ASF header

Asia Frontier Capital (AFC) - January 2021 Update

“I'm a great believer in luck, and I find the harder I work the more I have of it.” ― Thomas Jefferson, President of the United


“I'm a great believer in luck, and I find the harder I work the more I have of it.”

― Thomas Jefferson, President of the United States from 1801 to 1809

AFC Asia Frontier Fund USD A 1,352.34+1.0%+35.2%
AFC Frontier Asia Adjusted Index2 +3.3%+21.3%
AFC Iraq Fund USD D536.18−5.2%−46.4%
Rabee RSISX Index (in USD) 9.3%−59.2%
AFC Uzbekistan Fund USD F1,374.89+2.5%+37.5%

     Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C2,240.97−1.9%+124.1%
Ho Chi Minh City VN Index (in USD) −4.1%+90.2%
  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.

2021 begins with domestic retail investors driving volume and performance of Asian frontier markets

Similar to what we have witnessed globally, the power of domestic retail investors drove Asian frontier markets in January as trading volumes saw a significant surge over the past few months. Lower interest rates are obviously helping this trend but more importantly, a strong recovery in earnings growth, and still attractive valuations are encouraging domestic investors to participate in Asian frontier equity markets. If foreign investors return to frontier equity markets, we expect there could be an even bigger re-rating for many Asian frontier markets which have seen foreign investors exiting over the past few years.

Despite this strong retail participation, markets like Pakistan remain well below their all-time highs while the country’s macro-economic situation continues to improve, and earnings growth comes back very strongly, leaving room for further price appreciation in Pakistan as its valuations trade at a big discount even to its Asian frontier peers.



(Source: SSI Securities, City Brokerage, Topline Securities, CT CLSA Securities, trading value is average of daily values each month)



(Source: Bloomberg, trailing 12 months P/E and adjusted for positive earnings)



(Source: CT CLSA Securities, SSI Securities, IMS Securities, Bloomberg, average earnings growth for companies under broker coverage)




The AFC Vietnam Fund was recognized for its December 2020 performance by Barclayhedge who awarded us with a top-10 award in the Emerging Markets – Asia section as well as a top-10 award in the Emerging Markets Equity – Asia section, a testament to our stock selection skills.


We would like to take this opportunity to wish all our investors and newsletter readers a Happy Chinese New Year and a bullish Year of the Ox!



Below please find the manager comments relating to each of our four funds for the month of January 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. .



 Back To Top 




 Back To Top 



AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned +2.5% in January with a NAV of USD 1,374.89, a new all-time high, bringing the return since inception (29th March 2019) to +37.5% outperforming the Tashkent Stock Exchange Index, which is down 10.7% in USD terms over the same period. On an annualized basis, the fund returned +18.8% with a Sharpe ratio of 1.44.

The broad upward trajectory of the equities market continued in January, on the back of 2020 GDP growth of +1.6%. We have noticed increasing activity across the larger “Blue-Chip” companies in recent weeks as the trend of new buyer interest continues to grow. Nonetheless, equity prices remain very attractive and during the month the fund was active in deploying capital into several names, acquiring multiple blocks of shares.

AFC Uzbekistan Fund valuations as of 31st January 2021:

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


Estimated weighted harmonic average P/B:


Estimated weighted portfolio dividend yield:



COVID-19 is a “bygone event”

As has been stated in many times previously, from July 2020 onwards the Uzbek economy has been operating largely as it was before the pandemic. While there remain modest restrictions, such as the requirement to wear a face mask in public, the rules are very, very, loosely enforced, making Uzbekistan one of the few countries in the world where people seem to neither discuss nor fear COVID-19 anymore, making life on the ground pleasant and ironically very free when compared to many Western countries.

With fears of COVID-19 now a thing of the past, the Government of Uzbekistan announced on 31st December 2020 the USD 1 bln anti-crisis fund, which was established in March 2020 to counteract the adverse effects of COVID-19, would be liquidated in 2021. A further return to normalcy came on 26th January 2021 when the government proclaimed that all public catering establishments and entertainment venues were permitted to return to business as usual (this includes nightclubs, concert venues, etc.). Meanwhile, since Christmas time there have been outdoor concerts with hundreds of people gathering, specifically in front of the Navoi Opera Theatre in the centre of Tashkent. All such events make life in the country very bearable and dare I say, “pre-2020 normal”?

As there are no inhibiting restrictions in either the economy or everyday life, small businesses appear to be thriving. On my way to a meeting in late January in Tashkent, I walked past a Soviet-era apartment block where the ground floor apartments had been converted into commercial storefronts (this is very typical in Post-Soviet countries). Within a week of last passing this apartment block, I noticed a new advertising agency had opened, Jinxiu (the storefront in orange below), which is sandwiched between a local pizza chain, Chopar, and an independent bakery. New businesses continue to open up across Tashkent, and the country for that matter, and the construction sector remains a hive of activity as well. Just across the street from the new advertising agency, and adjacent to the Uzbekistan headquarters of the international advertising multinational, JCDecaux Group, is an office building which has been under construction for several years (works appeared to have been stopped for a prolonged period before recommencing several months ago) and is now seeing its façade being put in place as it advances towards completion. The building is located in a superb spot, just off a main road, but residing on a nonetheless very busy artery in Tashkent’s city centre — prime real estate.


