measures brought a sharp increase in COVID-19 cases, raising fears of a second wave of the pandemic and a re-imposition of lockdown measures as evidenced by the introduction on 31st May of a one-week curfew to contain the latest increase in cases.

These concerns notwithstanding, as Iraq's equity market was discounting neither an economic nor a corporate earnings recovery, it is worth concluding this update with the same one made here last month, i.e. citing the closing argument of the Asia Frontier Capital team in the March newsletter:-

“The recent stock market correction, though painful, is now providing an excellent entry point to investors as valuations across our universe are at 10-year lows – stock picking has never been easier. Though we believe global markets could remain volatile in the near term as the number of infections rise and poor economic numbers come through, a sustained rally could be seen once there is an indication of infections peaking especially in Europe and the U.S.

Asian frontier markets have bounced back very strongly after previous episodes of market dislocation such as in 2008-09 with markets like Pakistan and Vietnam generating much higher returns than major indices. Though it is very easy to get distracted with the negative consequences of the pandemic, Asian frontier markets are at present and will over the next few months provide an opportunity to invest in these markets last seen a decade ago.”

As of the end of May 2020, the AFC Iraq Fund was invested in 14 names and held 0.4% 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 (98.0%), Norway (1.1%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (53.8%) and communications (21.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 12.75x, the estimated weighted harmonic average P/B ratio was 0.56x and the estimated weighted average portfolio dividend yield was 5.83%.

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AFC Vietnam Fund - Manager Comment


The stock market’s recovery continued in May, though momentum slowed down towards month’s end. Just two months ago people were scared that the sky was falling. This of course was followed by the strongest gains in years for Vietnam and the next likely step is a consolidation of recent gains before the uptrend will continue. We therefore used interest from local investors in our smallest companies to either fully or partially exit and we are looking to re-deploy money to larger names with attractive valuations during the next correction. Although foreign net-selling continued, most indices advanced strongly with blue chips up the most. The indices in Ho Chi Minh City and Hanoi gained 13.1% and 3.5% in USD terms respectively. Despite increasing the cash holding during the month, the NAV of the AFC Vietnam Fund gained 4.3% to reach an NAV of USD 1,624.75, bringing the return since inception to +62.5%. This represents an annualized return of +7.8% p.a. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 12.78%, a Sharpe ratio of 0.54, and a low correlation of the fund versus the MSCI World Index USD of 0.56, all based on monthly observations since inception

Market Developments

May saw another month of recovery, though it was less spectacular than April’s as momentum began topping out during the month. This is no surprise as the VN-Index has risen by 33% since the bottom on 31st March, and the rally was mostly broad-based with decent market breadth. It now needs some time to digest those gains before we get confirmation that a new bull market has started. It is good to see that foreign net selling mostly disappeared, while local retail investors, many of them new to the market, continued to purchase stocks across the board.


VN-Index from March 2019 to May 2020

(Source: Bloomberg)


VN-Index market breadth

(Source: Bloomberg, AFC Research)


Growth of Brokerage Accounts

(black = total number of trading accounts (LHS), red = monthly new accounts)
(Source: VietStocks)


It continues to be very difficult for us as a fund manager to find a single index which accurately represents “the market” in Vietnam. Not only that, there are already two separate and quite different stock markets—one in Ho Chi Minh City and Hanoi—and a third market, UPCOM, which hosts many interesting and newly listed companies.

Number of listed stocks by market cap




























Percentage of listed stocks by market cap in mln USD



























(Source: Viet Capital Securities)

We often wrote about the problematic concentration on banks, real estate and Vingroup stocks in the mostly followed HSX-Index, not to speak of the unavailability of some stocks to foreign investors.  

So, what are fund management companies doing in this respect? Besides a comparison to the HSX-Index, some are showing either indices like the FT-Vietnam which takes into account those issues for foreigners, or comparing them to ETFs which are having a difficult time tracking a Vietnamese stock market index, because they face a lot of restrictions and also invest in companies which are listed in other countries but generate part of their revenues in Vietnam.


