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Asia Frontier Capital (AFC) - August 2021 Update


“ No proposition Euclid wrote No formulae the text-books know, Will turn the bullet from your coat, Or ward the tulwar's downward


No proposition Euclid wrote

No formulae the text-books know,

Will turn the bullet from your coat,

Or ward the tulwar's downward blow.

Strike hard who cares - shoot straight who can

The odds are on the cheaper man.


Rudyard Kipling – English journalist, short-story writer, poet, and novelist

From “Arithmetic on the Frontier” – a poem on Afghanistan written in 1886


AFC Asia Frontier Fund USD A1,546.35+2.5%+15.5%+54.6%
    AFC Frontier Asia Adjusted Index2 −0.5%+8.9%+27.9%
AFC Iraq Fund USD D761.18+5.0%+34.6%−23.9%
    Rabee RSISX Index (in USD) +3.0%+26.9%−43.0%
AFC Uzbekistan Fund USD F1,994.28+2.2%+48.7%+99.4%
    Tashkent Stock Exchange Index (in USD) −2.9%+19.4%−0.2%
AFC Vietnam Fund USD C3,255.33+8.5%+42.5%+225.5%
    Ho Chi Minh City VN Index (in USD) +2.3%+22.2%+142.4%
  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.

It was a very strong month for Asian frontier markets: all four AFC funds reported positive monthly returns and both the AFC Uzbekistan Fund and AFC Vietnam Fund achieved a new all-time high NAV. The AFC Vietnam Fund gained a robust 8.5% in August and outperformed its benchmark significantly. The year-to-date return for the AFC Vietnam Fund now stands at +42.5%, which is also far ahead of its benchmark (+22.2%), and the fund’s annualised return since inception is +16.6%.

The AFC Iraq Fund returned +5.0% in August, taking its year-to-date performance to a very healthy +34.6%, while the AFC Asia Frontier Fund returned +2.5% on the back of good all-round performance across most Asian frontier markets, taking its one-year return to +26.5%.

The AFC Uzbekistan Fund reported another positive month with a return of +2.2%, which takes its year-to-date return to +48.7% and its annualised return since inception now stands at a robust +32.9%.







With the continued strong performance of our funds, it is not surprising that we have received further recognition from the industry. The HFM Asia Performance Awards 2021 have nominated our AFC Vietnam Fund for the category “Single Country” and our AFC Uzbekistan Fund for the category “Emerging Manager / Smaller Fund”.

AFC to present at the CFA Society of Hong Kong: Asian Frontier Markets – Hidden Value

For the third year running, AFC will be presenting at the CFA Society of Hong Kong. On Tuesday, 28th September 2021, Ruchir Desai, co-manager of the AFC Asia Frontier Fund, will be presenting on the opportunities and outlook for Asian frontier markets on a webinar titled “Asian Frontier Markets – Hidden Value”. The webinar will be one hour and will include a question and answer session after the presentation. Some of the key topics covered in the webinar will be:

  • How have Asian frontier markets performed since the start of the pandemic?
  • Which Asian frontier countries are coming out stronger or well-positioned post the pandemic?
  • What are the fintech and e-commerce opportunities in Asian frontier markets?
  • Which Asian frontier countries are benefitting from supply chain and manufacturing shifts?

If you would like to attend this webinar, feel free to register for the event using the link below:

>> Register here for the 28th September 2021 event: Asian Frontier Markets – Hidden Value



Below please find the manager comments relating to each of our four funds for the month of August 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 Vietnam Fund - Manager Comment



The AFC Vietnam Fund rose by 8.5% in August with a NAV of USD 3,255.33, bringing the year-to-date return to +42.5% and the return since inception to +225.5%. This represents an annualized return of +16.6% p.a. since inception. The Ho Chi Minh City VN Index gained 2.3% in August 2021, in USD terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.02%, a Sharpe ratio of 1.12, and a low correlation of the fund versus the MSCI World Index USD of 0.54, all based on monthly observations since inception.

The month of August was anything but boring, having many highlights - a full lockdown in HCMC which erased all previous gains for the month in the stock market, a visit from the U.S. Vice President to Hanoi, and a very volatile stock market which ended up +1.6% for the month. The real highlight for our investors is certainly the tremendous outperformance of the fund this month and for the whole year in an already positive year for the market. 

