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Asia Frontier Capital (AFC) - February 2021 Update

“ Those who are unwilling to invest in the future haven’t earned one” ― H.W. Lewis, American Emeritus Professor of Physics


Those who are unwilling to invest in the future
haven’t earned one”

― H.W. Lewis, American Emeritus Professor of Physics
at University of California, Santa Barbara


AFC Asia Frontier Fund USD A1,405.31+3.9%+5.0%+40.5%
AFC Frontier Asia Adjusted Index2 +2.1%+5.5%+23.9%
AFC Iraq Fund USD D639.87+19.3%+13.1%−36.0%
Rabee RSISX Index (in USD) +25.7%+14.0%−48.7%
AFC Uzbekistan Fund USD F1,537.27+11.8%+14.6%+53.7%
     Tashkent Stock Exchange Index (in USD) +109.4%+123.7%+87.0%
AFC Vietnam Fund USD C2,453.63+9.5%+7.4%+145.4%
Ho Chi Minh City VN Index (in USD) +10.8%+6.2%+110.6%
  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.

A positive month for all AFC funds

The Year of the Ox began “with a bang” for AFC Funds with a solid month of performance for all our funds despite the volatility in global markets with our AFC Iraq Fund leading returns and seeing a big rebound in performance with a gain of 19.3% in February 2021. You can read more on what drove this performance in the AFC Iraq Fund manager comment below. 

The AFC Uzbekistan Fund continued its momentum in February with a return of +11.8%, while the AFC Vietnam Fund went up by 9.5% after taking a breather in January as the post pandemic economic recovery takes shape in both countries and across our investment universe. The AFC Asia Frontier Fund also gained 3.9% in February despite corrections in Bangladesh and Sri Lanka, reflecting the positive contributions of diversification on fund performance with solid gains in Mongolia driving returns this month.



The AFC Vietnam Fund was awarded the 2021 Top Performer Award in the category APAC - Best Smaller Fund - Emerging Markets by Allocator/CNBC. This award is a continued testament to AFC’s capabilities in managing equity funds in Asian frontier markets.

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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The AFC Iraq Fund Class D shares returned +19.3% in February with a NAV of USD 639.87, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 25.7% during the month. The fund is up 13.1% year to date versus 14.0% for the index. Since inception, the fund lost 36.0% while the RSISUSD index is down 48.7%.

The market, after January’s 9.3% sell-off, resumed the rally that was ignited by the 22.6% devaluation of the Iraqi Dinar (IQD) against the USD in late December 2020, ending February with a bang! February saw a resumption of the trends that drove the index’s rally of 8.7% (in local currency terms) in the immediate aftermath of the currency’s devaluation, in which both daily turnover and foreign buying increased meaningfully month-on-month. However, the crucial difference this time is that these trends lasted the whole month, and their momentum was sustained throughout. Average daily turnover, excluding block transactions, increased 189% over the prior month and 145% over the average of the prior 12 months (first chart below). A similar pattern, but less dramatic, was the resumption of foreign buying in both absolute terms and as a percentage of total buying (second chart below).



(Source: Iraq Stock Exchange (ISX), AFC Research, data as of 25th February)



(Source: Iraq Stock Exchange (ISX), AFC Research, data as of 25th February)


While foreign buying in the leading names in the banking, consumer, and telecom sectors initiated the rally, it was local buying that extended and sustained the rally throughout the month. In particular, the Bank of Baghdad (BBOB) was up 69.2%, Baghdad Soft Drinks (IBSD) was up 30.7%, and AsiaCell (TASC) was up 24.6% – these three stocks accounted for over 90% of the index’s gain and for the bulk of the daily turnover in the market.

Among the banking sector, BBOB’s rally was joined by the low-priced Gulf Commercial Bank (BGUC) in which 4 successive increases in the minimum trading increment resulted in a 21.4% increase in BGUC for the month. Other leading banks lagged significantly, such as Mansour Bank (BMNS) which was up 5.3%, the National Bank of Iraq (BNOI), up 2.4%, and the Commercial Bank of Iraq (BCOI), up 2.3%. In the non-banking rally IBSD was joined by Al Mansour Pharmaceuticals (IMAP) which was up 15.2%.