AFC Vietnam Fund versus FTSE Vietnam Index and VanEck ETF

(Source: Bloomberg, AFC)


While this certainly looks good, we still prefer to show the widely used local indices with all of the flaws they have and instead explain certain moves which might not be clear to outsiders, as has been the case over the past few weeks for the Hanoi Index. With two heavily weighted banks (one not available to foreigners, and the other a target of immense speculation from local retail investors), on several occasions the index moved in opposite directions relative to the index in Ho Chi Minh City by a daily magnitude of 1%-2%, which is ridiculous!


HNX-Index form March 2019 to May 2020

(Source: Bloomberg)


Saigon-Hanoi Commercial Bank form March 2019 to May 2020

(Source: Bloomberg)


For those reasons, we do not want to and will not get involved in playing index-games, instead continuing to focus on undervalued investments with reasonable risk profiles to capture the outstanding economic situation Vietnam finds itself in over the long term, despite or maybe now even more so, because of COVID-19.

Vietnam’s new normal economy

Finding yourself sitting and investing in one of the safest (almost) COVID-19-free country is one-of-a-kind luck nowadays. Wherever our readers may currently be stationed, at the moment it is probably impossible to find more personal freedom than in the “poor” and communist country, Vietnam – something worth considering during times when consumer behaviour is influenced by fears from governments all over the world which are struggling to find the right balance between health and the economy.


Competitions have started again, like this 18-stage bicycle race through several provinces in Vietnam

(5th stage of HCM City Cycling Cup finishing in Danang; source: AFC)


It has already been 5 weeks since most restrictions were lifted, and besides some infections in quarantines from repatriated overseas Vietnamese, no community infection has been seen in 43 days! This tremendous accomplishment has put Vietnam into a situation where all businesses are working except for discotheques and karaoke bars. But now the main issue is if and how to open up the borders when it is almost certain Vietnam will get new infections by allowing tourists into the country. With pressures arising in Europe for the upcoming holiday season, Vietnam is also discussing different ways to restart the tourism industry. “Bubble tourism” in a way discussed now by New Zealand and Australia is the most likely outcome in the short term, with countries showing a low infection rate in North and South East Asia possibly being approached first. There are ongoing discussions of an Indo-Chinese travel bubble and the government is also preparing to open up the country for international flights in July. While in theory all hotels, restaurants and tourist attractions are allowed to be open, we still see a larger portion, especially those catering to higher end tourists, remaining closed, simply because there are no foreign tourists. Vietnam is starting a domestic program to attract Vietnamese to the local market, but the hotels which are open are facing massive problems as they still operate on extremely low occupancy rates despite lowering prices 50%-75% to lure less wealthy Vietnamese. With very few tourists around, this is certainly the best time to visit Vietnam (whenever possible again), but on the other hand it is a disaster for the industry, as is the case globally. According to a recent poll in China, nearly half of surveyed Chinese travelers said they plan to travel overseas during the remainder of 2020 if the pandemic is contained, while 45 percent of these said Vietnam would be on their travel list. So hopefully the region does not lose more time in finalizing a strategy on how to open. With new daily infections ranging from 0 to 100 for weeks now in countries like Australia, New Zealand, Hong Kong, South Korea, Vietnam, Thailand, Taiwan, China and Japan, every day their borders remain closed leads to unnecessary further deterioration of the tourism industry, which in the case of Vietnam accounted for around 12% of GDP in 2019.

As we already mentioned in the previous report, particular undervalued stocks may pay extraordinarily high dividends to investors such as DXP, ABI or TCL.  One of the fund's our top 10 positions, Tan Cang Logistic JSC (TCL) announced a dividend of VND 7,000 per share for the financial year 2019, which equates to a dividend yield of 31%! We attended the company’s AGM on 22nd May, when TCL also mentioned that it is planning to pay a dividend of at least VND 2,500 per share for financial year 2020 which is equivalent to a yield of 11%. The board of directors also mentioned that the company is operating at 100% capacity and that they are confident to reach their 2020 targets. Despite recent strong gains, the company is trading at only 8.4x earnings. During the current period, with so many uncertainties, we continue to focus on companies with strong cash flows and balance sheets which have low debt/equity ratios and high dividend yields, rather than investing in debt-laden and expensive index stocks. These attractively valued companies should be much better positioned to benefit and grow after the COVID-19 pandemic has disappeared. Most importantly, for the first time in years we are starting to see growing interest in undervalued companies from local investors.