Market Developments

Continued problems containing the latest COVID-19 wave, especially in HCMC, led to a volatile month in the stock market. Early into the month, sentiment was very positive despite surging cases until the government announced a strict stay-at-home order on 23rd August for HCMC. This led the index to plunge 3.3% on a single day with a record volume of USD 1.7 bln. 100,000 soldiers were deployed to ensure the logistics of giving out free food to the city’s inhabitants and controlling the lockdown. Other provinces had been more successful in fighting the spread of the virus and recently relaxed previously stringent measures. Currently, the government seems to play for time in order to overcome the difficult next few months as multiple solutions to the vaccine shortage lie around the corner. Not only are increased deliveries of vaccines arriving from various sources, but also approval for mass production of Vietnam’s own developed vaccines could be imminent as well. 

On the recent trip of US Vice President Kamala Harris, she discussed an array of new partnerships and support for Vietnam in areas including climate change, trade, and the coronavirus pandemic.



(Source: Evelyn Hockstein / Pool Photo via AP News)


Her first trip to Asia brought her to Singapore and Vietnam only, although the trip was overshadowed by the political chaos in Afghanistan. After Singapore, a close U.S. ally and key base for the American Navy in Southeast Asia, her visit to Vietnam shows the growing importance of Vietnam for the U.S. Vietnam is important both politically as a strong geopolitical counterpoint to China and economically, which was also shown with her signing an agreement to lease land in Hanoi to build a new U.S. Embassy for USD 1.2 bln.

On the same day of her arrival in Hanoi, Pfizer and BioNTech entered into an agreement with the Ministry of Health of Vietnam to provide an additional 20 mln doses of their vaccines to the country. This brings the total number of doses to 51 mln, which should be delivered this year. Additionally, 1 mln doses of the Pfizer/BioNTech vaccine arrived the next day as a gift to the country.

While Vietnam is currently still behind the curve for providing vaccines to its citizens, it is just six weeks behind Thailand and two months behind Malaysia. It is strongly believed that with the government’s efforts and execution skills, the trajectory in the coming months will follow the Malaysian curve more closely than the one from Thailand. Therefore, one should not focus too much on the current disruptions in the economy, but rather look beyond that to a strong economic recovery in 2022 with tailwinds for listed companies reported earnings.



(Source: Global Change Data Lab)


A surprising 0.8% upward move of the Vietnamese currency brings the Dong now into the small group of currencies outperforming the US Dollar this year and back to the level it was trading at in 2017.


USD versus Vietnamese Dong October 2016-August 2021

(Source: Bloomberg)


Other positive news came from the broader market where small caps hit a new all-time high, whereas the main index is treading water. With our portfolio concentrating on undervalued stocks in all categories from small- to mid- and large caps, we are proud of the tremendous outperformance we have achieved this year. Despite all current COVID-19 related problems and lower than possible economic and earnings growth, the market’s trailing P/E is only 16x and our estimates based on next year’s growth are an undemanding 14x. Even lower is the valuation of our portfolio which is currently trading on 10x trailing weighted harmonic average earnings and 9x 12 month forward estimated earnings.


Ho Chi Minh Stock Exchange Small Cap Index June 2020-August 2021

(Source: Bloomberg)


Port stocks boom

After the boom of shipping stocks at a time when shipping fees skyrocketed, port stocks also jumped significantly. We have mentioned the story about port stocks many times in previous reports as we see them as a main beneficiary of the Vietnamese export boom in a controlled competitive environment. Port businesses in Vietnam will also continue to benefit in the second half of 2021 with a strong increase in demand in many developed countries such as USA, Europe, and UK. Meanwhile, the virus outbreak in Asian countries continued to have a negative impact on sea freight cargo handling efficiency, which created a supply and demand imbalance and therefore led to dramatic increases in shipping fees.