Most of the disparity in the month’s performance between the index’s 25.7% increase and the fund’s 19.3% increase came from the index’s significant 36.2% weighting in IBSD and to a lesser extent by its 19.5% weighting in the BBOB.  The fund tends to underperform when the index’s gains for a given month are driven primarily by a very strong performance of a large component or two, but this is generally reversed within a few months as other stocks catch up, allowing the more diversified fund to regain relative performance versus the index. The last time this happened was in May 2019 when the index was up 14.7%, driven by a 62.5% gain in BBOB, versus the fund’s 12.7% gain. However, this lag was made up over the following months as other stocks rallied and the fund ended the year outperforming its benchmark by 7.9%. 

The initial post-devaluation rally in late December and the strong follow-through in February suggests that the market is primed for a rally following a brutal seven-year bear market – that even after its February gain, the Rabee Securities RSISX USD Index is still down by over 63% from its 2014 high. The market’s narrow breadth notwithstanding, the fact that the gains were made by the leading names in their respective industries is promising for the rally’s continuation. For such a continuation to be sustainable, it should unfold over the next few months and come with a broadening of market breadth as other stocks begin to contribute to the market’s recovery from its deep downturn. However, this recovery’s pace is likely to be uneven with plenty of zigs and zags along the way.

It was argued here, post the currency’s devaluation that “While the devaluation is an adverse event, the reaction of the equity market and the increased foreign participation indicates that the change is positive for equities. While the missing pieces of Iraq’s re-rating are many and will take time to materialise, this positive reaction to the devaluation suggests that the event might start the process of Iraq’s re-rating – which from a long-term perspective is extremely positive for the equity market and therefore also for the AFC Iraq Fund.” One of these missing pieces is the role that oil prices play in the foreign perception of Iraq contributing to foreign fund inflows, and more significantly, the role oil prices play in driving Iraq’s economy and thus corporate profits.

Oil prices by the end of February staged a remarkable recovery of over 300% from the depths of the price collapse in April 2020, in which the COVID-19 induced worldwide lockdown magnified an earlier crash in prices brought on by the price war between Russia and Saudi Arabia. This recovery was driven by the reversal of these same forces to hopes of a successful COVID-19 vaccination roll-out, and by extra production cuts over two-months of a further 1 mln barrels a day by Saudi Arabia, bolstering the remarkable cohesion of the OPEC+ agreement to cut oil production by an estimated at 12% of world oil supply in May 2020 – an agreement driven by self-interest and commercial logic just as was argued here in March 2020 soon after the initiation of the price war that “… while both combatants on paper have the resources to wage the price war, the effects of the 2014 price-war on both were profound which led to an unimaginable alliance in the first place. Given that effects of a new price war will be equally profound, it seems logical that political considerations will ensure that such war does not last, and that just as political reasons led to the price war, that subsequent ones will end it.”

The availability of more than one effective vaccine for the COVID-19 pandemic bolsters the potential for a synchronised developed world economic recovery in the second half of 2021 and into 2022 – a recovery supported by unprecedented worldwide fiscal stimuli to the global economy, as well as continued adherence of OPEC+ to the production cuts – cuts that should last into the end of 2021 with a potential extension into 2022. This combination would argue for Brent crude prices to average in the range of USD 50-60 per barrel in 2021, and a range of USD 60-70 per barrel in 2021 – a case more promising than, but which nevertheless builds on the case made here in April 2020 that:-

“The known nature of the virus precludes a return to full normalcy when global lockdowns are expected to ease from mid-summer onwards. Combined with the unknown nature of the new normal as the world learns to deal with and ultimately contain the virus, the return to a pre-virus oil demand picture is unlikely within the next 12 months. But, in six to nine months demand for oil should recover from the extreme lows of April and trend upwards to a small drop from base-line demand by year end. 

However, with a return to some sort of post-lockdown normalcy in early 2021, low oil prices should stimulate demand, and coupled with the massive worldwide fiscal stimuli to the global economy should begin to recover. Following a time-lag, as demand absorbs the stored supply, the supply-demand picture should be tilted in supply's favour, and oil prices will trend higher - likely to a price range of USD 45-55 per barrel for Brent crude.” 