Small businesses continue to open as the economy grows

(Source: AFC Research)


A new office building in Tashkent’s city centre

(Source: AFC Research)


Macro Update

The Government of Uzbekistan reported GDP growth of 1.6% for 2020, while the World Bank is projecting an acceleration of this growth into 2021 and 2022 with growth of 4.3% and 4.5% respectively. On a more granular level, in 2020 the construction, agricultural, manufacturing, and trade and services sectors grew by 9.2%, 3.0%, 0.7%, and 0.1% respectively. Remittances received from abroad during the year were USD 6.0 bln, an increase of US 200 mln, while remittances sent abroad were USD 1.2 bln, an increase of USD 160 mln, translating into a net remittance inflow of USD 4.83 bln. These remittance inflows helped offset the current account deficit of -USD 6.0 bln. Foreign exchange reserves also swelled by 21% to USD 34.9 bln, equating to roughly 70% of GDP, and was largely due to the 24.6% increase in the gold price during 2020. Foreign exchange reserves are expected to continue rising as the government maintains its efforts to attract foreign direct investments. Additionally, gold is in the early innings of what we expect to be a multi-year bull market, which will provide a strong fiscal buffer to Uzbekistan, putting it in an enviable position to protect and invest in its economy amid what is likely to be a prolonged slump in global growth due to government responses to COVID-19 and ever-increasing national debts, specifically in developed world economies.



(Source:, AFC Research)


Fund Transactions

During January 2021, the AFC Uzbekistan Fund acquired a block of shares in Biokimyo (TSE: BIOK), one of the four white spirits producers in Uzbekistan. The company produces and markets white spirits to pharmaceutical and vodka producers and has been discussed in previous fund updates. The AFC Uzbekistan Fund now owns 3.0% of the company, representing a weight of 6.1% in the fund. BIOK has a trailing twelve months earnings growth rate of 22%, 20% return on equity, and trades at a P/E of 7.32x, P/B of 3.35x and dividend yield of 8.6%.

Through multiple transactions during the month, the fund also acquired USD 280,000 worth of shares in the Uzbek Commodity Exchange (TSE: URTS). In our view, URTS is one of the most attractive listed companies and should not only continue to see strong earnings growth (though at a moderated pace from previous years when several hundred percent annual growth was considered “normal” as the economy became more transparent and structured), but also higher valuations since the company is attractive to foreign investors due to the nature of the exchange’s business and monopolistic position in the market. Additionally, since URTS’ headquarters are in Tashkent, it makes it easy for foreign investors to Uzbekistan to visit the company and meet management, which has dramatically improved its investor relations department since we first met with them back in May 2018. The AFC Uzbekistan Fund now owns 1.5% of the company, representing a weight of 12.7% in the fund. URTS has a trailing twelve months earnings growth rate of 15%, 19% return on equity, and trades at a P/E of 7.39x, P/B of 4.67x and dividend yield of 9.9%.

At the end of January 2021, the fund was invested in 28 names and held 2.3% in cash. The markets with the largest asset allocation were Uzbekistan (96.5%) and Kyrgyzstan (1.2%). The sectors with the largest allocation of assets were materials (58.7%) and consumer (15.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 4.28x, the estimated weighted harmonic average P/B ratio was 1.00x, and the estimated weighted average portfolio dividend yield was 9.29%.

 Back To Top 




The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 1.0% in January 2021 with a NAV of USD 1,352.34. The fund underperformed the AFC Frontier Asia Adjusted Index (+3.3%) but outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (-1.8%), the MSCI Frontier Markets Net Total Return USD Index (+0.4%) and the MSCI World Net Total Return USD Index (-1.0%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +35.2% versus the AFC Frontier Asia Adjusted Index, which is up by +21.3% during the same period. The fund’s annualized performance since inception is +3.5%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.71% 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.

2021 has begun on a positive note for the fund and for most Asian frontier markets. Returns were led by a Mongolian coking coal producer which saw its stock price increase by 39% on the back of a 149% gain in December 2020. Trade tensions between China and Australia have led to a decline in Chinese imports of coking coal from Australia. This is a positive for the company and for Mongolia in general as Mongolian coking coal export volume is anticipated to rise as the economic recovery in China takes hold.

Despite a correction of -4.3% on the VN-Index in Vietnam, the fund’s Vietnamese holdings returned almost +4% this month as the rally in the industrial park developer continued, with the stock gaining 51% this month, adding onto its gain of 54% in December 2020. We entered this stock, Kinh Bac City (KBC), in 2016 long before it became “fashionable” to talk about Vietnam benefitting from the trade tensions between China and the U.S. The manufacturing shift into Vietnam began long before the trade war, and this industrial park developer with a sizeable and very well-located land bank in Northern Vietnam was expected to reap the benefits as many of Samsung’s suppliers as well as LG have leased industrial land from the company. The rally in the stock price in the past two months was mainly because of news that a major Chinese mobile phone brand and a major Taiwanese electronics manufacturer will be leasing land at KBC’s industrial parks which will significantly increase the company’s 2021 net profits.

With the stock price having such a strong run in such a short period of time, we decided to exit the position with a gain of 100% as the stock price had gone above our target price. KBC is now trading at almost 22x its forecasted 2021 earnings, quite a high valuation relative to the 2021 P/E of the VN-Index of 14x. The return generated on this stock reflects our long-term approach to letting the “story” play out as well as a reflection of our on the ground research (pre-Covid) since we visited this company as well as its industrial parks on multiple occasions.

