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Asia Frontier Capital (AFC) - April 2021 Update





“Don't lower your expectations to meet your performance.

Raise your level of performance to meet your expectations.”

- Ralph Marston – professional football player


AFC Asia Frontier Fund USD A1,442.70+1.4%+7.8%+44.3%
AFC Frontier Asia Adjusted Index2 +2.0%+7.9%+26.8%
AFC Iraq Fund USD D716.95+7.0%+26.8%−28.3%
Rabee RSISX Index (in USD) +6.6%+24.4%−44.1%
AFC Uzbekistan Fund USD F1,830.25+11.2%+36.4%+83.0%
Tashkent Stock Exchange Index (in USD) +3.3%+27.6%+6.6%
AFC Vietnam Fund USD C2,638.08+1.6%+15.5%+163.8%
Ho Chi Minh City VN Index (in USD) +4.1%+12.5%+123.1%
  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.

AFC Funds report another positive month

All four of our AFC funds posted another positive monthly return led by our AFC Uzbekistan Fund which gained 11.2% in April, taking its year-to-date return to +36.4%, while its annualised return since inception stands at +33.6% which is a sign of the increased investor interest in a market which has only recently opened up to the outside world. Our AFC Iraq Fund also continued its strong run with a monthly return of +7.0%, taking its year-to-date return to an impressive +26.8% which reflects how quickly things can turn around in frontier markets. The AFC Vietnam Fund and the AFC Asia Frontier Fund reported a monthly return of +1.6% and +1.4% respectively, adding on to their strong gains over the last 12 months. 

Webinar to cover investment opportunities in Uzbekistan and Vietnam

On Tuesday, 18th May 2021, 9 am NY time / 2 pm London time / 3 pm Swiss time / 9 pm HK time, Asia Frontier Capital will be hosting a webinar to discuss long term investment opportunities in Asian Frontier Markets. We will focus this call on our conviction on the markets of Uzbekistan and Vietnam. The call will be held at the times mentioned above and everyone is welcome to join by registering through the link below:

Click here to register for the Webinar

Like in last month’s newsletter, I am glad that we have been recognized by Backstop BarclayHedge once again. This time two of our funds have won performance awards. The AFC Uzbekistan Fund won the runner-up award for its March 2021 performance in the sectors “Emerging Markets Equity - Eastern Europe/CIS” and “Emerging Markets Equity - Eastern Europe/CIS” while the AFC Vietnam Fund won the awards for 3rd best performance in the sector ”Emerging Markets Equity – Asia” and the Top-10 award for its performance in the sector ”Emerging Markets Asia”. The fact that we win these awards regularly shows our skill in stock selection and risk management, benefitting our investors with outstanding performance.






Below are the manager comments relating to each of our four funds for the month of April 2021.

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 Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund Class F shares returned +11.2% in April with a NAV of USD 1,830.25, a new all-time high, bringing the return since inception (29th March 2019) to +83.0%, while the year-to-date return stands at +36.4%. On an annualized basis, the fund returned +33.6% with a Sharpe ratio of 2.13.

The Uzbek stock market continued its broad, multi-month rally across the majority of the fund’s portfolio companies as the AFC Uzbekistan Fund experienced its twelfth straight monthly gain. The fund’s biggest holding, a cement producer, gained 41% during the month as its first quarter earnings surged 61% YoY. Beyond a great start to the first quarter earnings season, the big news during April was the reorganization of the capital markets regulator which will hopefully lead to a rapid acceleration in the privatization of state-owned enterprises and the attraction of significant new capital.

Market Update and First Quarter Earnings

As liquidity in the market is rising, albeit from a low base, and investor interest continues its growth apace, on 19th April 2021, the Toshkent Stock Exchange extended its trading hours by one hour. The market now operates from 09:30 am to 4:00 pm Monday to Friday.

First quarter earnings season has kicked off with a bang as some of our portfolio companies have reported spectacular results. Two of our holdings in the materials industry saw first quarter YoY earnings growth of 77% and 16% respectively, while two of our top cement holdings saw their earnings rocket 259% and 61% over the same period. Meanwhile, a steel producer reported 226% YoY growth. These superb results indicate to us that while some of our holdings have appreciated several hundred percent over the fund’s life, they remain far too cheap relative to their current and future growth prospects. We are therefore continuing to opportunistically accumulate shares ahead of what we believe will in due course be an influx of foreign investors who are increasingly waking up to the reality that Uzbekistan is emerging as an investment destination which should deliver strong growth for several years to come yet.

