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Asia Frontier Capital (AFC) - July 2021 Update

“ Empty pockets never held anyone back. Only empty heads and empty hearts can do that .” ― Norman Vincent Peale, American


Empty pockets never held anyone back. Only
empty heads and empty hearts can do that

Norman Vincent Peale, American Minister and Author.


AFC Asia Frontier Fund USD A1,508.23-0.1%+12.7%+50.8%
AFC Frontier Asia Adjusted Index2 -4.0%+9.4%+28.5%
AFC Iraq Fund USD D725.09-3.3%+28.2%-27.5%
Rabee RSISX Index (in USD) -0.8%+23.3%-44.6%
AFC Uzbekistan Fund USD F1,952.08-2.0%+45.5%+95.2%
Tashkent Stock Exchange Index (in USD) -4.8%+23.0%+2.8%
AFC Vietnam Fund USD C3,001.21-1.3%+31.4%+200.1%
Ho Chi Minh City VN Index (in USD) -6.7%+19.5%+136.9%
  1. The NAV given is for the main share series for the relevant master fund. Investor’s holdings may be in a different share class or series or  currency and have a different NAV. See the factsheets and/or your statement for full details.
  2. The index was adjusted on 1st June 2017. Prior to that it consisted 100% of the MSCI Frontier Markets Asia Net Total Return USD Index, and after 1st June 2017 it consists of 37% of that index and 63% of the Karachi Stock Exchange 100 Index in USD.
  3. NAV and performance figures are all net of fees.



It was a mixed month for Asian frontier markets, and despite the volatility witnessed during the month in a lot of emerging markets the AFC Asia Frontier Fund posted a very marginal decline while its benchmark was down by -4.0%. This wide outperformance relative to the benchmark reflects the diversified approach the AFC Asia Frontier Fund takes to both country and stock selection which helps in times of increased market volatility.

Despite a soft month, the year-to-date returns remain very strong for the AFC Iraq Fund, the AFC Uzbekistan Fund, and the AFC Vietnam Fund with year to date returns of +28.2%, +45.5% and +31.4% respectively. Furthermore, the annualised return per annum since inception for the AFC Uzbekistan Fund and AFC Vietnam Fund stands at a robust +33.1% and +15.6% respectively. 

I am glad to report, once again, that we have been recognized by Backstop BarclayHedge for excellent fund performance. This time, our AFC Vietnam Fund won the Top-3 performer award for its June 2021 performance in the sector “Emerging Markets Equity - Asia” and the Top-10 performer award for its June 2021 performance in the sector “Emerging Markets - Asia”. Another confirmation of the validity of the investment thesis of our AFC Vietnam Fund. A fund that is well suited as a diversification tool for many equity investors.



Manufacturing shift continues to Asian frontier markets – Samsung to set up a smartphone plant in Pakistan

A key thesis of ours has been the manufacturing shift into Asian frontier markets, not only because of shifting supply chains but also the large untapped consumer markets that Asian frontier countries offer. We have seen the transformation of Vietnam into a manufacturing hub over the last decade with the country producing consumer electronics, machinery, garments, and other goods for the export market. However, over the past one to two years we have seen greater manufacturing investments being made into other Asian frontier markets as well with a focus on consumer electronics. 

In July, an important development took place in the form of Samsung deciding to begin smartphone assembly in Pakistan by setting up a plant with its local partner by the end of 2021. This does not come as a surprise as the government is now providing incentives for attracting foreign manufacturers and the smartphone market in Pakistan has a penetration rate of less than 20% which leaves a lot of room for growth. This untapped consumer market in Pakistan has already led China’s Infinix Mobile to start local assembly of smartphones at the beginning of 2020 and there are reports that other Chinese brands like Vivo are also keen to set up assembly plants in the country.

Bangladesh also has a low smartphone penetration rate which is just above 30%. As a result, Samsung started producing smartphones and other consumer electronics in the country in 2018. However, again due to government incentives and the attractive domestic market, Chinese brands like Oppo and Vivo have also begun local smartphone production in Bangladesh in the recent past.

