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Asia Frontier Capital (AFC) - December 2021 Update

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Negotiate a river by following its bends,

enter a country by following its customs."

- Cambodian proverb


 (USD)December 2021Full Year 2021Since
AFC Asia Frontier Fund USD A1,581.35+2.7%+18.1%+58.1%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D692.94+9.1%+22.5%-30.7%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F2,009.60-2.8%+49.8%+101.0%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,554.42-1.7%+55.6%+255.4%
Ho Chi Minh City VN Index (in USD) +0.9%+37.3%+172.4%
  1. The NAV given is for the main share series for the relevant master fund. Investors' 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. Between 31st May 2017 and 30th November 2021 the benchmark was adjusted to be 37% of the MSCI Frontier Markets Asia Net Total Return USD Index “MSCI Index” and 63% of the Karachi Stock Exchange 100 Index in USD due to the removal of Pakistan from the MSCI Index during this period.
  3. NAV and performance figures are all net of fees.

As we enter the new year, the entire AFC Team wishes you a very profitable and healthy 2022!



BarclayHedge Awards



AFC Iraq Fund bounces back and a strong close to the year for the AFC Asia Frontier Fund

After a correction last month, the AFC Iraq Fund had a strong rebound of +9.1% in December taking its full year 2021 return to +22.5%, reflecting the technical nature of November’s correction on the Iraq Stock Exchange.

The AFC Asia Frontier Fund reported another positive month with a return of +2.7%, taking its full year 2021 performance to +18.1%. This month’s performance of the AFC Asia Frontier Fund was also significantly ahead of all key frontier and emerging market indices reflecting the continued benefits of the fund’s diversified strategy which focusses on stock selection.

After a very strong run in 2021, the AFC Vietnam Fund closed the year with a December return of −1.7%, taking its full year gains to a benchmark-beating +55.6%. This year’s return takes the annualised performance since inception of the fund to a robust +17.1%.

The AFC Uzbekistan Fund returned −2.8% in December but had an excellent year overall with an outstanding return of +49.8% in 2021. This takes the fund’s annualised return since inception to a very healthy 28.8%.

AFC Asia Frontier Fund – 2021 Review and Outlook for 2022

Towards the end of 2021, we released the AFC Asia Frontier Fund’s review and outlook report aptly titled Asian frontier markets leave the rest behind. 2021 was an emphatic year for Asian frontier markets with many of them being among the top 10 performing markets globally.

This performance by Asian frontier markets and the AFC Asia Frontier Fund only emphasises the importance of being invested in our universe as a diversification strategy.

You can read the report or view our Bloomberg TV interview on this topic using the links below:

Asian frontier markets leave the rest behind - AFC Asia Frontier Fund 2021 Review and Outlook 2022

Bloomberg TV: Vietnam Will Have Strong Recovery in 2022: Asia Frontier Capital - Interview with Ruchir Desai




BarclayHedge Awards

(Source: Bloomberg)


I am glad to report, for the 4th month in a row, that we have again been recognized by Backstop BarclayHedge for our outstanding fund performance. This time, the AFC Uzbekistan Fund won the 3rd best performer award for its November 2021 performance in the sectors “Emerging Markets – Eastern Europe/CIS” and “Emerging Markets Equity – Eastern Europe/CIS”, while the AFC Vietnam Fund won the Top-10 award in the sector “Emerging Markets Equity – Asia”. These awards form a definite confirmation of the validity of the investment thesis of our funds and shows that they are well suited as a diversification tool for many equity investors.


BarclayHedge Awards


BarclayHedge Awards




BarclayHedge Awards



Below please find the manager comments relating to each of our four funds for the month of December 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 Iraq Fund Performance


The AFC Iraq Fund Class D shares returned +9.1% in December with a NAV of USD 692.94, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 10.0% during the month. The fund is up 22.5% in 2021 versus 21.4% for the index. Since inception, the fund lost 30.7% while the RSISUSD index is down 45.4%.

The concentrated foreign selling in some of the fund’s top holdings, that led to last month’s correction, is continuing to provide an excellent opportunity for investors to invest in the AFC Iraq Fund as we strongly believe that the correction was purely technical, and not driven by fundamentals. The outlook for the fund’s portfolio companies remains robust as discussed in detail last month, while the country continues to witness a macro-economic turnaround that will continue into 2022 as will be discussed below. Crucially, the fund’s holdings, in particular its top holdings, are high-quality companies whose earnings and asset value growth are expected to outpace the economic recovery post-COVID 19 which should lead to a sustainable long-term robust performance for the AFC Iraq Fund in both absolute and relative terms.