Capital Markets Development Agency Restructured

On 13th April 2021, President Mirziyoyev signed a sweeping decree “on measures for the further development of the capital market” in order to expedite the government’s goals of rapid reform by the end of 2023, and which includes having some major companies listed on the Toshkent Stock Exchange added to the MSCI Frontier Index watchlist. This is something which we believe could be a major “game-changer” since it will put Uzbekistan on the map for many foreign institutional investors.

On the same day, it was announced that the Capital Markets Development Agency (CMDA) would be dissolved. The CMDA was established in January 2019 with the purpose of acting as the capital markets regulator and overseeing their development. While a surprise to the investment community, there will be little change in relation to how this affects investors as the new regulator will continue from where the CMDA left off and hopefully move ahead at an even more rapid pace. Per the details of the presidential decree outlined below, we and most of the local investment community in Uzbekistan are very positive on this change, especially if the new regulator can execute on even a portion of its long list of goals.

The presidential decree highlights some of the lingering issues in the capital markets which need to be addressed. They include, among others:

  • A low free-float among listed companies
  • Low participation among institutional investors
  • A high share of state-owned companies in market turnover
  • A low level of financial literacy among the Uzbek population

The first three points should be quite straightforward to resolve and have been in the pipeline for several years. Uzbekistan’s capital markets face a “chicken and egg” situation whereby the government has planned to privatize vast swathes of the economy through IPO’s and SPO’s, but if not conducted in an orderly fashion, and without foreign participation, then the process will continue to be drawn out. The majority of listed companies on the Toshkent Stock Exchange have some degree of state ownership, so in order to increase their free-floats the state’s participation can easily be privatized through secondary offerings at prevailing market prices or modest discounts. This should also increase institutional participation in the market as many of these privatizations would be valued in the millions of dollars and there is unlikely to be sufficient local demand to absorb the supply of shares.

Some of the government’s more notable KPIs to transform the capital markets by 2023 include:

  • Increasing the free-float on the Toshkent Stock Exchange to 5% of GDP
  • Providing education on financial literacy to 40,000 local minority investors

The free-float of the Toshkent Stock Exchange is estimated at 0.4% of GDP, or less than 4% of total market capitalization of the exchange, while the current market capitalization of the exchange to GDP is 11.5%. If the free float is to equal 5% of GDP, this would equate to roughly USD 2.6 bln of equity value, or 43% of the current market capitalization of the stock exchange. Clearly, in order to achieve its goal, the government needs to expedite its privatization process of fully-state-owned enterprises as well as sell its participating stakes in already listed equities. If this can be achieved, it would be a “game-changer” for the investment landscape in Uzbekistan and create a significantly more liquid market with a much larger local and foreign investor base which we believe will help transform Uzbekistan’s capital markets into the largest in Central Asia.

In addition to the largest cement plant in Uzbekistan, Qizilqum Cement (TSE: QZSM) and glass manufacturer Kvarts (TSE: KVTS), the presidential decree highlights the following companies to be privatized through 2023:

  • Uzmetkombinat (a listed steel producer which is slated for an international dual listing)
  • Almalyk Mining (a significant gold, silver and copper miner)
  • Navoi Metallurgical Mining Kombinat (a mining conglomerate that owns the largest open-pit gold mine in the world – Muruntau)
  • Uzbekistan Airways (the national airline)
  • Uzbekneftegaz (the state-owned oil & gas monopoly)
  • Uztransgaz (a natural gas distribution/pipeline operator)
  • Halk Bank  
  • Agro Bank
  • Microcredit Bank
  • Uzagrosugurta (a top-5 insurance company with the largest branch network)
  • Kurilishmashlizing (a construction machinery leasing business)
  • Uzavtosanoat (state-owned auto manufacturer and producer of Chevrolet cars)

The sea change in the government’s attitude in April toward many of these companies is remarkable considering that most of them were previously regarded as strategic and therefore to remain state-owned.

In order to achieve the above targets, the government is planning to pass a new capital markets law by the end of 2021 which, among other things, is expected to improve the efficiency of conducting IPO’s and SPO’s, designating the functions of underwriters, dramatically improve broad legislation for the protection of minority investors, enhance accounting and listing requirements, the introduction of Sukuk (Islamic) bonds, permitting foreigners to invest in government bonds (currently not permitted), and perhaps most importantly, simplifying the burdensome account opening procedures for investors seeking to participate in the stock market and possibly going so far as to digitize the process.