Though the current plants are being set up to meet rising domestic demand of smartphones and consumer electronics in Bangladesh and Pakistan, in the longer run it would not be surprising to see both of these countries export part of their production, especially Pakistan which is well placed geographically to export to nearby Central Asian and Middle Eastern markets. 

These foreign investments will assist in further developing the manufacturing sector in Asian frontier countries which should support long-term economic growth as well as provide a platform for other foreign manufacturers to initiate investments in our sphere of countries. Below are two news articles on these important developments.

Samsung all set to assemble smartphones in Pakistan by year-end

Bangladesh draws smartphone assembly as brands eye growing market

Below please find the manager comments relating to each of our four funds for the month of July 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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The AFC Asia Frontier Fund (AAFF) USD A-shares declined marginally by 0.1% in July 2021 with a NAV of USD 1,508.23. The fund outperformed the AFC Frontier Asia Adjusted Index (−4.0%), the MSCI Frontier Markets Asia Net Total Return USD Index (−5.5%) and the MSCI Frontier Markets Net Total Return USD Index (−0.3%) but underperformed the MSCI World Net Total Return USD Index (+1.8%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +50.8% versus the AFC Frontier Asia Adjusted Index, which is up by +28.5% during the same period. The fund’s annualized performance since inception is +4.5%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.5% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.55, all based on monthly observations since inception.

Fund performance was marginally negative this month despite a high level of volatility in the fund’s larger weights like Vietnam. The main positive contributors to performance were Mongolia, Myanmar, and Sri Lanka while the main detractors were Vietnam, Iraq, and Uzbekistan.

Quarterly results season is underway and Kaspi, the fund’s Kazakh fintech holding declared outstanding 2Q21 results with net profits for the quarter almost doubling with a growth of 94%. These results are a reflection of not only adding more users and merchants to the “Kaspi Super App” but it also points to higher transaction activity by app users with average monthly transactions per user doubling over the past year.

These better-than-expected results have led the company to raise its net profit guidance for the second time this year with 2021 net profits expected to reach USD 1 bln. As mentioned in previous manager comments, this kind of profitability is not seen in any of the current publicly listed tech names in the frontier and emerging market universe (excluding China).



(Source: Kaspi, MAU: monthly active users)



(Source: Kaspi, DAU: daily active users, MAU: monthly active users)


In Bangladesh, the fund’s consumer durables manufacturer, Singer Bangladesh, also declared excellent results with net profits growing by 250% YoY in 2Q21. Though last year’s base was low due to the countrywide lockdown, even on a sequential basis growth was very strong with net profits growing by 60% compared to 1Q21. This shows the continuing strong demand for consumer durable goods like air conditioners, refrigerators and washing machines in a country like Bangladesh which is seeing disposable incomes rise, leading to the desire to modernise and upgrade standards of living.

The Central Bank in Bangladesh continued to maintain a low interest rate environment in its latest monetary policy decision, and this should provide ongoing support to positive stock market sentiment amongst domestic investors with the DSE Broad Index up +22.1% so far in 2021 in USD terms making it one the best performing markets in Asia.

With respect to interest rates, the State Bank of Pakistan also left interest rates unchanged in its latest monetary policy decision and the Central Bank’s commentary suggests it will not raise interest rates for the rest of 2021 unless there is a big external shock. This benign interest rate environment backed by an uptick in demand has led to the start of a capital expenditure cycle across most industries in Pakistan which should help support the economic momentum which the country is witnessing after almost five years. Continued momentum in GDP growth combined with lower interest rates should lead to a further re-rating for Pakistani equities, especially cyclical stocks, and the fund is well placed for this through its Pakistani auto and cement holdings.