November’s concentrated foreign selling resumed in AsiaCell Telecommunications (TASC) and in the National Bank of Iraq (BNOI), but not in the Commercial Bank of Iraq (BCOI). Meanwhile, local investors continued to take advantage of the opportunity presented by this unexpected selling avalanche (chart below). The selling’s declining intensity allowed stock prices to rebound from November’s lows. However, they have not reached their October levels yet: TASC was up 17.0% for the month and 13.3% for the year – significantly less than its 32.2% gain for the year by the end of October; while BNOI was up 17.1% for the month, and 46.4% for the year – similarly significantly less than its 114.3% gain for the year by the end of October. BCOI on the other hand was up 17.0% for the month, and 49.4% for the year – marginally less than its 54.2% gain for the year by October, underscoring a similar upside rebound potential for TASC and BNOI once the selling wave comes to an end. 

The foreign selling continued to be somewhat mitigated by significant foreign buying in the Bank of Baghdad (BBOB), but the stock was up only 7.3% for the month as sustained local selling capped the stock’s rise. Nevertheless, the stock ended the year up by an impressive 151.2%, driven by the bank's strong earnings recovery as its turnaround continues to unfold, which was amplified by expectations that its majority owner, Burgan Bank of Kuwait, would sell its 51.8% stake. Continuing to be absent from the intense trading activity was Baghdad Soft Drinks (IBSD), which was up 13.2% for the month and 8.9% for the year. 

Stock prices are adjusted for dividends equivalent to yields of 7.4%, 9.2%, 5.8%, and 4.3% announced in the year by TASC, BNOI, BCOI, and IBSD, respectively.



Iraq's COVID-19 Statistics

(Source: Iraq Stock Exchange, Asia Frontier Capital, data as of 27th December 2021. Volumes exclude arranged block transactions)


2022 Outlook

2021 marked a significant turning point for Iraq, its economy, and equity market. The economy recovered from the extreme lows of 2020 in tandem with the significant recovery in oil prices and the return to semi-normality with the easing of the COVID-19 containment measures as discussed in “Continued Momentum”. The equity market responded to these positive developments with a strong performance for the year, with the Rabee Securities RSISX USD Index up 21.4% in 2021, which ended a brutal multi-year bear market that saw the index at the end of 2020 down by 68% from its 2014 all-time high. The index is still 61% below the 2014 high, even after the strong performance for 2021, underscoring the potential catch-up upside for the equity market and its attractive risk-reward profile versus other global markets (chart below).


Normalised returns for the RSISUSD Index vs MSCI World Index, MSCI Emerging Markets Index and MSCI Frontier Markets Index

Brent Crude Chart

(Source: Bloomberg, data as of 29th December 2021)


The realisation of the catch-up opportunity for the equity market is dependent on several factors such as the world economy’s continued recovery from the disruptions brought about by the pandemic and subsequently the future direction of oil prices, governments’ economic policies as expressed in their annual budgets, and the country’s political stability.

The emergence of the Omicron variant in the fourth quarter of 2021 questioned the consensus view that the global economic rebound will accelerate in 2022 and continue to be strong into 2023; and with-it expectations for continued recovery in global oil demand. However, the world in 2022 is in a much better position than it was in early 2020. As such, world economic growth will resume as the world learns how to deal with and ultimately contains this new variant, just as it did with the original virus. Consequently, expectations for the future directions of oil prices, as expressed by Brent crude prices, continue to be buoyant as seen from long-term futures contracts into March 2029 (chart below).



Brent Crude Chart

(Source:, data as of 7th January 2022)


While it’s folly to depend on these projections into 2029 given the history of oil price forecasts, the world economy’s fundamentals for the next 1-2 years lead credence to oil price expectations for 2022-2023. Oil prices at these levels are positive for the country’s financial position in that they would provide governments, current and upcoming, with the wherewithal to continue with current expansionary economic policies that would also still allow for the accumulation of budget surpluses. Moreover, they would also lead to multi-year positive balances in the country’s current account which in turn would translate into meaningful increases in Iraq’s foreign exchange reserves.