Regarding the market correction in Vietnam, a spate of new COVID-19 cases in the last week of January caused some panic among retail investors leading to this correction. Vietnam has handled previous outbreaks very effectively and this should not be a cause for concern. The overall long-term story remains intact, and we actually used this correction to add to our existing holdings in an automotive company, a brewery, and a mall operator.

The 13th National Party Congress also ended in the first week of February and Nguyen Phu Trong was re-elected as the General Secretary of the Party. As anticipated, the political transition is expected to lead to a continuation of stable policy making which should translate into +6-7% GDP growth over the next five years.


Performance of industrial park developer Kinh Bac City versus the VN-Index – the fund exited this position in January 2021 with a 100% gain

(Source: Bloomberg, % change in prices between 31st December 2015 – 29th January 2021)



(Source: SSI Securities)


Similar to what we have seen globally over the past month à-la “GameStop” and “AMC Entertainment”, retail investors in Sri Lanka also went into a frenzy in January pushing up the stock prices of almost all counters leading to a 28% gain for the Colombo CSE ALL Index. The Central Bank of Sri Lanka cut benchmark interest rates by 250 basis points in 2020 to their lowest level in the past decade and this has enticed retail investors into the market on an enormous scale. The Colombo Stock Exchange, which usually has an average daily turnover of just USD 5-10 mln, saw a turnover of almost USD 80 mln on certain days at the end of January 2021. This increasing turnover has led to retail capital chasing stocks and especially small and mid-cap stocks, in fear of missing out, with some companies seeing their stock prices gain 280% in January alone. One of these companies has actually shown net losses for the last two financial years. It appears almost all boats have been lifted with this retail tide.

Though the fund’s Sri Lankan holdings did well this month with both the banks the fund owns and a consumer conglomerate gaining more than 20%, we are in no mood to chase the retail herd and buy some of these names being talked up over the past month. Our Sri Lankan portfolio outperformed the CSE ALL Index by a large margin in 2020, and we believe in holding onto the fundamentals of these blue-chip companies while valuations for all of our Sri Lankan holdings remain very attractive despite the rally over the past month. The rally in Sri Lanka was not led by large cap blue chips which usually is the case at the start of a bull market but only a handful of large caps and small/mid-cap counters. We will let the froth settle and hold onto our companies which are expected to post strong earnings growth in 2021, and the stock prices should follow this earnings recovery.



(Source: CT CLSA Securities, trading value is average of daily values each month)


Despite the recent rally some blue-chip companies trade at historically low valuations

(Source: Bloomberg)


The State Bank of Pakistan maintained the status quo at its monetary policy meeting after having cut benchmark interest rates by a record 625 basis points in 2020. We have not seen such positive and dovish commentary from the State Bank of Pakistan for a very long time and this makes us more positive on Pakistan as interest rates are expected to remain unchanged in the “near term” unless there is an extraordinary external event. Lower interest rates will remain positive for the equity market and more so for cyclical stocks in the auto and cement sectors, and thus the fund’s portfolio is well positioned towards these sectors. On the macro-economic front as well, exports continue their strong run with January exports growing by 8% YoY while inflation came in better than expected at less than 6% for January. 

In addition, earnings growth is continuing to see a very strong recovery with Lucky Cement, which the fund holds, reporting a 210% YoY increase in net profits for the December 2020 ended quarter. The fund also added to its position in Indus Motor as we remain positive on the long-term consumer and auto demand in Pakistan. Indus Motor is Toyota’s JV partner in Pakistan and the newly launched Toyota Yaris has been outselling the competition since the model was launched last year. The company’s earnings are expected to grow by 79% in this financial year and Indus Motor’s stock trades at a very attractive 10.2x its estimated FY21 earnings while the net cash position on its balance sheet is equal to 70% of its market capitalisation – something one cannot find in many other markets when it comes to blue-chip companies. 

This is the fantastic value on offer in Pakistan which is currently being neglected by foreign investors. However, the overall market could see a re-rating in our view as the KSE-100 Index has lagged its regional peers since August 2020 while overall earnings have witnessed a big rebound and the economy has got into better shape. But despite these positive developments and very attractive valuations, the market has not re-rated (yet). We believe there is room for appreciation in Pakistani equities as almost every Asian market has reached or is reaching all-time highs except Pakistan. Furthermore, foreign ownership is at an all-time low so any re-entry of foreign investors can lead to a significant re-rating for the KSE100 Index.


The Pakistan KSE100 Index has lagged the region despite very attractive valuations and a strong earnings recovery

(Source: Bloomberg, % change in prices between 31st August 2020 – 3rd February 2021)



(Source: Bloomberg, P/E ratios adjusted for positive earnings)



(Source: IMS Securities)



(Source: IMS Securities)


We also believe that e-commerce is only just beginning to grow in Asian frontier countries like Pakistan where internet- and smartphone penetration are increasing from a very low base and the pandemic could be a big trigger for the e-commerce market not just in Pakistan but also in other Asian frontier countries to take off. The fund therefore invested in an e-commerce company which invests in e-commerce platforms in frontier markets. This company owns 30% in Pakistan’s biggest and fastest growing online property portal which has seen its revenue increase by 3x over the last three years and has also showed positive profitability in 2020.