The risks of capital markets development

While the presidential decree is very exciting and exactly what we have been anticipating, we will be watching closely to see how all of this positive news transpires as execution will be paramount.

A former and just as aggressive privatization plan was announced between 2016 and 2020 in Kazakhstan, Uzbekistan’s northern neighbour. This is what originally attracted Thomas and I to the region as Kazakhstan had planned to privatize vast swathes of the economy in order to decrease the government’s contribution of GDP from 70% to less than 50%. This included the privatization of over 900 assets and companies, including the IPO’s of KazPost, the national post office, Air Astana, the national airline, KazMunayGaz, the national oil & gas company, and Kazatomprom, the state uranium miner by 2020. However, the process could be branded a failure as it has largely been pushed back and of the four planned IPO’s, only Kazatomprom became listed. We hope Uzbekistan is able to execute more effectively on its privatization plans.  

Domestic tourism as summer arrives

Summer having arrived, at least as far as the weather is concerned, with the mercury reaching as high as 34 degrees Celsius on an increasingly regular basis, I took the liberty of a free weekend to get out of Tashkent and do some sightseeing. With a dearth of tourists in country, even though there are no travel restrictions and the country remains wide open for tourism, travel companies such as our friends at Adventour have used their in-country relationships to create new tours to capitalize on the nascent but growing domestic tourism industry and prepare for the eventual return of foreign tourists. Adventour has partnered with Chateau Hamkor Wineries in Parkent region, an hour’s drive from Tashkent, where a small group and I were given a winery tour, wine tasting and concluded the day by enjoying lunch at a teahouse along a creek where we dined on a spread of shashlik, somsa and wine, which amid the heat gave us all the impetus to fall asleep. Prior to COVID-19, Chateau Hamkor exported all of its wine to China, Kazakhstan and Russia, but it has recently been focused on increasing its foothold in the domestic market.

While many people know Uzbekistan for its western desert where the Aral Sea is located, the topography of the country is widely varied. Parkent sits on a plateau in the shadow of the Tian Shan mountain range where the rolling green hills are reminiscent of the Mongolian steppe.


The rolling green hills of Parkent, Uzbekistan

(Source: AFC Research)


At the end of April 2021, the fund was invested in 28 names and held 10.0% in cash. The markets with the largest asset allocation were Uzbekistan (89.5%) and Kyrgyzstan (0.5%). The sectors with the largest allocation of assets were materials (60.5%) and financials (15.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.14x, the estimated weighted harmonic average P/B ratio was 1.45x, and the estimated weighted average portfolio dividend yield was 6.30%.

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The AFC Iraq Fund Class D shares returned +7.0% in April with a NAV of USD 716.95, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 6.6% during the month. The fund is up 26.8% year to date versus 24.4% for the index. Since inception, the fund lost 28.3% while the RSISUSD index is down 44.1%.

The same positive trends – i.e., increased daily turnover, foreign and local buying ­– that drove the rally year-to-date continued into early April in which the RSISX USD Index was up about 10.5% from the end of the prior month. However, the market could not sustain these gains and profit taking eroded them as prices declined somewhat on lower turnover suggesting that the market is in the process of consolidating the recent gains (chart below).


The Rabee Securities RSISX USD Index

(Source: Bloomberg, data as of 30th April 2021)


Supporting the market’s consolidation thesis are recent economic data which suggest that conditions are in place for a solid rebound in the local economy from the depressed levels in 2020 along the lines articulated by Andy Haldane, the Bank of England’s chief economist, as “the economics of coiled springs, and crouching tigers, and ‘Chicken Lickens” in expecting a rapid-fire recovery for the UK economy as it emerges from last year’s depressed levels.

Iraq’s extreme leverage to oil prices created the conditions for a perfect storm in 2020 as the double whammy of the crash in oil prices and the COVID-19 lockdowns crushed its economy with the IMF forecasting, as recently as December 2020, that Iraq’s real GDP would shrink by 11% Y-Y in 2020. With the reversal of these same forces in 2021, the same extreme leverage to oil prices would create the conditions for a strong economic rebound from these extreme low levels.