(Source: State Bank of Pakistan, International Monetary Fund)


During the month the fund also participated in the IPO of an aluminium can manufacturer in Pakistan. This company is the only major aluminium can manufacturer in Pakistan and it supplies to all the leading local and multinational beverage companies like Coca Cola and Pepsi. We believe this company is a good proxy to the rising food and beverage consumption in Pakistan while the company could also potentially enter Central and South Asian markets in the near future. The stock currently trades at a P/E of 11.8x, its estimated 2021 earnings, while cumulative annualised earnings are expected to grow by 26% between 2021-2025.

A very important development in Pakistan was the announcement by Samsung to set up a mobile phone assembly plant in Karachi and its partner in this venture will be Lucky Cement, one of Pakistan’s leading conglomerates which the fund holds. The assembly plant is expected to be operational by the end of 2021 and this investment by Samsung does not come as a surprise given the large and young population in Pakistan as well as increasing smartphone penetration from a very low base of less than 20%. Infinix Mobile from China has already been assembling smartphones in Pakistan since the beginning of 2020 and other Chinese mobile phone companies like Vivo are also looking to build assembly plants in Pakistan as the smartphone market there takes off.

In Sri Lanka, the fund’s conglomerate holding, John Keells Holdings announced that its upcoming mixed-use project ‘Cinnamon Life’ has closed a lease deal with HCL Technologies of India which will occupy 80% of the 30-story office tower and the company will make this location its Sri Lanka hub. Bringing in a key anchor tenant for a majority of the office tower is not only a vote of confidence for the mixed-use project which also includes two residential towers, a mall, and a hotel but it will also further strengthen Colombo’s position as an emerging commercial hub in South Asia.


The Cinnamon Life mixed-use project in downtown Colombo being developed by John Keells Holdings – 80% of the office tower leased to key anchor tenant (HCL Technologies from India)

(Source: John Keells Holdings)


The VN-Index in Vietnam corrected by 7% on the back of rising COVID-19 cases which has led to strict lockdowns in Hanoi and Ho Chi Minh city as well as its surrounding regions as the country goes through its worst wave of COVID-19 cases. Though this outbreak could impact economic growth over the next quarter the long-term case for Vietnam remains as strong as ever as the country continues its transformation into a manufacturing hub and export powerhouse by attracting large amounts of foreign capital and benefiting from supply chain shifts. This is further supported by the Unites States’ recent decision to drop the threat of possible import tariff measures after concluding its trade investigation into Vietnam.

We used this month’s correction in Vietnam as a buying opportunity and initiated a position in Gemadept, which is Vietnam’s largest private port operator with well-established ports both in the North and South of Vietnam. As Vietnam increases its share of global trade, we believe Gemadept can be a good proxy to Vietnam’s increasing export and import activities due to its scale of operations. Earnings for Gemadept are expected to grow on average by 40% between 2021 and 2022 while its 2Q21 net profits grew by 38%.



(Source: Gemadept, SSI Securities)


The best performing indexes in the AAFF universe in July were Bangladesh (+4.5%) and Sri Lanka (+3.6%). The poorest performing markets were Kazakhstan (−7.7%) and Vietnam (-7.0%). The top-performing portfolio stocks this month were a Maldivian resort operator listed in Sri Lanka (+34.1%), a Mongolian cashmere producer (+27.1%), a Myanmar investment company (+23.1%), a Mongolian beer producer (+19.5%) and a Mongolian tour operator (+18.2%).

In July, the fund subscribed to the IPO of a Pakistani aluminum can manufacturer and bought a Vietnamese port operator and added to existing positions in Mongolia and Vietnam and also reduced some positions in Mongolia and Vietnam.

At the end of July 2021, the portfolio was invested in 77 companies, 2 funds and held 7.5% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.4%) and pharmaceutical company in Bangladesh (3.7%). The countries with the largest asset allocation were Mongolia (20.4%), Vietnam (14.4%), and Uzbekistan (10.8%). The sectors with the largest allocation of assets were consumer goods (28.4%) and industrials (13.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.88x, the estimated weighted harmonic average P/B ratio was 1.07x and the estimated weighted average portfolio dividend yield was 3.27%.