A great deal of the political uncertainty that followed the national elections on 10th October 2021 was resolved on 27th December 2021 with the Supreme Court’s ratification of the election results, rejecting the appeals of the losing parties for a recount, and paving the way for a government formation. However, the government formation will be more tortuous this time given the different election fortunes of the two rival coalitions that defined the political scene and led the two government formations post the ISIS-conflict. 

The Sadrist Movement, best known through its leader Muqtada al-Sadr, achieved significant seat gains at the expense of the Fateh Alliance that represents the country's Popular Mobilization Forces (PMF). Nevertheless, the most likely outcome is still that the composition of the new government will closely mirror the last two and will be strongly influenced by both the Sadrist Movement and the Fateh Alliance; but the relative strength of each will change reflecting the election results. Although, the surprising developments of the first session of the new parliament on Sunday 9th January 2022, seem to imply that that the outcome is a government led by the winning coalition, i.e., the Sadrist Movement, or overwhelmingly influenced by them. However, irrespective of either outcome, any upcoming government would come about with similar tenuous compromises that defined the 2018 government. As such, its need to gain public support implies that it will likely follow the 2018 government’s populist policies as expressed in its expansionary first budget for 2019.

Given that government formation is unlikely to occur before the end of March 2022, the current caretaker government and the upcoming government would continue implementing the 2021 expansionary budget until the end of 2022. Moreover, the new government’s first budget for 2023 will likely be more expansionary than the 2021 budget. Consequently, these budgets will sustain and re-enforce the current consumer-led economic rebound into more sustainable economic growth, which in turn should lead to a continued recovery in corporate profits.

The fund’s top five holdings discussed above – listed alphabetically BBOB, BCOI, BNOI, IBSD, & TASC – are expected to be prime beneficiaries of this economic growth. Each holding’s attractiveness and leverage to this growth will be featured in future newsletters. 

In ending the year, we firmly believe that the AFC Iraq Fund is well-positioned to capture and benefit from the expected earnings growth of its key holdings, and from the revival of the broader macro-economic backdrop of the country. Finally, while the unexpected technical selling in November 2021 significantly dented the AFC Iraq Fund’s performance, cutting the earlier expected full-year return by about half, we view this dip as a significant buying opportunity in the AFC Iraq Fund.

At the end of December 2021, the AFC Iraq Fund was invested in 13 names and had a cash level of −2.2%. 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 (99.6%), Norway (2.1%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (66.4%) and consumer staples (14.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.54x, the estimated weighted harmonic average P/B ratio was 0.92x, and the estimated weighted average portfolio dividend yield was 4.11%.

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AFC Asia Frontier Fund - Manager Comment

AFC Asia Frontier Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares returned +2.7% in December 2021 with a NAV of USD 1,581.35. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+0.5%), and the MSCI Frontier Markets Net Total Return USD Index (+1.5%) but underperformed the MSCI World Net Total Return USD Index (+4.3%). For the whole of 2021, the fund gained 18.1% outperforming its benchmark which increased by 4.5%. The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +58.1% versus the benchmark, which is up by 22.8% during the same period. The fund’s annualized performance since inception is +4.8%. 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 0.54, all based on monthly observations since inception.

The AFC Asia Frontier Fund had an outstanding close for the year with December’s performance outdoing all major frontier and emerging market indices. The month’s performance takes the 2021 return to +18.1% which is the third-best year for the fund since inception. The full-year performance of +18.1% was also far ahead of the benchmark, which gained +4.5%.

During the month, the positive contributors to performance were Mongolia, Sri Lanka, Bangladesh, Iraq, and Vietnam, while the negative contributors were Kazakhstan, Uzbekistan, and Pakistan.

The fund’s performance in Mongolia this month was led by APU, Mongolia’s largest beer and vodka producer. Besides a strong stock price performance in December, APU was the second-best performing stock for the fund in 2021, with a gain of +198.1%.


APU was the second-best performing stock for the fund in 2021 with a gain of 198%


(Source: Bloomberg, % change in price between 31st December 2020 – 31st December 2021)


Despite the uncertain macro-economic environment in Sri Lanka, the IPO market has been extremely strong with new issues witnessing solid gains once they began trading. We participated in the IPO of hSenid Business Solutions (HBSN), which is the first major technology listing on the Colombo Stock Exchange. HBSN develops and implements its own product suite of human resource software for clients in Sri Lanka as well as in many developing markets in Asia and Africa with almost 100% of its revenues billed in US Dollars.