Shipping fees from Shanghai port

(Source: UNCTAD)


In Vietnam, shipping fees also increased sharply but port fees remained almost unchanged in the first half of 2021. Since July 2021, most of the ports in Vietnam have started to increase their fees due to strong demand and limited capacity. The COVID-19 outbreak in Vietnam has lengthened loading and unloading times from an average of 5 to 8 days at most of the ports. This forced many ships to line up for a long time to load and unload their cargo. Since shipping companies already benefitted from increasing shipping fees, they are willing to pay higher fees to the ports to get priority handling of their containers and many ports had already increased their fees with shipping companies for the second half of 2021 and 2022. We therefore expect their profits to increase strongly in the second half of 2021 and 2022. One of our positions, Dinh Vu Port (DVP), also benefited from this trend. DVP’s stock price has jumped 27% since the end of May 2021.


Dinh Vu Port (DVP) stock price (VND/share)

(Source: Bloomberg)


Even after the recent surge in the stock price, its valuation still looks very attractive. The stock is trading at P/E of 9.5x and P/B of 1.8x. DVP is one of the most undervalued port stocks in Vietnam, with a cash balance of around USD 44 mln, which is equivalent to around 45% of its market cap, and taking this cash balance into account, the P/E is only at around 6.1x.

Dinh Vu Port (DVP) stock information

Market cap

USD 99 mln





Dividend yield




Total assets

USD 63 mln

Cash balance

USD 44 mln

Total liabilities

USD 9 mln

(Source: DVP 2Q audited financial report)

Vietnam is close to a breakthrough with sufficient production of its own vaccines until early 2022

The COVID-19 outbreak in Vietnam is still very serious, particularly in Ho Chi Minh City and its neighbouring provinces Binh Duong, Dong Nai and Long An. The total number of infections has reached more than 449,000 and more than 11,000 deaths.

But as we know from the experience in the West, the number of cases detected and getting the wave under control is strongly related to the number of tests done. While this was the weak point in Vietnam previously, the government is now doing a much better job than other regional neighbours such as Thailand. More tests also mean fewer undetected cases, and therefore the peak of the current wave is likely within reach.


Daily COVID-19 tests per thousand

(Source: Global Change Data Lab)


The country is speeding up its vaccination program, and according to the Ministry of Health, around 17% of the total population has already received at least 1 dose but only 2.4% have received a second dose. The reason for this slow progress is the lack of vaccine supply, but Vietnam already ordered more than 100 mln doses from many suppliers including Pfizer, Astra Zeneca, Moderna, Sinopharm, Sputnik V. However, the nation is in line behind other countries. Very early into the pandemic, Vietnam was developing its own vaccine candidates and it seems that this should bear fruit in the coming months. Currently, Vietnam is testing three vaccines: Nanocovax, Arct-154 and Covivac, with Nanocovax being the most promising in late Phase 3 clinical trials. Mr. Tran Van Tuan, Vice Minister of Health of Vietnam, said that “We expect that Vietnam can produce enough vaccines for the whole country by the end of 2021 or beginning of 2022”. If Vietnam can really achieve this goal, domestic demand should recover strongly in 2022, with local and probably also international tourism seeing a tremendous recovery.

At the end of August 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.7%) – an insurance company, PVI Holdings (5.2%) – also an insurance company, Power Engineering Consulting JSC No. 2 (4.5%) – a consulting firm, Phu Tai JSC (4.2%) – a home and office furnishings company, and Idico Urban and House Development JSC (4.0%) – an energy, construction, and real estate business.

The portfolio was invested in 46 names and held 2.4% in cash. The sectors with the largest allocation of assets were consumer (33.1%) and financials (32.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.03x, the estimated weighted harmonic average P/B ratio was 1.72x, and the estimated weighted average portfolio dividend yield was 4.11%.

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The AFC Iraq Fund Class D shares returned +5.0% in August with a NAV of USD 761.18, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 3.0% during the month. The fund is up 34.6% year to date versus 26.9% for the index. Since inception, the fund lost 23.9% while the RSISUSD index is down 43.0%.

August started as a typical quiet and slow summer month in which the combination of the scorching summer heat, the holiday season, and the start of the 40-day Arbaeen pilgrimage ensured that the month would be a replay of such months in prior years for the Iraq Stock Exchange (ISX). However, by the third week of the month, the summer lull was shattered by fireworks in which the Rabee Securities RSISX USD Index’s 2.5% monthly gain turned into a 9.4% loss, before ending the month with a 3.0% increase.