Tan Cang Logistics and Stevedoring from Dec 2009 to May 2020

(Source: Bloomberg)


COVID-19 motivates companies to change

April through May is the main season for Annual General Meetings (AGM) for most listed companies in Vietnam. However, COVID-19 forced some of them to delay their AGMs or change the method to organize them. On 23rd May we joined the AGM of Loc Troi Group (LTG), which is a rice producer and also the largest pesticide company in Vietnam, with around 40% market share. It is an agricultural company which is also affected by COVID-19 and for the first time they allowed investors to join the AGM online. According to the Chairman and the new CEO, Loc Troi Group already started the group restructuring plan before COVID-19, but the pandemic accelerated this process of converting the company from a mere pesticide and rice producer company into an “agriculture service provider”. The new CEO commented that the key value of Loc Troi Group is its knowledge in agriculture and its close relationship with farmers. From a single pesticide provider, Loc Troi Group will become an integrated agricultural service provider, including seeds, pesticides, agriculture consulting services, logistics, agriculture big data and even financing services to farmers. To prove their strategy, the chairman said that Loc Troi Group is the first volunteer in the agriculture industry in Vietnam to provide rice origin tracing barcodes. LTG will provide high quality rice to the world, specially developed for markets such as the US and Europe. According to the chairman, rice orders from Europe are growing strongly after the company proved that it can control rice quality and its origin. They will reduce exports of low quality and cheap rice through auctions and focus on selling its high-quality rice brand to premium markets, such as Europe and USA. During the AGM, Loc Troi Group also announced and introduced a new independent Director, Mr. Philipp Rösler, the former Vice Chancellor of Germany, who was born in the province of Ba Xuyên. The Board of Directors stated that with the support and consultancy of Mr. Rösler and the recently approved trade agreement with Europe (EVFTA) Loc Troi Group can exploit this market more aggressively. Despite this, some investors expressed scepticism about the company’s transformation strategy and asked if the company is still confident that it will be able to meet its financial targets for this financial year. The chairman replied that “It is difficult to issue any forecasts during the COVID-19 pandemic and hence the uncertain business environment, but the current strong rice prices will definitely help to reach financial targets”. According to "Business Insider Magazin", rough rice futures prices jumped by more than 25% this year. It is too early to say if the company will be successful in its restructuring effort, but we can see that COVID-19 has motivated it to change and improve.


Rough rice future contract

(Source: Finviz)


We agree with many recent media reports that Vietnam is certainly suffering from the current crisis, but it is doing much better on a relative basis, and more importantly, it will rebound stronger than many other countries in the region. 



(Source: Politico)


Vietnam’s current handling of the COVID-19 crisis gives it an additional boost for potential longer-term outperformance in comparison to its regional peers, attracting manufacturing investments not only from China, but also from countries like Thailand.



(Source: Vietnam Times)



(Source: Bangkok Post)


We hope that Vietnam can use its several week head start in reopening its economy to further take advantage of the manufacturing shifts from China and other countries into Vietnam.




(Source: GSO, VCB, State Bank, AFC Research)


At the end of May 2020, the fund’s largest positions were: Agriculture Bank Insurance JSC (6.2%) – an insurance company, Vietnam Container Shipping JSC (4.7%) – a container port management company, TanCang Logistics and Stevedoring JSC (4.0%) – a logistics company, LienViet Post Joint Stock Commercial Bank (3.0%) – a bank, and Phu Tai JSC (2.8%) – a home and office furnishings company.

The portfolio was invested in 50 names and held 19.2% in cash. The sectors with the largest allocation of assets were industrials (31.1%) and consumer goods (22.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.93x, the estimated weighted harmonic average P/B ratio was 1.02x and the estimated weighted average portfolio dividend yield was 7.58%.