HBSN’s IPO was oversubscribed by more than 13x, making it one of the most successful IPOs in the history of the Colombo Stock Exchange. Investors like us were also rewarded with a powerful opening with the stock gaining +177% since trading began on 21st December. This extraordinary gain made HBSN the third best performing stock for the fund in 2021.




(Source: Bloomberg)


Tourist arrivals in Sri Lanka are on an upswing with December arrivals reaching around 30% of pre-pandemic levels. Though we have to wait and see to gauge how the Omicron situation plays out, the December numbers suggest a strong peak season for Sri Lanka running through April 2022.




(Source: AFC Research, Sri Lanka Tourism Development Authority)


In December, the best performing stock for the fund in Bangladesh was Beximco Pharmaceuticals (BXP) which gained +18.5%. BXP is the fund’s largest position in Bangladesh, and in December, it made another positive announcement as it launched the world’s first generic version of Pfizer’s COVID-19 tablet/pill. This is in addition to the November 2021 launch of its generic version of the Merck COVID-19 tablet/pill.

Furthermore, over the past few months, the company has once again begun receiving Astra Zeneca COVID-19 vaccines from its Indian partner which should be a big boost to the company’s earnings in 4Q21 and in 2022. The fund owns the GDR of Beximco Pharmaceuticals listed in London, which continues to trade at a considerable discount of 29% to the local listing in Dhaka.

On the macro front, supported by the garment sector, exports from Bangladesh are on a massive upswing with December 2021 exports touching an all-time high of USD 4.9 bln, a growth of +48%. For the calendar year 2021, total exports grew by a robust 32% to USD 44 bln. These export figures reflect the gains Bangladesh is making from the manufacturing and supply chain shift, especially in the global garment industry.



A CU convenience store in Ulaanbaatar, Mongolia

(Source: Bangladesh Export Promotion Bureau)


In Vietnam, the fund’s construction contractor, Fecon (FCN), continued its strong run and gained another 29% as it is an expected beneficiary of the government’s stimulus package, which should be announced in January 2022. December’s gain takes FCN’s 2021 stock price return to 104%, making it the best performing Vietnamese stock for the fund.


The fund’s Vietnamese construction contractor Fecon outperformed the VN-Index by a large margin

Vietnam Manufacturing

(Source: Bloomberg, % change in price between 31st December 2020 – 31st December 2021)


The State Bank of Pakistan raised interest rates by another 100 basis points in its monetary policy meeting, taking the total increase to 275 basis points since September 2021. This sharp increase in interest rates appears to have peaked out for now and should begin to have an impact on the current account deficit over the next few months.

However, with the interest rate cycle on the upturn, earnings in Pakistan appear to have peaked out, and the second half of 2022 could be better for earnings as the impact of higher commodity prices and higher interest rates fade away.

The best performing indexes in the AAFF universe in December were Mongolia (+12.8%) and Iraq (+9.8%). The poorest performing markets were Laos (-2.2%) and Cambodia (-1.6%). The top-performing portfolio stocks this month were a Sri Lankan technology company (+176.8%), a Mongolian retailer (+35.9%), a Vietnamese construction contractor (+29.4%), a Mongolian junior gold miner (+25.0%) and a Sri Lankan consumer and healthcare conglomerate (+21.4%).

In December, the fund bought an industrial gas producer in Bangladesh, a pharmaceutical company in Pakistan, a Sri Lankan technology company, and a Vietnamese gas distribution company, and exited a Mongolian cashmere producer. The fund also added to existing positions in Bangladesh, Mongolia, and Vietnam, but reduced some existing positions in Mongolia and Vietnam.

In December, the fund bought an industrial gas producer in Bangladesh, a pharmaceutical company in Pakistan, a Sri Lankan technology company, a Vietnamese gas distribution company, and a Vietnamese technology company, and exited a Mongolian cashmere producer. The fund also added to existing positions in Bangladesh, Mongolia, and Vietnam, but reduced some existing positions in Mongolia and Vietnam.

At the end of December 2021, the portfolio was invested in 81 companies, 2 funds and held 3.1% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (5.1%) and a beverage producer in Mongolia (4.3%). The countries with the largest asset allocation were Mongolia (22.8%), Vietnam (12.8%), and Bangladesh (11.4%). The sectors with the largest allocation of assets were consumer goods (30.6%) and materials (10.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.93x, the estimated weighted harmonic average P/B ratio was 1.20x, and the estimated weighted average portfolio dividend yield was 2.95%.