(Source: Iraq Stock Exchange, AFC Research, data as 31st August 2021)


The fireworks were lit by the ISX’s decision to implement Parliament’s 2019 amendment to “article 12, law 20, 1997” which limited foreign ownership in Iraqi companies to 49%. At the time, the Central Bank of Iraq (CBI) announced that this amendment did not apply to the banking sector, and as such all banks, including those listed on the ISX, were exempt from the 49% foreign ownership limitation. Moreover, at the time of the amendment’s passage the common understanding was that the law would see further modifications to ensure that the 49% foreign ownership limit would only apply to companies formed following the amendment’s passage. As such the amendment’s passage in 2019 had no effect on the stocks already listed on the ISX, or so it seemed until mid-August 2021.

The ISX’s implementation of “article 12, law 20, 1997” only affected four companies: Dar Al-Salam for Insurance (NDSA) with 82% foreign ownership, Al-Khatem Telecom (TZNI) with 75% foreign ownership, Mamoura Real-Estate Investment (SMRI) with 66% foreign ownership, and Baghdad Soft Drinks (IBSD) with 55% foreign ownership. While the number of affected companies is small, the significance of the implementation is the effect on the market from the oversized role of IBSD. In addition to IBSDS’s 36.5% weighting in the Rabee Securities RSISX USD Index by the end of July 2021, it is the market’s bellwether stock, accounting for a significant proportion of daily turnover. IBSD’s stellar growth of both its top and bottom lines over the last few years made it a foreign investor favourite and probably the top holding by a wide margin among their investments on the ISX. Moreover, IBSD was among the stocks that started the market’s year to-date rally and was up 42.3% by the end of July 2021 – after adjusting prices for a dividend equivalent to a yield of 4.3% announced in April 2021.

Consequently, locals fearing that foreign investors would not be able to buy anymore IBSD shares and will be forced to sell shares to comply with the new foreign ownership limits sent the stock down about 30% over a few days. Given IBSD’s bellwether status, it dragged the market with it and led the sharp change in the index from a 2.5% gain to a decline of 9.4%. The market’s sell-off surprisingly included the banking stocks – which were not affected by the ISX’s decision to implement foreign ownership limitations, and logically a beneficiary of foreign investors’ inability to buy into IBSD as more foreign inflows would be directed to the banking stocks.

Just as these fireworks were about to die down, a new set of fireworks were being lit by the fortunate, but purely coincidentally-timed CBI’s approval for one of the country’s top foreign investors to increase its shareholding in the Bank of Baghdad (BBOB) from 9.9% to 20.0%. This in turn set off a sharp market rally as local investors rushed to buy the banking stocks that they had sold off just a few days earlier, as well as discarding their fears and buying IBSD after beating it down earlier. At month’s end, the performance of the top banking stocks were:

  • Bank of Baghdad (BBOB) was up 31.7% for the month and 102.4% for the year,
  • Commercial Bank of Iraq (BCOI) was unchanged for the month and up 61.4% for the year,
  • Mansour Bank (BMNS) up 5.3% for the month and 17.6% for the year,
  • National Bank of Iraq (BNOI) up 22.2% for the month and 70.2% for the year.

IBSD was down 12.8% for the month but up 24.1% for the year, while fellow consumer stock Al-Mansour Pharmaceuticals Industries (IMAP) was down 4.1% for the month but up 95.8% for the year. Finally, mobile telecom operator AsiaCell (TASC) was down 0.3% for the month but up 22.7% for the year. Yearly returns are adjusted for dividend announcements during the last few months equivalent to yields of 4.3%, 5.8%, 9.2% and 10.3% respectively for IBSD, BCOI, BNOI and BMNS.

The CBI’s approval for one of the country’s top foreign investors to increase its shareholding in the Bank of Baghdad (BBOB) from 9.9% to 20.0% is positive for the stock and for the sector. However, the rationale for owning the top banks in the country is based on the revival of fortunes for the sector as discussed last year here in “Banks Lead Market Recovery” and in “Private Sector Deposit & Loan Growth Continues”. The dividend announcements cited above, and the earnings of the top banks for 2020 and for the first half of 2021 underpin this argument.