Brent Crude Prices 2016-2021
(USD per barrel

(Source: Bloomberg, data as of 1st March 2021)


Such a scenario is extremely positive for Iraq and its equity market given the country’s extreme dependence on oil revenues, which historically constituted over 90% of government revenues. Given the dominance of the economy by the state – as the largest formal employer, and through its direct and indirect control of the largest economic activities – means that higher oil revenues will feed into increased consumer spending and to a revival in said economic activities. Such a revival will sustain the recovery in economic activities that have returned to levels meaningfully above those that prevailed just before the nationwide lockdown in March 2020, as seen from Google mobility data (below chart). In particular activities in the crucial sectors of retail and grocery have recovered to between 20-60% above the levels that prevailed pre-lockdown. The sharp decline at the end of February is due to the new rolling lockdowns every Friday to Sunday, cutting the workweek to four days, in response to the emergence of a potential new wave of the pandemic.



(Baseline is the median, for the corresponding day of the week, during 3rd January - 6th February 2020, Source: Google, data as of 21st February 2021)


As of the end of February 2021, the AFC Iraq Fund was invested in 14 names and held 4.7% 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 (92.7%), Norway (1.8%), and the UK (0.8%). The sectors with the largest allocation of assets were financials (53.2%) and consumer staples (17.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 12.74x, the estimated weighted harmonic average P/B ratio was 0.49x, and the estimated weighted average portfolio dividend yield was 3.69%.

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AFC Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund Class F shares returned +11.8% in February with a NAV of USD 1,537.27, a new all-time high, bringing the return since inception (29th March 2019) to +53.7%, while the year-to-date return stands at +14.6%. On an annualized basis, the fund returned +25.1% with a Sharpe ratio of 1.70.

The combination of a marked increase in buyer activity and sellers raising their offer prices amid the increasing demand for shares led to a broad surge in the price of listed equities on the Tashkent Stock Exchange during February.

AFC Uzbekistan Fund valuations as of 28th February 2021

Estimated weighted harmonic average trailing P/E (only companies with profit): 4.97%

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 7.81%


AFC Uzbekistan Fund underperforms Uzbekistan Composite Index (UCI)

During February, the Uzbekistan Composite Index (UCI), calculated by the “Republican Stock Exchange Toshkent” soared by 109%. The AFC Uzbekistan Fund underperformed the index with a performance of +11.8%. The index appreciated so much because of how it is constructed:  re-weighted daily based on market capitalization. When the fund was launched, we chose to not make mention of the UCI due to its long list of inherent flaws which include the index not being adjusted for share splits, share consolidations, dividends and the constituents and their weights in the index not being published.

However, from November 2020 we (unfortunately) decided to make mention of the UCI in order to provide investors with some insight into the broader market. During December 2020, however, amid the broad equity rally, the index was effectively “hijacked” by an insurance company, Universal Sug’urta (TSE: UNSU). Since the weightings of the index constituents are updated daily based on market capitalization, as the price of UNSU started its rise from UZS 0.01 on 23rd December 2020 to end the month at UZS 0.06 rising further to UZS 0.88 at the end of January 2021, we believe it became an ever-larger weight in the index as the index began to mirror UNSU's price performance. UNSU continued to rise in February 2021, by 2,172%, to end the month at a price per share of UZS 20 (or up 199,999% since 23rd December 2020). The index clearly rose in near lockstep as UNSU’s price movements became more influential to the index. While the price move is certainly impressive, on certain days during the month UNSU rose on tiny volume, in some cases increasing 20% on USD 0.12 equivalent in value of traded shares.

The index is set to be replaced in due course by a higher quality, more transparent, more representative, and properly weighted index, and at such time we will transition to a focus on it. Until this occurs, in our arguably biased opinion, we view the AFC Uzbekistan Fund as a much better representation of the listed equities market in Uzbekistan, with 22 of our 27 holdings listed on the main board of the Tashkent Stock Exchange and comprised of many of the most liquid and blue-chip companies.

The stock market “ignites”!