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The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 4.1% in May 2020 with a NAV of USD 1,106.21. The fund outperformed the AFC Frontier Asia Adjusted Index (+3.2%) but underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+12.2%), the MSCI Frontier Markets Net Total Return USD Index (+5.7%), and the MSCI World Net Total Return USD Index (+4.8%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +10.6% versus the AFC Frontier Asia Adjusted Index, which is down by 9.7% during the same period. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.54% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.50, all based on monthly observations since inception.

It was another month of positive performance for the fund with a majority of the fund’s markets and larger holdings doing well on the back of very attractive valuations and economies reopening. Vietnam had a strong month once again as the domestic economy gets back on track post the nationwide lockdown which ended on 23rd April. We expect domestically focused companies to do relatively better over the next few quarters as consumers and businesses get back to normalcy. Furthermore, we expect a greater government focus on infrastructure spending in order to support economic growth.

The fund’s Vietnamese holdings are well positioned towards this domestic consumption and infrastructure theme with a mall operator rallying by +19% this month and +44% since 31st March. The construction contractor the fund owns rallied by 21% this month and its price has increased by +48% so far this year, outperforming the Ho Chi Minh VN Index by a large margin.

Stock selection has led to a robust recovery for the fund’s Vietnam holdings which have returned approximately -6% this year versus the VN Index which has returned -10.6% during the same period in USD terms. After the deep correction in March, a majority of the fund’s Vietnamese holdings have rallied by more than 40%, much ahead of the +32% USD return of the VN Index since 31st March.


The fund’s Vietnamese consumer holdings have outperformed the VN Index post the March 2020 correction (% change)

(Source: Bloomberg)


A faster reopening of the economy has helped the Vietnam VN Index to rebound more strongly compared to regional countries

(Source: Bloomberg)


Beximco Pharmaceuticals, the fund’s largest holding which is the third-largest pharmaceutical company in Bangladesh by market share, had another good month in terms of stock price performance with the stock gaining +18% this month on the back of a +11% gain in April. Positive sentiment in the stock is due to the company becoming the first generic pharmaceutical company in the world to produce the generic version of Remdesivir, the anti-viral drug which has helped reduce hospitalization time for COVID-19 patients.

Furthermore, Pakistani pharmaceutical company The Searle Company signed an exclusive licensing and marketing agreement for sourcing Remdesivir from Beximco Pharmaceuticals for sale in Pakistan. This development also helped the company’s stock price performance and it would not be surprising if the company gets into agreements for supplying Remdesivir to other pharmaceutical companies in developing countries. The fund holds the London listed GDR of Beximco Pharmaceuticals which currently trades at a discount of 26% to the local listing in Dhaka.

The Colombo Stock Exchange reopened for trading on 11th May after being closed since 20th March due to the COVID-19 led nationwide curfew. Over the first two trading days of the market reopening, the CSEALL Index lost -7% but extremely attractive valuations led to a very strong recovery during the rest of the month with the CSEALL Index closing the month with a gain of +6%. The recovery in stock prices in Sri Lanka was across the board and the fund was well-positioned with a telecom company and a consumer staple company seeing an increase in their stock prices by +22% and 16% respectively.

Furthermore, despite concerns on upcoming external debt repayments, the Sri Lankan Rupee appreciated by +2.5% in May as the government has received funding commitments from China and India to meet any shortfalls. Though government debt levels are a concern going forward, one should note that Sri Lanka has never defaulted on its obligations and overall equity market valuations remain at historically attractive levels.

On the COVID-19 front, Sri Lanka has also done much better than its South Asian peers with no community transmissions being reported since 30th April and the number of cases per million people also stands at a much lower number than most regional countries while the capital Colombo itself has reported less than 200 cases, a significant contrast to other major South Asian cities.