  • BBOB’s loan book was down 5.3% for the first half of 2021 and down 5.3% for the year in 2020; its customer deposits declined 7.8% for the first half of 2021 but grew by 33.8% for the year in 2020; while its pre-tax earnings were up by 109.8% for the first half of 2021 versus the same period in 2020, and up 137.8% for the year in 2020.
  • BCOI’s loan book was up 89.8% for the first half of 2021 and up 64.6% for the year in 2020; its customer deposits declined 10.5% for the first half of 2021 but grew by 86.0% for the year in 2020; while its pre-tax earnings were up by 140.2% for the first half of 2021 versus the same period in 2020, and up 515.9% for the year in 2020.
  • BMNS’s loan book was up 5.1% for the first half of 2021 and down 5.9% for the year in 2020; its customer deposits declined 47.4% for the first half of 2021 and down by 15.8% for the year in 2020; while its pre-tax earnings were up by 16.0% for the first half of 2021 versus the same period in 2020, and down 16.6% for the year in 2020.
  • BNOI’s loan book was up 79.0% for the first half of 2021 and up 88.0% for the year in 2020; its customer deposits increased by 58.3% for the first half of 2021 and by 67.3% for the year in 2020; while its pre-tax earnings were up by 2.2% for the first half of 2021 versus the same period in 2020, and up 116.0% for the year in 2020.

The financial performance of each of these banks highlights the different aspects of the recovery in the banking sector, reflecting the different dynamics of these banks. For BBOB and BMNS the gradual recovery continues from the hangover following the heady expansion during the boom years leading up to 2014. BCOI and BNOI on the other hand are much further ahead in the recovery process as each bank is growing its loan book and deposit base which are key metrics that should underpin their future earnings growth.

The market’s positive showing for the month, pre and post the fireworks, maintains the Rabee Securities RSISX USD Index’s overall positive momentum, and continues its consolidation after the solid year-to-date gain (chart below). This consolidation will likely unfold over the next few weeks and should, with increased turnover, lead to a continuation of the rally by year end. This would signal the end of the multi-year bear market and the start of a new bull market supported by strong fundamentals as discussed here in “On the Economics of Coiled springs, Crouching Tigers, and Chicken Lickens”.



(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 31st August 2021)


At the end of August 2021, the AFC Iraq Fund was invested in 14 names and held 2.6% in cash. The fund invests in both local and foreign listed companies that have most of their business activities in Iraq. The markets with the largest asset allocation were Iraq (95.4%), Norway (1.4%), and the UK (0.6%). The sectors with the largest allocation of assets were financials (60.6%) and consumer staples (15.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.80x, the estimated weighted harmonic average P/B ratio was 0.88x, and the estimated weighted average portfolio dividend yield was 4.79%.

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The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 2.5% in August 2021 with a NAV of USD 1,546.35. The fund outperformed the AFC Frontier Asia Adjusted Index (−0.5%) and the MSCI Frontier Markets Asia Net Total Return USD Index (+1.6%) while performance was in-line with the MSCI Frontier Markets Net Total Return USD Index (+2.5%) and the MSCI World Net Total Return USD Index (+2.5%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +54.6% versus the AFC Frontier Asia Adjusted Index, which is up by 27.9% during the same period. The fund’s annualized performance since inception is +4.7%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.5% 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.

It was a good all-round performance and the fund got back into positive territory this month after a soft July. Returns for the fund were led by Mongolia, Vietnam, Iraq, Bangladesh, Kazakhstan, and Uzbekistan.

One of the major developments this month was the Taliban takeover of full control in Afghanistan and the potential impact on neighbouring countries, especially Pakistan, with whom the country shares a 2,670-kilometre-long border. However, it is important to put things in context considering the current situation in Afghanistan and its impact on the region.

The Taliban were already in control of many parts of Afghanistan even before the complete withdrawal of U.S. and international troops, while a large part of the country was heavily contested as well. In short, this takeover did not happen in a space of a few weeks.