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AFC Vietnam Fund - Manager Comment



The AFC Vietnam Fund lost 1.3% in July with a NAV of USD 3,001.21, bringing the year-to-date return to +31.4% and the return since inception to +200.1%. This represents an annualized return of +15.6% p.a. since inception. The Ho Chi Minh City VN Index in USD lost 6.7% in July 2021, in VND terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.88%, a Sharpe ratio of 1.06, and a low correlation of the fund versus the MSCI World Index USD of 0.54, all based on monthly observations since inception.

Market Developments

Markets took a hit in July after COVID-19 infection rates continued to climb, especially in the economic hub of Ho Chi Minh City, despite the city taking some drastic actions to reduce mobility. Most flights out of HCMC were stopped, several city areas went into strict lockdown, and local transportation was suspended among other measures. Many countries which did an excellent job containing the virus in the first 18 months of the pandemic are now the hardest hit.



(Source: Bloomberg)


Since the last correction in January, the VN Index rallied 43% (in local currency terms) to its latest all-time high on 2nd July at 1,424.28 points. A technical correction was therefore just a matter of time, and with the rising number of COVID-19 cases in Vietnam and other countries, especially in Southeast Asia, it was a welcomed reason for traders to take profits in many stocks which have gained strongly in recent months. We saw this behaviour in all previous waves where the market corrected initially, just to come out even stronger when the first shock was absorbed.

From the top, the market corrected 14%, very similar to what we have seen in each wave since the first COVID-19 outbreak.



What is different this time is the lack of foreign selling, unlike in other waves. While the current surge in COVID-19 cases is undoubtedly a much larger problem to handle, it has also changed the government’s strategy of how to deal with it. Vietnam, like many other countries in the region, was behind the curve in purchasing and administrating vaccines in advance, and now must admit that their prior successful strategy of closing down the country with strict lockdowns does not work anymore. The region has ramped up purchases of vaccines, and by the end of the year, a significant part of the population should be vaccinated, maybe – and hopefully – faster than many currently estimate, as larger amounts of “leftover vaccines” from other countries will reach Southeast Asia since countries in Europe and North America are facing problems in reaching out to people willing to get their jabs. According to the government, the country aims to vaccinate 60-70% of the population by year-end – and even that goal seems to be a bit optimistic, but you can be sure that in a country like Vietnam, there will be much less discussion about people being willing to get vaccinated than we are currently seeing in other countries.



(Source: Our World in Data)


Nevertheless, the recent outbreak led the Asian Development Bank to cut its 2021 GDP growth forecast for Vietnam from 6.7% to 5.8%. While still strong, certain parts of the economy are being affected for the first time, namely the production sector. Overall, we saw robust second quarter earning numbers from our portfolio companies which should continue through the remainder of the year, although comparisons will get tougher in the third quarter with the current outbreak not yet under control. Considering the importance of the manufacturing sector, both the government and private sector are trying to minimize the impact of the current situation and are coming up with practical solutions such as a stay-at-work policy, opposite to the work-from-home we know in the West. While this is a solution for many big companies, small and medium-size enterprises find it hard to adopt this measure and have ceased operations temporarily. In Vietnam, people call this solution “3in1” which means workers will “eat”, “rest” and “work” at the factory. For example, Sao Ta Foods (FMC), one of our portfolio companies, applied this solution for their workers to maintain production. As a result, in 2Q 2021, the company reported a net profit increase of 46%. 

This approach is also practiced in other sectors like banks, or at multinational conglomerates like Samsung:



(Source: VOV - Voice of Vietnam)


Despite the recent correction, Vietnam showed an outstanding performance in the first seven months of the year. Its economic development backed by a committed government to bring the country forward has led to strong economic activity and stock market inflows from domestic investors. As you can see from the chart below, our fund has a very low correlation to other indices in the region – for example, the AFC Vietnam Fund outperformed the index in Vietnam by more than 10% year to date – and also outperformed the relatively weak emerging markets which suffered due to the weak Chinese stock market performance.