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AFC Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund returned −1.7% in December with a NAV of USD 3,554.42, bringing the full year 2021 return to +55.6%, the highest gain in any single year since inception. The total return since inception was +255.4%. This represents an annualized return of +17.1% p.a. since inception. The Ho Chi Minh City VN Index gained 0.9% in December 2021 in USD terms to end the year up 37.3%. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.84%, a Sharpe ratio of 1.18, and a low correlation of the fund versus the MSCI World Index USD of 0.51, all based on monthly observations since inception.

Market Developments

December saw a slight correction of the very positive overall 2021 performance. With lockdowns ending and people returning to work it might give some the impression that people have less time and interest in the stock market. Reality is of course that people simply take some profits towards the end of the year, or before the start of the Lunar New Year holidays "Tet", which will start this year on 1st February 2022. 

Why local investors increasingly contributed to a decoupling of the stock market in Vietnam from others in the region can be seen in the following chart. The number of newly opened stock trading accounts rose sharply in 2021 compared to 2020. One must keep in mind that while this is already currently a very supportive factor for the stock market, the investor base is still very low in Vietnam and 1.5 mln new stock trading accounts translates to an increase of 1.5% of the overall population owning stocks. At the moment, there are a total of over 4 mln stock trading accounts, accounting for only around 4% of the population, hence there is room for much more growth over the coming years.


Newly opened stock trading accounts (in thousands)

VN30-Index September 2020-November 2021

(Source: VSD, AFC Research)


Vietnamese law is very restrictive regarding investment in overseas stock markets and making international money transfers. This restriction combined with a modern, young, and growing middle class, looking to save and invest their growing wealth, leads to a logical money flow into all kinds of (local!) asset classes, including stocks. The best example for this weird situation is that local gold prices for 24 karat gold bars always have been significantly more expensive than the world market, and the current price for gold in Vietnam is around 23% higher than the “real” gold price. A good comparison is also the Chinese stock market, where local investors are trapped with their Renminbi´s, valuing the same company on their home market often much higher than the company’s Hong Kong listed shares, like the new listing of China Mobile on the Shanghai Stock Exchange which trades at a premium of more than 50% over its Hong Kong listed shares. 

With few alternatives, local Vietnamese investors are probably very thankful that foreigners consequently left the scene to locals in 2021, otherwise stock gains would have been even more dramatic. At the beginning of the year, we were very wrong, expecting that foreign investors would return to the buy side in 2021, but maybe we were just a bit early, and we will see their return in the coming year. Since valuations are still attractive, especially given the circumstances described above, there is plenty of room for further gains, and as we always said – an undervalued market, as Vietnam has been for years, seldom stops at average valuations. It usually ends up in excess, leading to extreme overvaluations. Did we already mention in this report that the AFC Vietnam Fund's average P/E is currently still only at around 11x? 


Average daily trading value on the Ho Chi Minh Stock Exchange (USD mln)


(Source: HSX, AFC Research)


Compared to the same period last year, monthly trading value of the Ho Chi Minh Stock Exchange jumped 2.65 times from USD 257 mln per day to USD 931 mln per day. In particular, trading value surpassed USD 1 bln per day in June, August, November, and December. 

Nevertheless, 2021 was a stellar year in terms of performance for investors in Vietnam with a gain of 36%, a continuation of the bull market which started in 2016, and the market overcoming the worldwide COVID-19 related selloff in early 2020. The gains were underpinned by strong earnings despite business disruptions caused by the lockdowns in the third quarter, with 2022 forecast to show another surge in profits by 20% or even slightly above. With this performance, Vietnam not only outperformed almost every other important stock market, but also set the base for a prosperous 2022.


Index Performance Comparison

4th wave fully hit Vietnam in April

(Source: Bloomberg)


Investors in our AFC Vietnam Fund saw an even bigger gain of 55% which not only outperformed the VN-Index dramatically, but also shows – once again – why actively managed funds can be a wise choice over ETF´s, especially in emerging or frontier markets like Vietnam.


AFC Vietnam Fund, Vietnam Index, and Vietnam ETF Performance


(Source: Bloomberg; AFC Vietnam Fund performance estimated)


The Vietnamese Dong, while correcting in December against the USD, finished the year practically flat and was one of the most stable currencies in the world, not only when compared to developing countries.