Control Map of Afghanistan in May 2020 post the U.S. – Taliban deal

(Source: Gandhara - Radio Free Europe/Radio Liberty)


Regarding the possible impact on Pakistan from an unstable Western border – Pakistan has already adapted to this environment over the past two decades and in fact it has made huge progress in stabilising the security situation in the country compared to a decade ago. The country is much better prepared this time from any potential instability across the border and geopolitically too it has done well to get the support of important partners in the region like China, Russia and the Central Asian countries bordering Afghanistan with respect to having relative stability in the region. Relative stability in the region would give Pakistan the opportunity to leverage its geography and integrate economically with the Central Asian countries due to their inability to access seaports easily.



(Source: South Asia Terrorism Portal)


Pakistan’s ability to adapt to this environment is also reflected in the returns of the KSE-100 Index since the war in Afghanistan began in October 2001. The KSE-100 Index has generated an annualised return of 15.0% in USD terms from 8th October 2001 to 31st August 2021 which is ahead of the MSCI Emerging Markets Index and also some regional peers. Therefore, though there will be some near-term noise over Afghanistan, the market will look at earnings and valuations and both metrics bode well for investors with earnings growth expected to be at 14% for the financial year ending June 2022 and a one year forward P/E ratio of only 5.7x, a discount to historical levels.



(Source: Bloomberg)


Economically, Pakistan is having one of its better years with GDP growth on the upswing while corporate profitability continues to impress with the most recent quarter seeing another set of good results. We remain positive on Pakistan despite this near-term noise and whenever the situation in Afghanistan does stabilise, it would be an opportunity for some Pakistani companies to grow their business since Afghanistan is landlocked and Pakistan plays a critical role in Afghanistan’s cross border trade.

On 7th September 2021, MSCI officially announced the downgrade of Pakistan back into the MSCI Frontier Markets Index from the MSCI Emerging Markets Index. The new classification will be effective from 1st December 2021, with Pakistan expected to have a weighting of 1.9% in the MSCI Frontier Markets Index compared to its minuscule weight of 0.02% in the MSCI Emerging Markets Index.



(Source: IMS Securities)


The fund’s Asian frontier beverage holding, Coca Cola Icecek, was selected as the winning bidder in the privatisation process of Coca Cola Bottlers Uzbekistan with the Government of Uzbekistan selling down their 57% stake. The acquisition of Coca Cola Bottlers Uzbekistan is a very good fit as it will add to Coca Cola Icecek’s strong position in the region as the company is already a market leader in Kazakhstan and Pakistan.

The Uzbekistan acquisition can add significantly to the company’s overall volumes in the next few years as the Uzbek soft drinks market remains underpenetrated. Despite Uzbekistan having a population size of 35 mln, which is almost twice that of Kazakhstan, Coca Cola Uzbekistan’s annual sales volumes are only half of Coca Cola sales volumes in Kazakhstan, leaving a lot of room for future growth as the Uzbek soft drinks market develops further.



(Source: Coca Cola Icecek)


Sticking to the region, the fund’s Kazakh bank holding, Halyk Bank, declared excellent results with net profits for 2Q21 growing by 72% YoY which came in ahead of expectations, leading the bank to upgrade its 2021 net profit guidance to a little more than USD 1 bln, a net profit number which is larger than most listed frontier and emerging market banks in Asia.

Due to the competition Halyk Bank is facing from Kaspi, especially in the consumer loan segment, the name is underappreciated in our view despite quarterly results and fundamentals remaining very strong. Even though the stock has had a very good run this year, valuations remain very attractive with a P/E ratio of only 4.8x its 2021 estimated earnings and a dividend yield of 9.7%.


Halyk Bank stock price has been strong this year and has outperformed the Kazakhstan Stock Exchange Index

(Source: Bloomberg, % change in prices from 31st December 2020 – 31st August 2021)


The strict lockdown conditions remain in place in Vietnam, especially in the south of the country in and around Ho Chi Minh City. As expected, this is beginning to have an impact on economic output with industrial production, exports and retail sales taking a hit in August. However, with interest rates remaining low and retail investors “working from home”, enthusiasm for the stock market remains high among domestic investors with the VN-Index gaining 1.6% during the month. The fund’s Vietnamese holdings also did very well with a transportation company and construction contractor gaining 22% and 18% respectively. The port operator, Gemadept, which the fund initially bought during the correction in July 2021 is now up 25% since purchase.