Sri Lanka CSEALL Index rebounded on markets reopening but still very attractively valued relative to history

(Source: Bloomberg)


Sri Lankan Rupee has strengthened over the past month as the external debt situation appears to be manageable

(Source: Bloomberg)



(Source: Bloomberg)


We discussed in our April 2018 manager comment when Alipay acquired a 20% stake in Bangladesh’s Bkash, that we would not be surprised if Ant Financial (Alipay’s parent) acquired stakes in other mobile financial services platforms in Asian frontier markets. This month, Ant Financial acquired a 33% stake in Myanmar based Wave Money which is the country’s largest mobile financial services platform. Yoma Strategic Holdings (Yoma), which the fund holds, will own 29.5% in Wave Money post transaction and the addition of Ant Financial as a partner will help Wave Money leverage Ant Financial’s technology to further penetrate the digital payments market in Myanmar which remains nascent. Yoma’s stock price increased by +29% this month on the back of this news which made it the third best performing stock for the fund this month. 

Despite a weakening macroeconomic environment in Kazakhstan due to the pandemic as well as lower crude oil prices, Halyk Bank retained its “BB” credit rating with a stable outlook from Standard & Poor’s and this reflects the bank’s extremely strong capital base with a total capital adequacy ratio of 21.9%. This positive development led to a gain of +17% in its stock price. The stock remains valued attractively at a price to book ratio of 0.9x.

The fund’s junior mining companies with exposure to Mongolian copper and gold projects did well again this month with gains being led by a junior copper miner and gold miner whose stock prices rallied by +69% and +38% respectively.

Pakistan had a quiet month due to Ramadan festivities but the State Bank of Pakistan cut benchmark interest rates by a further 100 basis points bringing the cumulative easing so far in 2020 to 525 basis points which makes the State Bank of Pakistan the most aggressive central bank in Asia in terms of easing. Lower interest rates have historically been positive for stock market sentiment in Pakistan and we continue to expect cyclical stocks in the auto and cement sectors to do well in light of this.


Pakistan KSE100 Index has historically done well in a low interest rate environment

(Source: Bloomberg)


The best performing indexes in the AAFF universe in May were Cambodia (+26.3%) and Vietnam (+12.4%). The poorest performing markets were Laos (−2.8%) and Mongolia (−2.6%). The top-performing portfolio stocks this month were a Mongolian junior copper miner (+68.8%), a Mongolian junior gold miner (+37.9%), a Myanmar focused conglomerate (+28.8%), a Sri Lankan telecom company (+22.4%), and a Vietnamese construction company (+21.2%).

In May, the fund added to existing positions in Mongolia and Vietnam and partially exited positions in Bangladesh and Mongolia.

At the end of May 2020, the portfolio was invested in 69 companies, 2 funds and held 5.7% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (11.1%), and a pharmaceutical company in Bangladesh (6.2%). The countries with the largest asset allocation were Vietnam (23.0%), Mongolia (19.1%), and Bangladesh (12.5%). The sectors with the largest allocation of assets were consumer goods (23.8%) and industrials (18.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.31x, the estimated weighted harmonic average P/B ratio was 0.70x and the estimated weighted average portfolio dividend yield was 3.98%.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Class F shares returned +3.3% in May with a NAV of USD 991.09, bringing the return since inception (29th March 2019) to −0.9%, and the Year to Date return to −9.4%.

With quarantine measures being significantly relaxed across most of the country, with only 960 active COVID-19 cases, economic activity has experienced a sharp rebound. This subsequently led to a sizable uptick in volume on the Tashkent Stock Exchange, leading to some notable price appreciation, accompanied by some large dividend announcements among the fund’s holdings.

AFC Uzbekistan Fund valuations as of 31st May 2020:

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


Estimated weighted harmonic average P/B:


Estimated weighted portfolio dividend yield:



Easing of quarantine measures

In early May the government established three categories of quarantine—red yellow and green—ranking each region according to the number of cases. Regions ranked “red” are in full lockdown with residents only able to go out for a walk or to the market or pharmacy. Regions in “yellow” can see nearly a full return to economic activity with the exception of schools being open and restaurants only allowed to deliver, while private vehicles can only be on the road from 07:00 to 10:00 and from 17:00 to 20:00. Regions classified as “green” experience all the same benefits of regions classified as “yellow” but with no restrictions on private vehicle usage during the daytime. Thus, Tashkent, ranked yellow, but effectively rated “green” as private vehicle usage is uninhibited during the day, has largely returned to business as usual. While the country’s international borders will remain closed for personal travel through at least 30th June, on 13th May the government announced it would recommence some domestic flights and train service to multiple regions as part of the continued easing of confinement measures.