During February, we saw broad price appreciation across the equity market as communications with several local brokers have indicated that several hundred thousand US dollars have come into the market from investors throughout Europe, Russia and the USA over the last few months and whose funds are now actively being put to work. We knew this day would come sooner or later, and it remains very early days in our view, that foreign investors would realize the immense combination of value and growth on offer in the listed equity market in a country whose macro-economic indicators are highly sound, thus creating a proverbial feeding frenzy for equities. We further knew that in order to benefit from this that we needed to launch the AFC Uzbekistan Fund when it was still taboo to be investing in the country and when several-hundred-thousand-dollar blocks of stock were still available at rock-bottom prices. In preparation for the launch of the AFC Uzbekistan Fund, we shared our marketing materials with hundreds of potential investors around the world, many of whom told us that we are crazy for investing in such a country; ironically this broad-based pessimism at the time of investing into Uzbekistan is exactly why the opportunity was and remains so attractive. As we often say to local and foreign investors, when Starbucks Coffee outlets finally open in the second-tier cities (Starbucks was slated to enter Uzbekistan prior to COVID-19), the "easy money" will have already been made; in this case, we should have many years of positive macro and micro tailwinds on our side.  

February also saw the first few companies report earnings for the fourth quarter 2020, two of which are held by the fund. The fund's largest position, Qizilqum Cement (TSE: QZSM) reported outstanding 2020 profit growth of 115%, while fourth-quarter 2020 profit grew 34% YoY. Book value per share as of 31st December 2020 grew by 26% YoY. QZSM has historically paid out a minimum 50% of profits as dividends since the government remains the majority owner and is interested in receiving a nice dividend check every year, especially as the company generates plenty of cash to fund growth, for the most part, internally. If this holds true for the 2020 dividend, this will translate to UZS 659 per share, or a dividend yield of 14.2% as of 28th February 2021, after the company’s share price rose by 24.8% during the month.

Andijon Biokimyo (TSE: ABKZ), a white spirits producer located in the east of Uzbekistan, reported 2020 profit growth of 47%, while fourth quarter 2020 profit grew 405% YoY. Book value per share as of 31st December 2020 increased 17% YoY. ABKZ had historically paid 55% of profits as dividends, though it paid 42% of 2018 profits and 85% of 2019 profits as dividends. Assuming a conservative pay-out for fiscal year 2020 of 42%, this would translate to UZS 569 per share, or a dividend yield of 6.1% as of 28th February 2021, after the company’s share price rose by 48.6% during the month.

In February, Scott Osheroff, CIO of the AFC Uzbekistan Fund, was walking by the “New Tashkent City” development project, a 70-hectare redevelopment project in the Centre of Tashkent where he took the picture below of the Nest One mixed-use development project, which once completed will be the tallest building in Uzbekistan at 51 floors. The project is being constructed by Alto Aluminum, a joint venture between the local conglomerate, AKFA Group, and Kocamanlar Aluminyum from Turkey.


Nest One Mixed-Use Project in the “New Tashkent City” development

(Source: AFC Research)


At the end of February 2021, the fund was invested in 28 names and held 12.0% in cash. The markets with the largest asset allocation were Uzbekistan (87.1%) and Kyrgyzstan (0.9%). The sectors with the largest allocation of assets were materials (53.2%) and financials (16.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 4.97x, the estimated weighted harmonic average P/B ratio was 1.15x, and the estimated weighted average portfolio dividend yield was 7.81%.

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AFC Vietnam Fund - Manager Comment



The AFC Vietnam Fund rose by 9.5% in February with a NAV of USD 2,453.63, a new all-time high NAV, bringing the year-to-date return to +7.4% and the return since inception to +145.4%. This represents an annualized return of +13.3% p.a. since inception. The Ho Chi Minh City VN Index in USD gained 10.8% in February 2021 and ended just slightly below the recent high, which was reached in early January 2021. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.77%, a Sharpe ratio of 0.90, and a low correlation of the fund versus the MSCI World Index USD of 0.55, all based on monthly observations.

Market Developments

2021 is the Chinese Year of the Ox, which in Asia is usually seen as a positive year for stock markets. A recovery in global economic growth from the second quarter of 2021 on strong consumer growth in China and a Biden presidency heralding an era of international co-operation and green infrastructure investments to combat climate change could underline the positive mood.

Despite February being a short month with just 16 trading days because of the week-long Tet-holiday, investors appeared to be optimistic about the outlook for Vietnam’s economy and the stock market. In fact, it seems that Vietnam once again has been able to contain its latest COVID-19 outbreak, which unnerved politicians and investors just before the most important holiday period of the year. To keep the numbers in perspective, we speak about a country of almost 100 mln people where “outbreaks” reached a daily number of around 50 cases per day and fell to zero twice in the past, with other cases being returnees from abroad and quarantined on arrival.