Stable Vietnamese Dong versus USD

National Assembly Meeting

(Source: Bloomberg)


Positive forecasts for 2022

As always at the end of the year, investors look ahead to the new year and are trying to get an idea of what 2022 could bring for them. One month into the current Omicron fears, analysts are forecasting a further rebound in economic activity in Southeast Asia, with Vietnam being one of the fastest growing economies. While the new virus variant boasts some uncertainties in the short term and might bring a setback in the vaccination cycle, those risks are seen mostly as concerns in the short term and will likely not bring back the broad-based lockdowns we saw this year in Vietnam. Experts at the Asian Development Bank see a rebound in economic growth of 6.5% in Vietnam for 2022 after a lockdown-induced weakened growth of just 2.0% in 2021.



National Assembly Meeting



Macro data continue to look stable and positive

Our investment story in Vietnam was always based on the assumption that economic policies in Vietnam are stable, and with low costs of production, a pro-investment-oriented government and a highly motivated and educated population, the financial markets will continue to develop. Eight years after launching our AFC Vietnam Fund, absolutely nothing has changed: long term economic growth continues to look stellar post-pandemic in comparison to other economies, diversification in production mainly out of China continues to provide further growth in foreign investments, and domestic growth will continue to grow after the brief COVID-19 related pause. Samsung alone, for example, has invested USD 17.7 bln over the past 24 years. The South Korean company achieved revenues of nearly USD 60.5 bln in the first ten months of 2021 with its eight manufacturing and research facilities in Vietnam. A stable currency, low inflation, a supportive balance of trade and payments, growing currency reserves - all data have continued improving since our start in 2013. Furthermore, the valuations in the stock market are still attractive with an expected 2022 P/E for the market of only 14.5x on expected earnings growth of around 20% in 2022 - the AFC Vientam Fund portfolio looks even more attractive with a completely undemanding expected 2022 P/E of just 8.8x.


Trailing P/E is still 20% below 2018 levels

Vinamilk (VNM) share price

(Source: Bloomberg, VNDS Research)


With another strong increase in Vietnam's foreign exchange reserves, which lowered its country risk substantially, government bond yields could trail around 3-4% in the coming years. These factors will also allow higher multiples for the stock market in the future. The improving foreign exchange reserves of Vietnam which are supported strongly by increasing FDI and a strong trade balance completely supports the Vietnamese Dong’s stability.


Foreign reserves (USD bln)

Vinamilk (VNM) share price

(Source: GSO, AFC Research)


Strong export growth: Vietnam continues to be one of the most important manufacturing hubs in the world after China. The trade war between the U.S. and China has benefitted Vietnam substantially, with a surge of U.S. buyers looking for new suppliers in Vietnam. Regardless of the serious impact of COVID-19, export revenues of Vietnam showed impressive growth of 19.4% to USD 336.3 bln, reaching a new all-time high. Vietnam is part of many significant free trade agreements such as CPTPP, EUVFTA, UKVFTA, RECEPT and over the last 10 years, export revenues have increased by more than 4.5 times.


Vietnam export revenues (USD bln)

Vinamilk (VNM) share price

(Source: GSO, AFC Research)


The LEGO Group will invest more than USD 1 bln

LEGO is another example of a large international company establishing a manufacturing hub in Vietnam. The Danish company decided to build a new factory, creating up to 4,000 new jobs over the next 15 years, in the province of Binh Duong, around 50 km from Ho Chi Minh City, on a 44-hectare site. Construction is set to begin in the second half of 2022, and production is scheduled to start in 2024. This is the sixth LEGO factory to expand the group’s global manufacturing footprint and support long-term growth in the Asia-Pacific region. The facility is planned to be the company’s first carbon-neutral factory and will include investments in solar energy generation.



Vinamilk (VNM) share price

(Source: LEGO System A/S)


Chief Operations Officer Carsten Rasmussen said: “We are very grateful for the support of the Vietnamese government in helping us to achieve our ambition to build our first carbon-neutral factory. Their plans to invest in expanding renewable energy production infrastructure and a collaborative approach working with foreign companies who are seeking to make high-quality investments were among the factors in our decision to build here." The new factory will feature solar panels on its roof and VSIP (Vietnam - Singapore Industrial Park Joint Stock Company) will build a nearby solar project on behalf of The LEGO Group. Combined, these solar parks will produce enough renewable energy to match 100 per cent of the factory’s annual energy requirements. It will be constructed with an aim to meet a minimum standard of LEED Gold (Leadership in Energy and Environmental Design), which covers all areas of sustainability including energy, water, and waste. The factory will be designed to accommodate electric vehicles and be outfitted with energy-efficient production equipment. The LEGO Group with VSIP will also plant 50,000 trees in Vietnam to compensate for vegetation removed during construction.