Since the structural long term growth story of Vietnam remains intact, we believe that once the economy starts to gradually reopen, some of the consumption related names which have been negatively impacted by the lockdown could see a re-rating in their stock prices as investors look for re-opening plays, and the fund is well positioned in this respect too with holdings in a mall operator, a brewery, and a passenger car manufacturer.

Any doubts about the impact of the pandemic on Vietnam’s long term economic outlook should also be put to rest as South Korea’s LG Display announced a further investment of USD 1.4 bln into its operations in the northern port city of Hai Phong taking its total investment in this project to USD 4.7 bln.


Despite the pandemic, LG Display has committed to invest an additional USD 1.4 bln in its Hai Phong operations in Vietnam

(Source: Vietnam Investment Review)


The best performing indexes in the AAFF universe in August were Mongolia (+33.7%) and Sri Lanka (+10.8%). The poorest performing markets were Cambodia (−6.0%) and Pakistan (+0.8%). The top-performing portfolio stocks this month were a Mongolian alcoholic beverages producer (+36.8%), a Mongolian hotel (+25.1%), a Mongolian online media company (+23.3%), a Vietnamese transportation company (+22.2%) and a Vietnamese construction contractor (+17.8%).

In August, the fund exited a Vietnamese telecom equipment manufacturer, a Mongolian cashmere producer, a Mongolian meat processor, and a Mongolian securities brokerage company. During the month, the fund added to existing positions in Mongolia and Vietnam and also added to an online classifieds company operating in multiple Asian frontier countries. 

At the end of August 2021, the portfolio was invested in 73 companies, 2 funds and held 7.2% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.5%) and pharmaceutical company in Bangladesh (3.9%). The countries with the largest asset allocation were Mongolia (17.8%), Vietnam (14.8%), and Iraq (11.4%). The sectors with the largest allocation of assets were consumer goods (26.2%) and industrials (13.8%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.73x, the estimated weighted harmonic average P/B ratio was 1.13x and the estimated weighted average portfolio dividend yield was 3.12%.

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AFC Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund Class F shares returned +2.2% in August with a NAV of USD 1,994.28, bringing the return since inception (29th March 2019) to +99.4%, while the year-to-date return stands at +48.7%. On an annualized basis, the fund has returned +32.9% p.a. with a Sharpe ratio of 2.14.

August 2021 was a mixed month sentiment-wise in Uzbekistan as economic momentum continued, but the discussion among the business community was consumed by Afghanistan’s collapse and how it could affect Uzbekistan and the Central Asian region going forward. Uzbekistan is in a strong position economically and militarily, so we view things as neutral while watching how the highly fluid situation across the border further evolves now that the USA has officially withdrawn, leaving Afghanistan to the Taliban.

AFC Uzbekistan Fund valuations as of 31st August 2021:

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


Estimated weighted harmonic average P/B:


Estimated weighted portfolio dividend yield:



Afghanistan Situation

As Afghanistan’s former government collapsed during August, followed by the USA having fully withdrawn on 31st August 2021, “Operation Enduring Freedom” ended abruptly with the Taliban returning to power.

So, what does this mean for Uzbekistan? We have received a few queries about this, but as far as we can see, there should be little to no change in Uzbekistan going forward. The most visible change is more Afghans living in Tashkent (and in some of the cities bordering Afghanistan), though they arrived during the past several months and are mainly of the Afghan middle class who are educated and business owners, some of whom brought with them substantial wealth. Many of these Afghans have historically done business in Uzbekistan, owning everything from English schools to cement plants, and thus Uzbekistan was already a second home of sorts for them. Bringing valuable skillsets and capital is certainly not worrying to us and should be a net positive.