(Source: Worldometer)


This successful combatting of the pandemic also limited the negative economic impact and subsequent needed measures were introduced to support affected companies and individuals. Unlike the government spending spree of most other countries, Vietnam was even able to keep its debt level at 55.3% of GDP in 2020, compared to 63.7% in 2016.

On a global basis, the COVID-19 pandemic has added USD 24 trn to the global debt mountain over the last year, reaching a record USD 281 trn and the worldwide debt-to-GDP ratio at over 355%.



The Institute of International Finance’s global debt monitor estimated government support programs had accounted for half of the rise, while global firms, banks, and households added USD 5.4 trn, USD 3.9 trn, and USD 2.6 trn, respectively. This is a jump of 35% in the level of debt and far bigger when compared to the global financial crisis in 2008 and 2009, when debt levels increased by 10 and 15 percentage points. Going forward, Vietnam is therefore in a better position than many other countries in the region to adjust its economic policy as needed.

While there are many mid-term obstacles, such as a shortage of highly skilled workers, a need of better infrastructure, and inefficient state-owned firms, the recently re-elected party general secretary Nguyen Phu Trong reiterated the long-term goals for the country. One of the goals in its five-year economic development plan is to double the gross domestic product (GDP) by 2025 from last year's baseline. Vietnam is also looking to become a high-income country by 2045 from its current lower middle-income status. Part of the plan is more privatizations of its state-owned enterprises which will facilitate an increase in the share of private companies in the economy from the current 42% to more than 50%. Vietnam also wants to move up the value chain by attracting higher-quality foreign direct investments (FDI), focusing on FDI projects that use advanced and environmentally friendly technologies, and the use of natural resources in a sustainable way. It will also target projects with competitive products that could be part of the global production network and value chain.

Despite outstanding macroeconomic data and the positive consensus about Vietnam’s economic outlook from experts worldwide, foreign investors are still not back in the stock market and continue to have very minimal investment exposure to Vietnam. The monthly average net selling of foreigners amounted to around USD 100 mln, representing only about 1-2% of trading volume, but of course, it is not helpful for the market. Foreign institutional investors use the fact that Vietnam is not part of any large ETF-benchmark as an “excuse” for why they are not part of this rally in such an attractive market, while domestic investors and a comparable small group of foreign funds, like us, are enjoying the ride. It remains to be seen when foreigners will return to the stock market and what the trigger will be.


VN-Index, August 2018- February 2021

(Source: Bloomberg)


Despite global headwinds in trade, Vietnam exported USD 38.5 bln worth of goods year to date, representing a sharp increase of approximately 36.9% (USD 10 bln) YoY. Also, year to date, imports rose 25.3% (USD 7 bln) to USD 35.7 on a YoY basis.

Vietnam ranked among world’s top 10 emerging logistics markets

Vietnam has jumped three spots to eighth place in this year’s global index of emerging logistics markets after rapidly becoming a popular and important manufacturing hub. The country had an overall score of 5.67 out of 10 in the 2021 Emerging Markets Logistics Index released by Agility, one of the world's leading logistics companies.


Top 10 emerging logistics markets in 2021

(Source: Agility)


The high rank of the Vietnamese logistics sector is a consequence of many factors such as:

  • Geographic advantage

    Vietnam has more than 3,000 km of coastline with many ports. It also borders China, the world’s largest manufacturing hub. Over the last few decades, the Vietnamese government focused on building and improving its infrastructure and hence built two important deep-water seaports, one in Cai Mep (in the South of Vietnam) and the other one in Lach Huyen (in the North of Vietnam).
  • Surging FDI over the past 20 years

    Vietnam successfully managed to attract substantial investments from foreign companies such as Samsung, LG Electronics, Apple, Microsoft, Intel, just to name a few. Often the supply chains of these global conglomerates followed them to Vietnam, which further increased the attractiveness for other companies to also establish a presence in Vietnam. 

Accumulated FDI disbursement (USD bln)

(Source: GSO, Vietstock, AFC Research)

  • Strong export growth

    The strong FDI inflow supported the country’s export growth over the last few decades, transforming the country’s economy from small and isolated into a manufacturing-based, export-oriented economy.

Export revenues (USD bln)

(Source: GSO, AFC Research)

  • Free trade agreements (FTA)

    Vietnam successfully positioned itself as a global manufacturing hub and signed various FTAs over the past few years.