LEGO’s billion USD project is one of the showcases to demonstrate the long-term belief of international investors in Vietnam. Since Vietnam joined many free trade agreements with other countries, we have seen huge investment from Asian countries such as South Korea, Japan, and Taiwan, but also from Europe and the U.S.


FDI disbursement into Vietnam (USD bln)

Vinamilk (VNM) share price

(Source: GSO, AFC Research)


Both Vietnamese citizens and international investors are always taking a close look at the inflation risks in Vietnam. Historically a problem in most emerging markets, the government was very successful in controlling inflation “back home” over the past few years, but is of course aware that international developments in commodities, trade, or high inflation in major economies could also have an impact on the country.


U.S. unit labor costs and core inflation

Vinamilk (VNM) share price

(Source: US Bureau of Labor Statistics)


Rising labour costs are running at 25-year highs along with the core inflation rate in the U.S. With interest rates at zero, the FED certainly has pressure to not wait too long to raise rates, keeping in mind that real interest rates (which are already negative and have been for years now) are currently deeply negative. The same can be said for Europe, although the pressure from the labour market is less severe, but certainly noticeable recently. Countries like Vietnam, on the other hand, are meant to have rising wages (around 7-10% p.a.), as cost-advantages in low-wage countries are usually the main reason for companies investing there, but also ensure that wages and living standards in those countries are raised over time. It is therefore very encouraging to see how well the economic policies were able to keep growth and stability balanced, with the inflation rate expected to end 2021, lockdown-related, lower at just around 2%, and returning to the previously seen levels of 3-3.5% in 2022.


Inflation rate in Vietnam 2014-2020

Vinamilk (VNM) share price

(Source: Worldbank, Macrotrends LLC)


At the end of December 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (9.1%) – an insurance company, Tuong An Vegetable Oil JSC (5.6%) – an edible oil producer, Power Engineering Consulting JSC No. 2 (5.0%) – a consulting firm, PVI Holdings (4.9%) – also an insurance company, and Idico Urban and House Development JSC (4.5%) – an energy, construction, and real estate business.

The portfolio was invested in 49 names and held 6.7% in cash. The sectors with the largest allocation of assets were consumer (41.9%) and financials (20.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.98x, the estimated weighted harmonic average P/B ratio was 1.80x, and the estimated weighted average portfolio dividend yield was 3.86%.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned −2.8% in December with a NAV of USD 2,009.60, bringing the return since inception (29th March 2019) to +101.0%, while the full year 2021 return was +49.8%. On an annualized basis, the fund returned +28.8% p.a. with a Sharpe ratio of 1.91.

December concludes what has been another fantastic year for Uzbekistan and its opening to the world. 2021 was also the best year of performance for the AFC Uzbekistan Fund so far. While it would have been nice to have ended 2021 on a high note, market activity during the month was muted, causing equities to drift lower in light holiday trading, exacerbated by usual profit-taking around holidays as locals sell shares to finance celebratory family gatherings. Nonetheless, Uzbekistan finished 2021 with GDP growth of 7%, well in excess of the World Bank’s forecast of +6.2%, and inflation of 9.98%, positioning the country for significant catalysts in the capital markets in the New Year.

AFC Uzbekistan Fund valuations as of 31st December 2021:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.95x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 5.29%


2021 Review

The AFC Uzbekistan fund finished 2021 up an estimated 48.4%, compared to +22.7% in 2020, as the country saw continued foreign direct investments and diversification of its economy. The Fund’s performance in December was negatively affected by end of year profit-taking and weakness in listed cement companies as the government announced that the elimination of import duties on cement would be extended into 2022 in order to tame inflationary pressures in the construction industry. The country remains a net importer of cement, importing 2.5 mln tons valued at USD 122 mln in 11-months 2021. The government has been laser-focused on bringing inflation below 10% which has contributed to such policies of eliminating import duties. Conveniently, Uzbekistan ended 2021 with an inflation rate of 9.98%, achieving its inflation target. Disinflation should lead the Central Bank of Uzbekistan (CBU) to eventually loosen lending restrictions on banks, enabling accelerated credit growth, and consider a decrease in the policy rate which currently stands at 14%.