The “coiled spring” that would kickstart the economic rebound is the meaningful increase in government spending in 2021, following the delayed passage of the 2021 budget at the end of March 2021. The oversized role of the government’s expenditures in the economy with the government as the largest formal employer and driver of non-oil economy, results in an efficient and direct transmission mechanism of oil revenues into the real economy. The government’s projected spending on the public sector wage bill (salaries and pensions) is projected to grow by about 18% in 2021 over 2020’s bill and would represent a 7% stimulus to 2020’s IMF estimated non-oil GDP. This increased spending would provide a boost to consumer confidence following a difficult year in which this spending was in doubt as the government struggled to pay the public sector wage bill on time given the fiscal crisis that strained its finances. Government spending on goods and services is likely to rebound significantly in 2021 and could add about another 7% stimulus to the non-oil economy.  The government’s investment spending will see a much larger rebound, from an extremely low base, representing an additional 11% stimulus to the non-oil economy. Given the government’s historically very low execution success in investment spending, it will be its current spending, in the form of the public sector payroll and spending on goods and services, that will kickstart the country’s economic rebound which could be much higher than the IMF’s projected 5.0% real growth in non-oil GDP in 2021.

This increased spending is likely to magnify the effect of the current “coiled spring” in the form of the expanded monetary base, or M0, which has accelerated in the first three months of 2021, aided by a rebound in oil revenues (charts below). This comes on top of sizeable liquidity injections in 2020: the first was the adoption of an accommodative monetary policy by the Central Bank of Iraq (CBI) to counter the effects of the pandemic-induced disruptions to the economy; while the second was a result of the indirect monetary financing provided by the CBI to the government to cover its revenue shortfall. This expansion in the monetary base is especially relevant to economic activity given the dominance of cash in the economy in which over 90% of the currency in circulation is outside of the banking system.  



(Source: Central Bank of Iraq, Ministry of Oil, AFC Research, data as of 30th March 2021)



(Source: Central Bank of Iraq, Ministry of Oil, AFC Research, data as of 30th March 2021)


Latent consumer spending could be like a “crouching tiger” given the increased pickup in economic activity that has returned to levels meaningfully above those that prevailed just before the nationwide lockdown in March 2020, as seen from Google’s mobility data (below chart). In particular, activity in the crucial sectors of retail and grocery has recovered up to 40-100% above the levels that prevailed pre-lockdown. The onset of the fasting month of Ramdan in mid-April 2021 has somewhat curtailed activity but has not altered the trajectory of recovery.



(Baseline is the median, for the corresponding day of the week, during 3rd January - 6th February 2020, Source: Google, data as of 25th April 2021)


While Google’s mobility data provides a picture of economic activity and not transactions, some clues on transactions can be glimpsed from the volumes for USD-Iraqi Dinar (IQD) transactions (chart below) as conducted by the Central Bank of Iraq (CBI) in its weekly USD sales (transfers to facilitate foreign trade transactions as indicated by green bars and to satisfy the need for physical USD for Iraqi's travelling abroad as indicated by the red bars).



(Source: Central Bank of Iraq, AFC Research, data as of 29th April 2021)


Demand for USD in the CBI's transactions is a reasonable proxy for consumer demand given the country's high dependence on imports to satisfy domestic consumption of goods and services. This demand dropped significantly following the 23% devaluation of the IQD versus the USD in late December 2020. However, after a prolonged period of adjustment, demand has picked up significantly in the weeks following the passage of the budget in late March 2021. However, the usual time lag between consumer purchases domestically and increased demand for exports implies that it's too early to reach any conclusions on whether domestic consumption has fully recovered or not. Moreover, a verdict on a full resumption of consumer spending is somewhat complicated in this instance given the usual increase in demand associated with Ramadan, nevertheless the combination with the mobility data makes for a compelling picture of potential consumer spending as a ‘crouching tiger”.

Finally, completing the “the economics of coiled springs, and crouching tigers, and ‘Chicken Lickens” is the “worst-case" prognosis made for Iraq in the wake of the carnage brought about by COVID-19 in early 2020, which just like the chicken in the folktale “Chicken Lickens”, feared that the sky was falling. As argued here in “Not as Bad as Feared, but Still Pricing It” that: 

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 10.7%.

While the market, with the Rabee Securities RSISX USD Index up 24.4% for the year as of the end of April 2021, is no longer discounting the worst of possible outcomes, but with the RSISX Index still down over 60% from its 2014 high, it’s clear that the market is yet to discount any meaningful economic recovery.