Vietnam Free Trade Agreements

(Source: WTO)


Often, international logistics companies try to find a local partner with a good understanding of the Vietnamese business culture and connections in order to improve domestic procedures and processes. An example of a successful cooperation is Transimex Vietnam and Ryobi Group from Japan. Ryobi Group, a Japanese conglomerate, bought, through its subsidiary in Vietnam, 20% of the shares of Transimex, which made them the largest shareholder. They then set up together one of the largest and most successful logistics centres in Ho Chi Minh City at High Tech Park in District 9.


TMS logistic centre at High Tech Park

(Source: AFC Research, TMS)


Over the past ten years, Transimex was one of the fastest-growing logistics companies in Vietnam. The revenue increased by 1,340% from VND 240 bln in 2010 to VND 3,462 bln in 2020, and net profits surged from VND 48 bln in 2010 to VND 315 bln in 2020 (+556%).


TMS net profit (VND bln)

(Source: TMS, AFC Research, HOSE)


This achievement is also reflected in the stock price and we have been a happy investor in the company for many years. Given the continued positive outlook for both the sector and the company, we believe the current valuation is still very attractive, and we will continue to hold this name in the portfolio.

TMS valuation

Net profit

VND 315 bln


VND 4,694


VND 38,800











Transimex Corp, August 2017 – February 2021

(Source: Bloomberg)


At the end of February 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.5%) – an insurance company, LienViet Post Joint Stock Commercial Bank (4.4%) – a bank, Vietnam Prosperity JSC Bank (3.9%) – a bank, VNDirect Securities Corp (3.7%) – an online brokerage firm, and Phu Tai JSC (3.7%) – a home and office furnishings company.

The portfolio was invested in 44 names and held 2.9% in cash. The sectors with the largest allocation of assets were financials (34.5%) and consumer (33.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.14x, the estimated weighted harmonic average P/B ratio was 1.41x, and the estimated weighted average portfolio dividend yield was 5.30%.

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AFC Asia Frontier Fund - Manager Comment



The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 3.9% in February 2021 with a NAV of USD 1,405.31. The fund outperformed the AFC Frontier Asia Adjusted Index (+2.1%), the MSCI Frontier Markets Net Total Return USD Index (+0.1%), and the MSCI World Net Total Return USD Index (+2.6%) but underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+6.1%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +40.5% versus the AFC Frontier Asia Adjusted Index, which is up by +23.9% during the same period. The fund’s annualized performance since inception is +3.9%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.72% 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. 

Despite large corrections in Bangladesh and Sri Lanka this month, diversification helped fund performance as gains in Mongolia, Uzbekistan, Iraq, Pakistan, Kazakhstan, and Vietnam led to another month with positive performance for the fund. 

Returns were led by Mongolia and more specifically, Mongolian Mining Corp, a coking coal producer which continued to see a very strong rally in its stock price with a gain of 51.2% this month. Mongolia Mining’s stock price has increased by 424.5% since 30th November 2020 as Mongolian coking coal exports to China are seeing a significant benefit from the Chinese ban on Australian coking coal imports.


Mongolia Mining Corp. has rallied by 425% in the last three months helping fund performance

(Source: Bloomberg, % change in price between 30th November 2020 – 26th February 2021)


Though the fund’s other Mongolian holdings also did well during the month, the global retail frenzy caught up with Mongolia, with the benchmark MSE Top 20 Index rallying by +56.5% as just a handful of names drove the index higher. We have seen this trend across many other frontier and emerging markets over the past few months, and we would prefer to stick to the names where we have more confidence in the fundamentals.

Uzbekistan and Iraq also contributed strongly to performance this month as the fund has exposure to both these countries via the AFC Uzbekistan Fund and AFC Iraq Fund, which gained +11.8% and +19.3% respectively.

Kazakhstan witnessed a strong rally on the back of higher commodity prices as the world’s largest uranium producer saw its stock price rise by 27.9% as uranium prices are anticipated to trend higher in the next few years since uranium supply is not expected to keep pace with rising demand for carbon-free, baseload electricity due to a decade of depressed prices which has seen a dearth of investment in new mines.