Regarding security and refugees, Uzbekistan hosts the largest military in Central Asia, has a secure border with Afghanistan, and is not accepting any refugees. The few who did flee into Uzbekistan, either via land or by air (as defectors from the Afghan air force flew to Uzbekistan during the middle of August), have been detained and the Uzbek government is working with western countries to have them deported abroad. Further, on 27th August 2021 President Mirziyoyev was quoted in local media saying “We predicted these events would happen [and so Uzbekistan] started communicating with [the Taliban] not yesterday, but two years ago. When no country had communicated with them, I gave instructions” to establish a dialogue with them. Uzbekistan has built a good rapport with the Taliban as it is focused on protecting the security of its territory and has been forward-thinking in this regard.

Coca-Cola Bottlers Uzbekistan privatisation – a model for future privatisations or a one-off?

On 6th August 2021 the Agency for State Asset Management, responsible for the privatisation of Uzbekistan’s state-owned enterprises (SOE’s), announced an agreement to sell the state’s 57.118% stake in the local Coca-Cola bottling company to Turkish Coca-Cola Icecek A.S. for USD 252.28 mln. Rothschild & Co. and Dentons acted as the financial and legal advisors to the deal which was widely regarded as transparent and fair.

The bottling company had been in the pipeline for privatisation for several years and it is highly encouraging that it was sold in a transparent fashion to a foreign strategic investor who should be able to increase efficiencies within the company and further enhance profitability. One benefit of SOE’s being privatised is the low hanging fruit efficiency gains that can be had with new management. For example, a friend who owns a Lebanese café in Tashkent will message a sales representative indicating that he needs a delivery of certain Coca-Cola products. It’s not uncommon for a response to take several days and for him to be informed that they don’t have certain SKU’s such as 500ml bottles of Coke or bottles of Bonaqua water. The bar for improvement in this country is anything but high and should lead to some impressive margin and profitability increases for its new Turkish owners, just as publicly listed steel producer Uzmetkombinat (TSE: UZMK) experienced when it went through restructuring with the help of private sector experts.

Looking ahead to the long list of privatisations from wineries to the national airline (Uzbekistan Airways) to several large gold and copper mining operations, if the privatisation of Coca-Cola Bottlers Uzbekistan can become a blueprint for future privatisations, then the broader privatisation programme over the coming years should be very exciting indeed, for both the government and the population. So, we will patiently wait to see if increased transparency in the sphere of privatisations becomes the new normal or if this flagship privatisation was a one-off due to the brand name. We are hopeful it will be more of the former.


Coca-Cola Bottlers Uzbekistan Ltd.

(Source: PlasticsinPackaging)


Second quarter earnings season concludes with another batch of strong earnings

With global steel prices very strong in 2021 and remaining firm as demand grows and China eliminates export rebates (incentives for steel producers to export product), Uzmetkombinat (TSE: UZMK) has been one of the standout performers in our portfolio during the second quarter. Net income grew 2,512% Year-on-Year in the second quarter, while trailing twelve-months earnings increased 237% and book value per share grew 35.2%. UZMK ended August at UZS 86,999 per share, up 164% since the start of the year and is but one example of the continued high growth we see among our portfolio companies. While UZMK's price has begun to re-rate, we also see continued upside as it trades at a P/E of 3.96x, P/B of 1.56x and a dividend yield of 4.38%.



(Source: Toshkent Stock Exchange, AFC Research)


As UZMK benefits from a strong economy and robust steel prices, the government of Uzbekistan is continuing to liberalize the domestic economy, benefiting other core positions of ours, specifically in the cement industry. On 31st August 2021 a presidential decree was signed stating that from 1st October 2021 the income tax rate for cement producers would decrease from 20% to 15% and the subsoil use tax for the extraction of limestone (the main ingredient in cement production) will be cut in half from 1st January 2022. As one can imagine, this will be very positive for our cement holdings going forward.

At the end of August 2021, the fund was invested in 27 names and held 17.4% in cash. The portfolio is allocated to Uzbekistan (82.47%) and Kyrgyzstan (0.03%). The sectors with the largest allocation of assets were materials (53.2%) and consumer (13.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.26x, the estimated weighted harmonic average P/B ratio was 1.57x, and the estimated weighted average portfolio dividend yield was 5.94%.

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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. .

With kind regards,

Thomas Hugger
CEO & Fund Manager

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