2021 can best be characterized as a transition year for Uzbekistan. The country’s GDP grew by 1.6% in 2020, even with pandemic pressures, though 2021 saw a strong rebound in growth to +7% as the country was only minimally impacted by COVID-19 due to its effective policies making the virus all but an afterthought, allowing life to return to normal and for the economy to continue its upward trajectory. Furthermore, President Mirziyoyev won re-election in October which should provide continued regional stability in addition to consistency in government policy and economic liberalisation during his second term.

In the first 11 months of 2021, Uzbekistan’s foreign trade increased 15% to USD 37.9 bln (USD 15.46 bln of exports (+8.9%) and USD 22.48 bln of imports (+19.7%) leading to a trade deficit of USD 7.02 bln. However, remittances from Uzbekistan’s large overseas workforce were USD 4.5 bln (+21% growth YoY) and helped to keep the trade deficit in check (it is our view that as Uzbekistan’s export sector continues to flourish, over the coming years the country’s trade deficit will return to a surplus). On this note, it is encouraging to see the country’s share of gold in its export mix having decreased from 40.9% to 26.6%, confirming Uzbekistan’s export base is both diversifying and expanding. The growth in non-gold exports and movement toward a trade surplus over the coming years is likely to also support the currency, the Uzbek Som.

In 2019 depreciation of the Som versus the USD was 13.9%. Comparably, in 2020 and 2021 deprecation was 10.2% and 3.4% respectively. As inflation continues to slow, the trade deficit narrows, and as the CBU lowers its policy rate, we expect to see continued stabilization in the currency.

While 2021 may have been a transition year on the way to significant capital markets catalysts in 2022, it was anything but quiet. Earnings growth for companies listed on the Tashkent Stock Exchange continued their strong growth. Some of the standout holdings of the AFC Uzbekistan Fund are shown below with 9-month 2021 earnings per share growth versus 2020 and third quarter 2021 book value per share growth versus 2020.



Almalyk’s existing super-pit measuring 2 km in length



New Year catalysts

2022 is the year the new securities legislation will be passed, bringing much-needed modernity to the country’s antiquated capital markets legislation. The new legislation will coincide with the government’s privatisation programme, where the country’s “crown jewel” assets will be sold off. These companies include Almalyk Mining and Metallurgical Kombinat (Uzbekistan’s largest copper-gold miner), Uzmetkombinat (Uzbekistan’s largest steel producer), UzAvto (the producer of Chevrolet vehicles), and the Navoi Mining and Metallurgical Kombinat (which owns the world’s largest open-pit gold mine—Muruntau) among several others. This privatisation programme coincides with our prior mentions of “Phase II” of our investment thesis for Uzbekistan which will see state-owned companies privatise and which should attract significant local and global attention to the Tashkent Stock Exchange. Uzbekistan has all of the ingredients for a prolonged runway of growth and the 2022 privatisation programme will be encouraging to both watch unfold and participate in.

Concluding this month’s update, below are two photos of Kampir Tepe I took in December while visiting Termez City in Surkhandarya region which shares a border with Afghanistan.

Kampir Tepe is thought to be the lost city of Alexandria on the Oxus (now the Amu Darya) river, and was branded as the “Pompeii of Central Asia” by the Telegraph newspaper. Construction of the city is estimated to have started in the 4th Century B.C., coinciding with Alexander the Great’s invasion of Central Asia. Kampir Tepe is a rarely discussed tourist treasure in Uzbekistan. For those who prefer the road less travelled, during my visit the archaeological site was utterly void of people, aside from myself and my taxi driver. This made the journey that much more exciting, knowing there are still parts of the world (and certainly in Uzbekistan) which are waiting to be discovered by the rest of the world. We are confident that Uzbekistan’s breakout moment and best days are still ahead of it, with the 2022-2025 period to be exciting years of development for the country and its capital markets.


Kampir Tepe

Touring Uzmetkombinat’s factory

(Source: AFC Research)



Touring Uzmetkombinat’s factory

(Source: AFC Research)


At the end of December 2021, the fund was invested in 27 names and held 11.2% in cash. The portfolio is allocated to Uzbekistan (88.74%) and Kyrgyzstan (0.03%). The sectors with the largest allocation of assets were materials (51.9%) and financials (20.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.95x, the estimated weighted harmonic average P/B ratio was 1.34x, and the estimated weighted average portfolio dividend yield was 5.29%.

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