The fund’s Kazakh fintech holding, Kaspi, declared excellent results with a net profit growth of 43% in 2020, with this growth mainly coming from its digital payments and e-commerce business. These two segments are expected to drive future growth as well with the company guiding for a 50% growth in its 2021 consolidated net profits which, if met, would translate into net profits of almost USD 1 billion. This growth reflects the dominance and disruption that Kaspi has created in the Kazakh financial services and fintech space. Its “Kaspi Super App” has roughly half of Kazakhstan’s population as its active users with daily usage of the super app being among the top five daily used super apps globally. Based on its 2021 net profit guidance, the stock still trades an attractive P/E of 14x and given its growth outlook, the fund increased its position in Kaspi this month.



(Source: Kaspi)


Though the KSE100 Index in Pakistan had a soft month, the fund’s Pakistani holdings returned +6.7% in USD terms as Lucky Cement (LUCK) and a passenger car manufacturer the fund holds, rallied by +21.7% and +14.3% respectively. Though higher cement sales benefit LUCK, the company’s financials are also being strongly supported by its automotive joint venture with Kia Motors which was formed in 2019 and is named Lucky Motor Corp. The customer response to Kia’s passenger car models has been so strong that for the six months between July-December 2020, Lucky Motor Corp’s revenues have overtaken the cement segment revenues of LUCK. To put that into context, the cement business of LUCK has the highest turnover in the Pakistani cement industry.



(Source: Lucky Cement filings)


Overall passenger car sales in Pakistan also maintained their strong run with January 2021 volumes increasing by 46% YoY. Besides the new Kia launches, Indus Motor, which is the JV partner for Toyota in Pakistan, continues to see robust demand for the Toyota Yaris, which was launched in 2020. This increasing demand for passenger cars was reflected in Indus Motor’s December quarter results with revenues and net profits growing by a stellar 106% and 200% YoY respectively, with the stock still trading very attractively at 8.6x its expected 2021 earnings. Broadly, the economic momentum in Pakistan continues with earnings growth for the December quarter coming in at an average of 40% YoY for companies under broker coverage.



(Source: Bloomberg, Indus Motor filings)



(Source: IMS Securities, based on companies under research coverage)


On the macro front, there was very positive news as the IMF (International Monetary Fund) and the Pakistan government reached a staff-level agreement, that will lead to a continuation of the IMF loan program which began in July 2019. The continuation of this program will not only release IMF funding but will also allow Pakistan to tap other bilateral and multilateral sources of funding, adding to the macroeconomic gains the country has made over the past few years while also giving momentum to the government’s reform process.

Vietnam stabilised its recent outbreak of COVID-19 cases, which resulted in a 10.6% gain for the VN-Index with the fund’s Vietnamese holdings seeing an all-round positive performance led by a beer producer whose stock price increased by 16.3% this month. The overall macro theme linked to higher foreign direct investment, exports, and domestic consumption remains in place while valuations are not stretched with a 2021 P/E multiple of around 15x for the VN-Index. We can expect the momentum in Vietnam to continue as post-pandemic earnings growth comes through strongly in 2021.


The Vietnam VN-Index rebounded from the January 2021 correction as the new wave of COVID-19 cases stabilised and valuations are not stretched

(Source: Bloomberg)


The best performing indexes in the AAFF universe in February were Mongolia (+56.5%) and Iraq (+26.1%). The poorest performing markets were Sri Lanka (−13.7%) and Bangladesh (-4.3%). The top-performing portfolio stocks this month were a Mongolian junior copper explorer (+55.0%), a Mongolian coking coal producer (+51.2%), a Mongolian construction material company (+44.1%), a Mongolian leather company (+31.1%) and a Kazakh uranium producer (+27.9%).

In February, the fund bought a Sri Lankan company that produces activated carbons and added to existing positions in Mongolia and Kazakhstan. During the month, the fund exited a Mongolian insurance company and partially reduced positions in 5 Mongolian and 3 Sri Lankan holdings.

At the end of February 2021, the portfolio was invested in 73 companies, 2 funds and held 4.5% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.4%) and a pharmaceutical company in Bangladesh (4.1%). The countries with the largest asset allocation were Mongolia (21.8%), Vietnam (15.3%), and Uzbekistan (13.6%). The sectors with the largest allocation of assets were consumer goods (26.8%) and materials (12.7%). 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 0.86x and the estimated weighted average portfolio dividend yield was 3.35%.

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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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