The positives of the current indicators point to a significant economic rebound notwithstanding, the outlook for Iraq is still fraught with uncertainties. For starters, the improved outlook for the world economy is highly dependent on the sustained pace of current vaccinations, yet this rebound will only take the world economy back to its pre-COVID-19 trendline. Moreover, even if the world economic rebound is not derailed, the supply-demand balance for oil is highly dependent on the continued adherence of OPEC+ to the significant oil production cuts agreed in April 2020.

At the end of April 2021, the AFC Iraq Fund was invested in 14 names and held 6.1% 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 (91.3%), Norway (2.0%), and the UK (0.6%). The sectors with the largest allocation of assets were financials (53.7%) and consumer staples (17.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.27x, the estimated weighted harmonic average P/B ratio was 0.84x, and the estimated weighted average portfolio dividend yield was 4.76%.

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AFC Vietnam Fund - Manager Comment


The AFC Vietnam Fund rose by 1.6% in April with a NAV of USD 2,638.08, a new all-time high NAV, bringing the year-to-date return to +15.5% and the return since inception to +163.8%. This represents an annualized return of +14.1% p.a. since inception. The Ho Chi Minh City VN Index in USD gained 4.1% in April 2021 to a new all-time monthly high of 1239.39, in VND terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.72%, a Sharpe ratio of 0.96, and a low correlation of the fund versus the MSCI World Index USD of 0.55, all based on monthly observations since inception.

The broader market consolidated in April, while index heavyweight Vingroup led blue chips to another record high before the index retreated towards the month end. A combination of a COVID-19 outbreak in Southeast Asia and a long holiday prompted traders to take some profits after strong gains since January. Vingroup, with an index weight of around 10%, was up 25% earlier in the month, and contributed strongly to the index gains.

Market Developments

April saw a complete change of market patterns relative to what we have witnessed in recent months. Foreign Investors strong selling diminished, but local investors took profits in smaller names and focused instead on a few big-cap stocks which underperformed in recent months and where rumours or news emerged.

A new Vietnam ETF - Fubon FTSE Vietnam ETF - was issued in Taiwan and will focus on 30 Ho Chi Minh Stock Exchange (HOSE) listed blue chips, still available to foreigners. Completing its IPO on 24th March 2021, the ETF raised around USD 200 mln in total capital and has probably finished investing its capital by now. Overall, with foreign selling in recent months and increased local trading, the market share of foreign investors has been reduced from approximately 20% to just around 10%.

The main reason for the huge outperformance of HOSE was its largest index component, Vingroup, which lagged the market since last year, jumped 25% after the end of March before retreating. Rumours of a planned IPO in New York of its subsidiary, VinFast, made headlines locally and internationally and brought a bit of “Tesla fantasy” to investors in Vietnam. The huge gains in technology stocks in the US, fuelled by easy money and speculation on new technologies like back in the good old days of the internet bull market of the late 90’s, has been lacklustre in emerging economies like Vietnam so far. That has just changed somewhat with the interesting story unfolding as can be read further below which shows once again why we like the spirit of Vietnam’s business leaders.

Don’t trust the headlines for economic numbers!

Published economic numbers currently have to be taken with a grain of salt, as headline figures hardly represent the real economic recovery (or not) from the effects of COVID-19. The reason for that are the base effects from strict lockdowns around the world early last year. Everybody remembers the shocking pictures from the lockdown last year in Wuhan, China during the first quarter, but various lockdowns in different countries differed very much and most of them happened in second quarter 2020. Together with different reporting routines where in some countries year over year comparisons are reported while other headline news shows quarter over quarter comparisons. Therefore, we saw very impressive economic headlines reported from China with an astonishing GDP growth rate of 18.3% in Q1/2021, not to mention that this was below expectations and compared to the lockdown quarter of 2020 (which was -6.8%, the weakest in decades!). The subsequent growth from the last quarter (Q4/2020) was a much less impressive 0.6%. Nevertheless, when we compare the current economic numbers to their pre-COVID-19 levels, both China and Vietnam fare much better than most other countries around the globe.

The recovery in Vietnam is not only visible by its strong GDP and export numbers, but also underlined by robust domestic growth as we can see from retail sales, which expanded by 9.2% in March compared to last year; the foreign tourism shutdown and lockdown happened only at the end of March 2020 in Vietnam.