(Source: World Bank, as of 2019)



(Source: AFC Research, as of 2019)


The fund additionally invested in another technology-focused company in Kazakhstan, which is the leading digital and fintech-focussed player in Central Asia. Besides its fintech based lending platform, it has also built Kazakhstan’s leading digital and e-commerce platform from where its future growth will be generated. The company’s earnings grew by 43% in the first nine months of 2020 and earnings are expected to grow in this range in 2021 as well. The stock remains attractively valued at a P/E of 13.3x anticipated 2021 earnings. This is also a reflection of the kind of growth opportunities available in the technology space in Asian frontier markets at reasonable valuations.

The fund’s largest position in Bangladesh, Beximco Pharmaceuticals, declared better than expected results for the December 2020 quarter. Revenue and net profits grew by 21% and 35% YoY respectively, which was also an outperformance compared to other major listed pharmaceutical companies in Bangladesh. The fund holds the London listed GDR of Beximco Pharmaceuticals which currently trades at a 31% discount to the local listing. The fund’s Bangladeshi consumer durables holding, Singer Bangladesh, also declared good quarterly results with revenue and net profit growth of 29% and 68% YoY respectively. Broadly, quarterly results coming out of Bangladesh have been very strong for consumption-related companies which reflects the recovery of consumer spending in Bangladesh. Besides a post-lockdown economic recovery, remittance inflows have remained robust over the past six months, helping support consumer spending.

The unexpected military coup in Myanmar will most likely hurt investor sentiment in the near term as this event will cause uncertainty among foreign investors. In the medium to long term however, we will have to wait and see how this impacts overall policymaking and the general direction of the country. Furthermore, given the geopolitical interests of various regional countries in Myanmar, it may not be straightforward to isolate the country economically this time as long as the new government does not take any extreme actions towards the economy, population or the opposition leaders. Myanmar is strategically positioned between two Asian super-powers so there is more at stake than just ideological differences. The fund has less than 5% exposure to Myanmar.


Myanmar’s neighbours have economic and geopolitical interests in the country – any international pressure on Myanmar may need to be balanced with these interests

(Source: Google)


The best performing indexes in the AAFF universe in January were Sri Lanka (+28.0%) and Mongolia (+11.6%). The poorest performing markets were Iraq (−6.4%) and Vietnam (−4.3%). The top-performing portfolio stocks this month were a Vietnamese industrial park developer (+51.0%), a Mongolian coking coal producer (+39.3%), a Bangladeshi tobacco company (+32.3%), and two Sri Lankan banks (+23.2%) and (+23.1%) respectively.

In January, the fund bought a diversified e-commerce company focusing on frontier markets, a Kazakh fintech company, added to existing positions in Mongolia, Pakistan, and Vietnam. During the month, the fund partially sold a position in Mongolia and exited a Vietnamese industrial park developer, a Vietnamese brewery, and a Pakistani truck manufacturer.

At the end of January 2021, the portfolio was invested in 73 companies, 2 funds and held 2.5% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (9.0%), and a pharmaceutical company in Bangladesh (4.8%). The countries with the largest asset allocation were Mongolia (20.9%), Vietnam (15.8%), and Uzbekistan (12.4%). The sectors with the largest allocation of assets were consumer goods (29.8%) and industrials (13.1%). The fund’s estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.84x, the estimated weighted harmonic average P/B ratio was 0.85x, and the estimated weighted average portfolio dividend yield was 3.60%.

 Back To Top 



AFC Vietnam Fund - Manager Comment


The AFC Vietnam Fund lost 1.9% in January with a NAV of USD 2,240.97, bringing the 12-month return to +27.0% and +124.1% since inception. This represents an annualized return of +12.0% p.a. since inception. The Ho Chi Minh City VN Index in USD lost 4.1% in January 2021. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.52%, a Sharpe ratio of 0.82, and a low correlation of the fund versus the MSCI World Index USD of 0.56, all based on monthly observations.

The market corrected sharply after rising 8% in the first seven trading days of January. Highly leveraged – many of them new – local investors sold aggressively in the pre-holiday period as news came out about a new COVID-19 outbreak in an electronics factory in the north of Vietnam. The VN-index fell 4.3% in January, with small and mid-cap stocks showing mixed results on even higher volatility, which brought the indices down to a more comfortable investment level. 

Market Developments

In January, the Vietnamese stock market entered a period of increased volatility. The huge inflows of money from new investors only added to the already positive sentiment we saw at the end of last year. Foreign investors were net sellers, albeit by a small margin, compared to the increased trading volume. This latest correction provides us, valuation-wise, with plenty of upside potential given the fact that there is a considerable valuation gap with other markets in the region and we are again seeing accelerating growth, in both the economy and earnings. 