Banking sector reforms

On 12th May, President Mirziyoyev signed a presidential decree, “On the Strategy for Reforming the Banking System of the Republic of Uzbekistan for 2020-2025,” which is a roadmap for the continued liberalization and privatization within the sector. The main aspects of the decree include:

•    Increasing the share of private bank’s assets in the sector from 15% to 60%;
•    Increasing the total share of bank debt to private clients from 28% to 70%;
•    Attracting foreign strategic investors for at least three state-owned banks;
•    Increasing the share of non-bank lending from 0.35% to 4% of total loans.

Six state-owned banks are slated for privatization including Ipoteka Bank (IPTB) with 90% state ownership, SQBN (SQBN) with 90% state ownership, Asaka Bank (ASBU) with 100% state ownership, Aloka Bank (ALKB) with 100% state ownership, Qizhlok Qurilish Bank (KKBN) with 80% state ownership and Turon Bank (TNBN) with 97% state ownership. Meanwhile, the National Bank of Uzbekistan, Microcredit Bank (MCBA), and Agro Bank (AGBA) will not be privatized.

Another important piece of the legislation is an increase in the minimum paid-up capital of banks from UZS 100 bln (USD 9.9 mln) to UZS 500 bln (USD 49.5 mln) by 2025, to further strengthen the already strong sector.

Portfolio companies showing continued strength

On 22nd May 2020 the Uzbek Commodities Exchange (URTS) held its annual general meeting where the company announced among other things that it would be paying a dividend of UZS 2,490 per share. This equates to a dividend yield of 17%. Performance for the company has remained robust in the first quarter of 2020 and we expect it to be another strong year for the exchange. Local investors are only just beginning to realize the benefit of owning a company generating a 17% dividend yield, while also benefitting from exposure to appreciation in the underlying equity, rather than keeping their savings in bank deposits earning a flat 20% per year. Such high dividend yields are not here to stay, but that will likely be due to local and foreign investors increasingly allocating capital to the stock market, leading to share price appreciation and hence lower yields. This remains part of our longer-term thesis as the capital markets develop and investors realize Uzbekistan is a safe haven of sorts amid the current global-macroeconomic volatility.


Uzbek Commodities Exchange (URTS) historical share price

(Source: Republican Stock Exchange Tashkent)


The fund’s largest holding, Qizilqum Cement (QZSM), saw its share price appreciate 16.6% during the month as the resumption of economic and construction activity saw a marked increase in cement demand, leading to an increase in cement prices of up to 20%. There have also been rumours that QZSM may renege on its previous announcement of not paying a dividend for FY 2019, thus stirring further trading in the company’s shares.


Qizilqum Cement (QZSM) historical share price

(Source: Republican Stock Exchange Tashkent)


On 1st May, approximately 70 kilometres southwest of Tashkent, on the Uzbek-Kazakh border, the Sydarya dam failed, causing significant flooding of farmland and displacing 70,000 people on both sides of the border (Sydaraya borders Kazakhstan) and causing 6 deaths. Initial estimates are for economic losses of close to USD 1 bln, the majority of which are agricultural related. The Uzbek government has helped to temporarily relocate displaced citizens and is planning to build 66 5-storey apartment buildings valued at UZS 950 bln. With minimal negative impact on the economy, the region should see an increase in demand for construction materials, specifically cement, which will indirectly benefit QZSM.

At the end of May 2020, the fund was invested in 28 names and held 3.6% in cash. The countries with the largest asset allocation were Uzbekistan (93.6%) and Kyrgyzstan (2.8%). The sectors with the largest allocation of assets were materials (58.0%) and industrials (15.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.68x, the estimated weighted harmonic average P/B ratio was 0.65x and the estimated weighted average portfolio dividend yield was 5.81%.

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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 at This email address is being protected from spambots. You need JavaScript enabled to view it. .

We hope that you and your family are staying healthy and safe during this challenging time.

With my best wishes,
Thomas Hugger
CEO & Fund Manager

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