With inflation still very much under control (only +1.3% y/y), growing foreign reserves (+30% since the end of 2019), and the highest Purchasing Manager Index in two years, we feel very confident with the positive economic forecast of close to +7% GDP growth for the current year. The fact that the US has just taken Vietnam off its list of currency manipulators, which is a big relief for Vietnam’s export sector, but will not break the trend of the slight upward pressure to the currency which even appreciated since the start of the first COVID-19 wave in 2020.


(Source: HIS Markit)


From motorbikes to electric cars?

In our report last month, we showed the strong commitment by Vietnam to be one of the leading emerging countries and to become more “climate friendly”. Vietnam’s president Nguyen Xuan Phuc is very committed to combat climate change by reducing greenhouse gas emissions and to promote sustainable energy development projects. Vietnam, a country which is severely impacted by climate change, has decided to reduce its total greenhouse gas emissions by 9% by 2030, and continue to reduce them up to 27% if it receives international support through bilateral and multilateral co-operation and the Paris Agreement mechanisms on climate change. The global commitment from many countries to combat climate change is certainly a very positive development which is supported by an increasing competitiveness of alternative energy sources in recent years.



(Source: J.P. Morgan)



(Source: J.P. Morgan)


Lower costs for alternative energy sources had a positive impact on solar installations in Vietnam, which increased dramatically over the past few years, followed by wind power installations. Trungnam Group, a HCMC-based energy firm, has started operating its wind power plant - the country’s largest to date - in central Ninh Thuan Province just this month. The plant, which spans over 900 hectares in Thuan Bac District, has 45 turbines with a total capacity of 152 MW, and is combined with a 204 MW solar power plant to form the solar-wind farm complex considered the largest in Southeast Asia. This complex will feed a total of 950 mln kWh per year into the country’s grid.


Solar and Wind Power Plant

(Source: vnexpress)


It’s not only the government that is involved in green energy investments; the private sector is also strongly encouraged to invest in renewable energy projects.

VinFast, founded by billionaire Pham Nhat Vuong, who is also founder and chairman of its parent group Vingroup, began producing petrol-powered cars using the latest BMW technology, designed by the Italian firm Pininfarina, to Vietnamese consumers in 2019. The carmaker plans a Vietnam roll-out of electric cars later this year. The start-up aims to deliver its first electric vehicles to the US, Canada and Europe next year and is looking to open a factory in the US, and is now even exploring the possibility of an IPO in the US. The company could raise as much as USD 3 bln in its IPO, making it the biggest-ever listing by a Vietnamese company which could value the company in the range of USD 50-60 bln. Vingroup, which so far declined to comment on those rumours, would land with its perfectly timed listing not only a milestone for the company, but would also show the world how fast one of the formerly poorest countries can transform its economy, if all necessary economic puzzle pieces from politics, education and motivation are brought correctly together – similar to what we have witnessed in Japan, South Korea and China decades before.

Vingroup already has the largest market capitalization of any company in Vietnam at almost USD 20 bln. The company was established in 2002 with an initial charter capital of VND 196 bln (USD 8.5 mln). The company initially focused on real estate through its subsidiary Vinhomes Corp., before expanding into tourism, education, healthcare, retail, big data, smartphone production and, most recently, aviation. In 2017, Vingroup decided to become the first domestic car manufacturer and hence setup VinFast. They invested a staggering USD 2 bln to build the third-largest automobile manufacturing complex in the world on an island off Hai Phong, in the north of Vietnam. At the time their ambitious plan was met with a lot of scepticism, but in October 2018, VinFast launched its first car at the Paris Motor Show.

While Vietnam has become a manufacturing powerhouse in sectors such as electronics and textiles, at this time it clearly lags far behind regional competitors in the auto industry. The Vietnamese government has made changing this reality a prominent goal in the ongoing modernization of the country’s economy, and VinFast has therefore received substantial high-level support.

In March 2021, VinFast launched its first electric car, VFe34, which was priced very competitively at VND 690 mln (USD 30,000). In order to buy this model, customers need to pay a deposit of VND 10 mln (USD 440) and will receive their car 6 months later. After only 12 hours, VinFast received more than 4,000 deposits/orders, which far exceeded expectations. It has shown that Vietnamese consumers are very proud of VinFast, the first Vietnamese auto manufacturer which seems to be on track to establish itself successfully as an international brand in the auto market.