We are seeing tremendous value in both the financial markets as well as in economic developments in Vietnam. We have always expected that one day we would see a locally driven bull market frenzy, and this has begun to materialize over the last few months. While nobody ever knows when or why this is going to happen, we could just be in the initial phase of such a bull market, unless it is derailed by a major global event. Increased volatility and sharp corrections are part of the game, but a new all-time high of the main index would undoubtedly hit the headlines and lure additional new money into the stock market. After rallying more than 20% alone in the fourth quarter of 2020, and another 8% in the first seven trading days of the year, the sharp correction we saw after margin-stretched local investors panicked was healthy to see. The strong overbought condition was thereby solved with the index falling 17% from the top on 18th January. Although the recent new outbreak of COVID-19 in an electronics factory in the north of Vietnam with almost 100 infected people led to renewed fears of a larger scale infection (as has been the case three times in 2020), strong and fast responses from the government will hopefully work again.


VN Index from November 2019 to January 2021

(Source: Bloomberg)


The positive mood of an already optimistic population in Vietnam is accompanied by the search for yield and investment opportunities – as everywhere in the world. Real estate prices have already risen sharply in recent years with decreasing nominal interest rates at the same time, resulting in a meaningful decline of real interest rates (inflation-adjusted interest rates). The sharp stock market recovery since the low ten months ago, when local investors were cleverly buying up cheap stock from selling foreign investors, obviously led to interest from new investors which started a new investment cycle.



(Source: Bloomberg)


What might not look logical at first, during a time where many businesses are struggling worldwide, is that the lack of investment alternatives in an extremely low or negative real interest rate environment is a strong driver for stock markets recently, not only in Vietnam. As we see strong intentions of many central banks to control bond yields since almost no governments (as well as many in the private sector) would be able to financially withstand a sharp rise in yields, we do not foresee any changes in these policies in the foreseeable future. The Japanese stock market just hit a new all-time high in USD (after more than 30 years!) and is an excellent example of how cheap money drives financial markets.


Nikkei Index 225 from 1980 to 2021

(Source: Bloomberg)


Another strong argument for Emerging Markets has always been a weakening trend in the USD, just what we are currently seeing.


MSCI EM Index (brown) versus USD Index (green)

(Source: Bloomberg)


ESG findings in our portfolio universe

Vietnam has successfully managed to negotiate numerous free trade agreements (FTA’s), such as the European Union - Vietnam Free Trade Agreement (EVFTA). This agreement is quite unique because it includes certain environmental, social and governance (ESG) provisions – for example, around property protection, labour rights, and sustainable development. Although environmental, social, and corporate governance (ESG) awareness in Vietnam is certainly accelerating, there is still a lot to be done to comply with all these new and stringent export conditions. Buyers of Vietnamese goods in Europe are becoming more demanding and are asking for an adoption of international or EU standards, such as a sustainable “CE Mark” which must be affixed to many products before they can be sold on the European market. This CE Mark certification confirms that these products fulfil the requirements of relevant European product directives, such as European harmonized performance and safety standards. Or, for example, European importers of wood furniture from Vietnam are asking for an FSC certification (Forrest Stewardship Council) which ensures that products come from responsibly managed forests that provide environmental, social and economic benefits. With the increasing importance of sustainable investments, we have integrated ESG analysis into our investment decisions. We would like to explain how we look into these aspects through an assessment of one of our holdings, Sao Ta Foods JSC.

Sao Ta Foods JSC (FMC)

Sao Ta Foods JSC (FMC) used to be a state-owned company before it was privatized. FMC operates shrimp and catfish farms and processes and trades frozen aquatic products, exporting to Europe, USA, Japan, and other markets. 

Environment - Resource use

FMC consumes a lot of electricity, especially for their frozen products. Furthermore, production needs huge amounts of water, pharmaceuticals, and plastic for packaging. Wastewater management and controls of the use of pharmaceuticals are essential requirements from their buyers in Europe, USA, and Japan. Next to those efforts, the company has several programs to preserve the environment, such as environmental training programs for their employees, a forest planting campaign, and joining community activities like the World Environment Day or the Environment Action Month. FMC was recognized as one of the top 100 “Sustainable Development Enterprises” by the Vietnam Chamber of Commerce and Industry (VCCI) in 2020.

We rate this company slightly below average for “resource use”, as their business is not environmentally positive by nature, but rank them better than comparable companies since they have many positive initiatives and are constantly trying to improve their ecological footprint.

Environment - Emissions

The company also received several certificates for its environmental management, like for example ISO 14001:2015, BAP 4 (Best Aquaculture Practices 4) and Aquaculture Stewardship Council (ASC). The company conducts yearly air quality tests around its factories and quarterly water tests, ensuring that the results meet all requirements of the government. In 2019, FMC spent VND 1.7 bln on wastewater and solid waste management.


Water recycling and processing at FMC

(Source: FMC)


We rate FMC for “emissions” slightly above average since they treat their waste products, particularly water, in a much better and more efficient manner than other companies in the sector. 

Social - Workforce

Two-thirds of FMC’s workforce is female. The average salary is around VND 9.4 mln per month and has increased around 36% since 2016. This average compensation is about 3x the average salary in this province. Furthermore, the company also spent VND 25 bln for bonuses, welfare and organized many social activities for their employees. FMC organizes monthly staff training and an annual offsite meeting for all their employees. The company also provides its employees with free yearly health checks, low-interest rate loans if needed, and educational support for employees’ children. Since the company is located in a rural area with little to no infrastructure, it built rooms and canteens for their staff. There are also reading rooms with thousands of books, karaoke rooms, game rooms, badminton fields, table tennis rooms, a gym, and soccer fields.

We rate FMC for “workforce” highly, given their wide variety of social activities and diverse staff incentives.

Social - Community

FMC contributed to Khmer community projects, has helped to restore pagodas, and donated money to various local charities, although the total amount is comparably low. The company is located in Soc Trang province in the Mekong Delta, one of the poorest provinces in Vietnam. The company created more than 3,700 jobs in 2019 and will add another 3,000 jobs in the province in 2021, when their new factory with a total investment of VND 280 bln is finished.

We rate FMC slightly below average for “community” given that they financially support many community and charity projects. However, FMC could still increase its spending to do better than their competitors.

Social - Product responsibility

FMC is SMETA certified. SMETA (Sedex Members Ethical Trade Audit) is the most widely used social auditing methodology globally, and in the case of FMC enables businesses to assess their sites and suppliers to understand and improve working conditions in their global supply chain. Sedex provides practical tools, services, and a community network to help companies improve their responsible and sustainable business practices, and source responsibly.

FMS’s shrimp and catfish farms meet high standards such as BAP 4 (Best Aquaculture Practices 4) and Aquaculture Stewardship Council. Furthermore, they also applied “origin tracking system” for their products. Their products meet many high-level standards such as HACCP, ISO 14001, HALAL, BRC (British Retail Consortium), SEDEX, IFS Food, ISO 14001:2015. 



We rate FMC above average for “product responsibility” due to their strictly controlled production process.

Governance - Management

FMC’s company website is very informative, and all corporate activities are captured on their “Investor Relations” section. They are one of very few companies publishing monthly business results and press releases. Management replies to most questions from investors promptly and communicates in an open way which was especially visible during the outbreak of COVID-19.

We rate FMC good for “management” because of their efficient information channels and clear and transparent shareholder communication.

Governance – Shareholders

The board consists of 5 directors, of which one is female; without an independent director. PAN Group and subsidiaries own around 64% of the total shares, but they only hold two board seats. The other three seats are filled by executive directors who work at FMC. PAN Group does not get involved in the day-to-day business, but they actively consult and support the company whenever needed to help them achieve their targets. 

We rate FMC neutral for “shareholders”. Although the majority shareholder is not involved in the daily business operations, they could potentially block management decisions. 

Overall, FMC is a good example of one of our funds’ positions and we rate them positive overall. In analysing all our holdings with the same methodology, we are trying to find companies in Vietnam willing to establish higher ethical and sustainable business standards. We will constantly adapt and improve our methods in the future and try to work closely with these companies together to get further information and help them to improve their standards.  

2021 is expected to be a successful year for Vietnam

Vietnam overcame the COVID-19 pandemic very well and became the fastest growing economy in the region in 2020 with GDP growth of 2.9%. Production and retail sales are recovering strongly, driven by the strong worth ethic and rising consumption from the country’s nearly 100-million-inhabitants. Vietnam also strictly controlled its border with China, Laos, and Cambodia through which many people try to immigrate illegally. According to the IMF, there are only 1,651 cases so far and 35 deaths as of 28th January 2021 with a minimal lockdown which should further support the economic recovery in 2021, if the recent outbreak is controlled successfully.


(Source: Fitch Solutions)


Fitch Solutions just made an upward revision of Vietnam’s GDP growth forecast from 8.2% to 8.6% for 2021. Vietnam recorded an estimated GDP growth of 4.5% y-o-y in the fourth quarter of 2020, accelerating from 2.7% y-o-y in the third quarter. According to Fitch Solutions, this growth acceleration in the fourth quarter was broad-based across the economy but was driven by a stronger recovery in the industrial and construction and the services sectors. This was due to effective domestic containment of COVID-19 outbreaks and strong export growth, supported by the EU-Vietnam Free Trade Agreement (EVFTA). With a global vaccine roll-out underway, Fitch Solutions expects 2021 to herald a year of economic recovery worldwide, which should support external demand for Vietnamese exports.


Vietnam economic growth forecasts for 2021 (%)

(Source: Institutions, AFC Research)

In the first days of January 2021, Foxconn announced plans to increase their investments in Vietnam by USD 700 mln, adding 10,000 jobs in Bac Giang Province, where they have been granted a license to build a factory to produce laptops and tablets for Apple. As of December 2020, the tech firm has invested USD 1.5 bln in Vietnam, of which USD 900 mln was deployed into Bac Giang province, creating jobs for more than 35,000 people. 

Also, Intel announced it has invested a further USD 475 mln in Intel Products Vietnam. This new investment is in addition to Intel's USD 1 bln investment to build a state-of-the-art chip assembly and test manufacturing facility in Saigon Hi-Tech Park, which was built in 2006. This takes Intel's total investment in its Vietnam facility to USD 1.5 bln.

Vietnam’s government clearly wants to transform its economic growth paradigm with a stronger focus on industrialization and modernization, science and technological development, innovation and high-quality human resources development. The government’s focus to attract foreign investment will shift from quantity to quality, with a strong preference for projects with modern technology, high added value, modern governance models, and strong ties to domestic economic sectors. These investments from Foxconn and Intel show that Vietnam continues to attract more and more investment capital as a result of the production switch from China to Vietnam. Although Joe Biden officially became the 46th President of the United States, we do not expect the tension between US and China to disappear overnight.  