VinFast electric car model VFe34

(Source: VinFast)


In 2020, Vietnam's homegrown auto brand Vinfast sold 29,485 cars to become the country's fifth best-selling marque. Ahead of Vinfast were Hyundai, Toyota, Kia and Mazda.


VinFast milestones

(Source: VinFast)


VinFast electric cars

(Source: VinFast)


At the end of April 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.3%) – an insurance company, LienViet Post Joint Stock Commercial Bank (6.2%) – a bank, Vietnam Prosperity JSC Bank (5.5%) – a bank, VNDirect Securities Corp (4.6%) – an online brokerage firm, and Phu Tai JSC (3.9%) – a home and office furnishings company.

The portfolio was invested in 42 names and held 1.2% in cash. The sectors with the largest allocation of assets were consumer (35.0%) and financials (34.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.80x, the estimated weighted harmonic average P/B ratio was 1.51x, and the estimated weighted average portfolio dividend yield was 4.95%.

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AFC Asia Frontier Fund - Manager Comment



The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 1.4% in April 2021 with a NAV of USD 1,442.70. The fund underperformed the AFC Frontier Asia Adjusted Index (+2.0%), the MSCI Frontier Markets Asia Net Total Return USD Index (+7.6%), the MSCI Frontier Markets Net Total Return USD Index (+6.8%) and the MSCI World Net Total Return USD Index (+4.7%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +44.3% versus the AFC Frontier Asia Adjusted Index, which is up by +26.8% during the same period. The fund’s annualized performance since inception is +4.1%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.6% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.55, all based on monthly observations since inception.

The second quarter of 2021 began with another positive monthly return for the fund which was driven by strong gains in Uzbekistan, Iraq, Kazakhstan, and Mongolia, while Myanmar and Pakistan were performance detractors. April saw first quarter 2021 results being announced across our universe and so far, the numbers we are seeing have been very strong and were led by a post pandemic economic recovery.

The fund’s Kazakh fintech holding, Kaspi, declared 1Q21 net profit growth of 25% which was led by greater than 100% growth in its payments and marketplace businesses with these two segments now accounting for almost half of total net profits compared to 28% a year ago. These strong results especially in its payments business has led to the company upgrading its consolidated net profit guidance to more than 50% growth from around 50% growth declared after its 4Q20 results.

This upward revision in the company’s 2021 net profit guidance is a reflection of the disruption being created by Kaspi in the Kazakh financial services industry with its Super App users growing by 61% this quarter to 10 mln users with half of these using the app on a daily basis – a sign of how ingrained the app has become in people’s daily lives. The stock gained +19.4% this month and we believe it has more room to run given its story is backed by fundamentals and more importantly growing profitability unlike other tech names in the frontier and emerging markets universe which are still loss making and burning cash. At a 2021 P/E of 17.6x, valuations are not stretched given strong growth prospects and a dominant position in the Kazakh fintech ecosystem.



(Source: Kaspi)



(Source: Kaspi)



(Source: Kaspi)


Sticking to technology, the fund’s online classifieds holding, Frontier Digital Ventures, declared a healthy 1Q21 update with one of its key assets,, reporting another quarter of profitability. is Pakistan’s leading online property portal which is transforming the way real estate transaction take place in Pakistan. is transforming real estate transactions in Pakistan – the fund holds Frontier Digital Ventures which owns 30% of

(Source: AFC Research)


During the month, the fund invested in Coca Cola Icecek (CCOLA) which is listed in Turkey. CCOLA is one of the biggest Coca Cola bottlers globally and though Turkey is its home market, it generates the majority of its revenues from Asian frontier markets, which are the key growth drivers for the company with 59% of revenues now being generated by Asian frontier markets. CCOLA holds the No.1 position in the soft drinks market in Azerbaijan, Pakistan, Kazakhstan, and Kyrgyzstan while holding the No.2 position in Iraq and Jordan. The company also has operations in Tajikistan and Turkmenistan. Of these markets, Pakistan is seeing one of the highest growth rates with 1Q21 volumes growing by 41% and this is not surprising given the attractive demographics in Pakistan with a large population of 209 mln and a median age of only 23.

With Asian frontier markets in general having a large young population, we believe CCOLA is well placed to capture the rising consumption trends in our key markets. The stock trades very attractively at a 2021 P/E of only 11.5x with earnings estimated to grow 34% this year.



(Source: Coca Cola Icecek)


Overall net profit growth in Pakistan continues to witness robust momentum with many of the fund’s Pakistani holdings declaring 1Q21 results. Of these results, Lucky Cement’s (LUCK) earnings stood out with net profits growing by 446% YoY and 31% QoQ. The company’s cement business is benefitting from rising demand and higher selling prices which led to the highest gross margins this quarter amongst its peers which is not a surprise since it is the largest and lowest-cost producer of cement in Pakistan. Besides the cement business, the company’s automotive arm Lucky Motors, which is a JV with Kia Motors, has been a big success with Kia Motor’s new passenger car models witnessing robust demand. Lucky Motors now accounts for 32% of LUCK’s total operating income in just its first year of operations.



(Source: Topline Securities, net profits of companies included in the KSE100 Index)



(Source: IMS Securities)


Quarterly results for the fund’s Vietnamese consumer holdings have also been very strong as consumer spending recovers with a mall operator (Vincom Retail), brewery (Sabeco) and automotive holding company (Vietnam Engine & Agricultural Machinery) reporting 1Q21 growth of 59%, 32%, and 9% respectively.



(Source: Vietcapital Securities)


During the month, the U.S Treasury rolled back its decision to label Vietnam as a currency manipulator. This decision to tag Vietnam as a currency manipulator was taken in December 2020 when Donald Trump was still the U.S. President, but the new U.S. administration sees the geopolitical importance of Vietnam in the region and hence has taken a more balanced approach to resolving any trade issues between the two countries. We wrote in our December 2020 manager comment that any wide-ranging tariffs on Vietnamese exports to the U.S. look slim and that the Biden administration will take a more balanced approach to Vietnam and hence the rollback of the currency manipulator tag does not come as a surprise.

The fund’s largest position in Bangladesh, Beximco Pharmaceuticals, declared an outstanding net profit growth of 62% in 1Q21. Besides an uptick in domestic pharmaceutical sales, a large part of the quarter’s earnings growth was led by the company’s commission on the exclusive agreement to supply the Government of Bangladesh with the AstraZeneca COVID-19 vaccine sourced from its Indian partner Serum Institute of India. So far, Beximco Pharmaceuticals has supplied 7 mln doses out of the contracted 30 mln doses to the government, however due to the rise in COVID-19 cases in India the additional supply of the vaccines has been delayed by its Indian partner. When supplies do begin again, we expect this vaccine distribution contract to continue adding significantly to the company’s bottom line. The fund holds the London listed GDR which trades at a 49% discount to the local listing.

Consumer spending is witnessing an uptick in Bangladesh as well with the fund’s consumer appliance holding, Singer Bangladesh, reporting a 51% growth in net profits in 1Q21 led by increased demand for most of its products like air conditioners and refrigerators. The growth opportunity for consumer appliance sales in Bangladesh is immense as penetration levels are still very low while urbanisation and disposable incomes are increasing, and consumer finance gains more acceptance.



(Source: AFC Research)


The best performing indexes in the AAFF universe in April were Iraq (+8.8%) and Kazakhstan (+4.2%). The poorest performing markets were Laos (−4.7%) and Pakistan (-0.7%). The top-performing portfolio stocks this month were a Cambodian gold producer (+29.9%), a Mongolian coking coal producer (+22.4%), a modern retail player in Papua New Guinea (+20.0%), a Kazakh fintech company (+19.7%) and a Mongolian construction materials company (+18.5%).

In April, the fund bought a Cambodian gold miner and a soft drinks company listed in Turkey, which generates the majority of its revenues from Asian frontier markets and exited a Mongolian junior copper/gold explorer. The fund also added to existing positions in Mongolia, Myanmar, and Vietnam and reduced some holdings in Mongolia and Vietnam.

At the end of April 2021, the portfolio was invested in 74 companies, 2 funds and held 3.4% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.5%) and a pharmaceutical company in Bangladesh (3.8%). The countries with the largest asset allocation were Mongolia (20.7%), Uzbekistan (16.5%), and Vietnam (14.3%). The sectors with the largest allocation of assets were consumer goods (26.9%) and industrials (12.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.06x, the estimated weighted harmonic average P/B ratio was 0.99x, and the estimated weighted average portfolio dividend yield was 3.10%.

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With kind regards,

Thomas Hugger
CEO & Fund Manager

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