Vietnamese people prepare for a very different TET holiday after COVID-19 – “old traditions are back”

TET is the Lunar New Year for Vietnam and falls on the same day as the Chinese New Year, making it the most important holiday in Vietnam during which the whole country celebrates, and businesses remain closed for seven days. Typically, family members gather to celebrate together on the first day of the year. In previous years, people would rush to leave big cities for their hometowns in the last two days of the old year and then leave their families in the first days of the new year to travel around the country and meet with their wider families and friends. However, due to COVID-19, things have changed and many companies adapted a “remote working model” and their employees are now working from home. This provides many people the flexibility to leave big cities even earlier, and hence it is expected that we will not see huge traffic jams at bus stations and exit roads in large cities as we have seen in previous years. By how much TET will be impacted by the current new COVID-19 outbreak will depend on the success of the government measure in the coming 10 days. 


Buying bus tickets at Mien Dong Bus Station in Ho Chi Minh City in 2020 and 2021

(Source: AFC Research, Mien Dong Bus Station, Vnexpress)


Also, it is expected that people will spend more time this year with their families, similar to the “old days”. It is also expected that this year many more people will boil the traditional “Chung” cake for TET holidays themselves, rather than buy it in the stores. Given that they plan to spend more time with their close families this year, all family members will gather to boil a cake together. This cake consists of sticky rice, pork, green beans and is cooked in a big pot for about 24 hours. Every family member will rotate and share responsibility to watch the pot until it is done and baked to perfection. While it is cooking, they will have plenty of time to drink, sing and play together, sitting around the fire with the pot. 


Chung cake wrapping during TET holidays

(Source: Zing, vnexpress)


At the end of January 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.1%) – an insurance company, LienViet Post Joint Stock Commercial Bank (4.3%) – a bank, Dinh Vu Port Investment & Development JSC (3.9%) – owner/operator of the Dinh Vu Port, VNDirect Securities Corp (3.6%) – an online brokerage firm, and Phu Tai JSC (3.7%) – a home and office furnishings company.

The portfolio was invested in 48 names and held 0.2% in cash. The sectors with the largest allocation of assets were financials (35.0%) and industrials (23.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.38x, the estimated weighted harmonic average P/B ratio was 1.29x, and the estimated weighted average portfolio dividend yield was 5.76%.

 Back To Top 




The AFC Iraq Fund Class D shares returned −5.2% in January with a NAV of USD 536.18 outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 9.3% during the month. Since inception, the fund lost 46.4% while the RSISUSD is down 59.2%.

A quiet start to the new year would have been welcome after the drama of the currency devaluation in December 2020. However, this January, the stage was set for a potential conflict between the US and Iran fought across Iraq.

In mid-December 2020, Iran’s supreme leader renewed his revenge vow two weeks ahead of the first anniversary, on 3rd January 2021, of the US strike in Baghdad that killed Iran’s top general. At the same time, the prior US administration was escalating its aggressive stance against Iran before its term expired on 20th January 2021. The US increased its military presence in the Gulf in the weeks before the anniversary which further exacerbated tensions between the two antagonists. This increased presence was extremely concerning in light of reports in November 2020 that the prior US President considered options for attacking Iran’s nuclear facilities before leaving office.

While thankfully none of these fears materialised, on 21st January 2021 a suicide bombing took place in central Baghdad for the first time in years, for which the Islamic State Group (ISIS) claimed responsibility. The combination of fears and the bombing had a chilling effect on economic activities, including trading on the Iraq Stock Exchange (ISX) where average daily turnover (excluding block transactions) declined by 26% month on month (chart below). Foreign buying, a solid trend of the last few months of 2020, almost disappeared, while foreign selling was very low in both relative and absolute terms (second chart below). 



(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital (AFC), data as of 31st January)



(Source: Iraq Stock Exchange (ISX), Asia Frontier Capital (AFC), data as of 31st January)


Away from the concerns of the US-Iran conflict, the equity market digested several positive corporate activities that affected listed companies in the banking, consumer, and telecom sectors. 

The first corporate development took place in the banking sector with the takeover by the National Bank of Iraq (BNOI) of the Iraqi branch network of Lebanon’s Bank Audi, as part of a larger acquisition by BNOI’s parent Capital Bank of Jordan (owning 61.9% of BNOI) of Bank Audi’s Jordanian branch network. The combined takeover of the assets and the assumptions of the liabilities of one of Lebanon’s top banking institutions in Iraq and Jordan was made possible by Lebanon’s financial crisis which forced its banks to halt their international expansion, divest their prized international assets, and refocus on their domestic market. Also, the takeover fits in with Capital Bank of Jordan’s expansion strategy in its domestic market, and in its much larger neighbouring market of Iraq, as it seeks to grow both its asset base as well as its revenue streams.

For BNOI, the acquisition increases its assets by IQD 275.0 bln (USD 188.4 mln), or by 32%, to IQD 1,137.6 bln (USD 779.2 mln), and the acquisition takes it into the league of the Iraq Stock Exchange’s (ISX) largest banks by assets, such as the Bank of Baghdad (BBOB) at IQD 1,248.3 bln (USD 855.0 mln) and Mansour Bank (BMNS) at IQD 1,200.6 bln (USD 822.3 mln). All data are as of end of the third quarter 2020.

While BNOI has not reported audited full year 2020 numbers, its unaudited fourth quarter numbers show full year 2020 loan book growth of 88.0%, and deposit growth of 44.9% for a loan/deposit ratio of 64.5%. The December 2020 market update report “Private Sector Deposit and Loan Growth Continues” looked at the growth of private sector loans and deposits generally, and specifically for selected ISX banking stocks. The piece highlighted with data and charts BNOI’s growth in the key metrics of loan book and deposit growth both in absolute terms and relative to its peers on the ISX. Upcoming financial data in 2021 should incorporate the figures from the Iraqi branches of Bank Audi and would provide data for the combined entity’s potential future growth rate, while the increased asset size of the combined entity should enhance its competitive market position.

This acquisition by BNOI of Bank Audi’s Iraqi branch network is a first in the Iraqi banking sector and is likely to accelerate the sector’s development.  It is also the first expansion of the sector following the initial foreign bank’s acquisition of major shareholdings in local banks post the March 2003 US invasion of Iraq. Then, the governing Coalition Provisional Authority (CPA) brought the country’s legal framework for banking in-line with international standards, and lifted restrictions on foreign participation in the banking industry. A number of regional and international banks bought majority stakes in a number of Iraqi banks to take advantage of the potential growth as banking adoption takes hold in Iraq’s cash dominant economy. Most of these banks increased their ownership in the selected Iraqi banks and participated in the significant expansion of these banks’ capital base between 2011 and 2013. At the time, the Central Bank of Iraq (CBI) mandated all Iraqi banks to increase their capital to at least IQD 100 bln by mid-2011, then to IQD 150 bln by mid-2012, and finally to IQD 250 bln by mid-2013. As of the end of 2019: Al Ahli Bank of Bahrain owned 75.0% of the Commercial Bank of Iraq (BCOI), Burgan Bank of Kuwait owned 51.7% of the Bank of Baghdad (BBOB), Capital Bank of Jordan owned 61.9% of the National Bank of Iraq (BNOI), the National Bank of Kuwait owned 91.0% of the Credit Bank of Iraq (BROI), and Qatar National Bank of Qatar owned 54.2% of Mansour Bank (BMNS).

The second corporate development was in the consumer sector with the acquisition by Pepsi bottler Baghdad Soft Drinks (IBSD) of privately held Al-Zaki Group – another bottler, but of juices and water, and about to extend its offerings to bottled milk. This acquisition fits in with IBSD’s strategy of both expanding its product line and deepening its relations with PepsiCo; and follows up on its prior takeover in 2016 of Ynabee’ Al Zawraa Company, a bottler of Aquafina, PepsiCo’s water brand. The 2016 acquisition increased IBSD’s product line and addressable market, and the 2021 acquisition should expand both further. Moreover, while Al-Zaki Group is not a PepsiCo franchisee, it is expected that a successful penetration of the juice market in Iraq by IBSD would enable the group to obtain from PepsiCo the franchise for its Tropicana juice brand.

While IBSD has not reported audited full year 2020 numbers, its unaudited fourth quarter numbers show full year revenue growth of 12.6% YoY, while pre-tax income was up 20.9% YoY.

The final corporate development was in the telecom sector with the introduction of 4G-LTE (fourth generation long-term evolution) by the telecom operators. While the offering is in the very early stages, it promises to bring significant advantages to both internet users and to the ISX’s listed mobile telecom operators such as AsiaCell (TASC) and Zain-Iraq (TZNI). Growth in mobile internet usage expanded considerably after 3G was launched by the mobile operators in early 2015 – which currently accounts for a meaningful share of all internet access in the country.

Industry data as of January 2020 shows that there were 29.8 mln internet users, or about 75% of the population, across all devices. Moreover, the number of internet users increased by 55% from 2019 to 2020. While not all of these are mobile internet users, the same data shows that active social media users were 21.0 mln, or about 53% of the population; all these active social media users accessed the internet via their mobiles. It should be noted that while the phone is the main device for connecting to the internet for most of Iraq’s internet users, not all of these connections are through a 3G subscription – a large portion of the population uses their phone to access the internet via public Wi-Fi networks which might be either fibre broadband or 3G mobile broadband.

This is a massive market with significant growth opportunities as Iraq’s mobile internet usage catches up with its regional peers. The introduction of 4G-LTE presents a significant opportunity for the mobile telecom operators to enhance their competitive offerings. Moreover, 4G-LTE’s materially faster download-speeds and broader bandwidth versus 3G will allow them to offer meaningfully better service and charge higher prices.

These positive corporate activities in the banking, consumer, and telecom sectors underscore the significant earnings growth opportunities for focused and well-run companies in Iraq’s under-developed, yet large, economy. Moreover, these recent developments also underscore the relative attractiveness of the stocks in these sectors, within the context of the Iraqi equity market that is at the tail end of a brutal six-year bear market and we would not be surprised if a re-rating of the Iraqi equity market along with other frontier markets will happen sooner than generally expected.

As of the end of January 2021, the AFC Iraq Fund was invested in 14 names and held 11.8% 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 (85.8%), Norway (1.7%), and the UK (0.7%). The sectors with the largest allocation of assets were financials (50.4%) and consumer staples (15.8%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 11.12x, the estimated weighted harmonic average P/B ratio was 0.41x, and the estimated weighted average portfolio dividend yield was 4.46%.

 Back To Top 



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

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