(Source: Bloomberg; AFC research estimates)


The Stock Exchange of Vietnam successfully launched the new Ho Chi Minh Stock Exchange trading system, developed by FPT

In the first six months of 2021, the trading system of the Ho Chi Minh City Stock Exchange (HOSE) often crashed during a trading session due to the extremely high trading volume. The old system carried out a maximum of 999,999 orders per day; this has not been sufficient on most trading days in 2021, and HOSE had to stop its trading system in the afternoon. This situation created many very unhappy customers, and HOSE had to find a quick solution and therefore hired FPT, a leading software provider in Vietnam, to fix this problem by building a new trading system. On 5th July 2021, after only 100 days of intensive work, the mission was completed, and the new platform can now handle 3 to 5 mln orders per day. FPT is considered to be the leading IT company in Vietnam which has been listed on HOSE since 2006. As a result, FPT reported a record-high profit in the first half of 2021. This was also helped by the impact of COVID-19, which forced a lot of businesses to move to online sales, and hence revenues from software development and IT services increased strongly. As a result, FPT’s revenue reached VND16,228 bln (+19.2%), and profit before tax jumped to VND2,936 bln (+20.9%). Profits from IT services increased by 35.1%, equivalent to around 44% of total group profit in 1H 2021.

It is interesting that revenues accelerated across all markets, with particularly robust growth in the U.S. (+41%) thanks to strong demand from large clients. The U.S. is now the second-largest market for FPT with 28% of sales, after Japan with 47%. DX (digital exchange) revenues continued to improve with Q2 2021 increasing by 22% YoY and 52% compared to Q1 2021. DX revenues for the first half of the year increase by 19.3% YoY thanks to high growth rates in low code, cloud, and blockchain technology services. 


Global IT service performance

(Source: FPT)


FPT’s stock price also outperformed the VN-Index in 2021 with a gain of 79.2% compared to 14.9% for the VN-Index. FPT is currently trading at 19 times forward earnings in 2021, which is comparatively cheap for a global information technology company of this size. This is also the reason why the FOL (foreign ownership limit) of FPT is always full and foreign investors have to pay a premium of around 7-15% compared to market price if they want to buy the stock. We have been holding FPT since the start of the fund and are expecting further growth of our holding in the future.


FPT stock price (June 2020 – July 2021)

(Source: Bloomberg)


At the end of July 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.5%) – an insurance company, PVI Holdings (4.6%) – an insurance company, VNDirect Securities Corp (4.2%) – an online brokerage firm, Phu Tai JSC (4.2%) – a home and office furnishings company, and Tuong An Vegetable Oil JSC (3.8%) – an edible oil producer.

The portfolio was invested in 45 names and held 3.4% in cash. The sectors with the largest allocation of assets were consumer (34.2%) and financials (30.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.41x, the estimated weighted harmonic average P/B ratio was 1.59x, and the estimated weighted average portfolio dividend yield was 4.64%.

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AFC Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund Class F shares returned −2.0% in July with a NAV of USD 1,952.08, bringing the return since inception (29th March 2019) to +95.2%, while the year-to-date return stands at +45.5%. On an annualized basis, the fund returned +33.1% p.a. with a Sharpe ratio of 2.11.

July 2021 was a quiet month on the capital markets front in Uzbekistan as the summer heat reached over 46 degrees Celsius in Tashkent and the Eid holiday saw many people depart for the cool climate of the nearby mountains to escape the heat. Nonetheless, Uzbekistan exercised its geopolitical prowess as it hosted an international Central & South Asian Forum during the month which was attended by many investors and representatives of foreign governments.

AFC Uzbekistan Fund valuations as of 31st July 2021:

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


Estimated weighted harmonic average P/B:


Estimated weighted portfolio dividend yield:



Uzbekistan’s economy is heating up with growth revised higher

Uzbekistan is receiving increasing recognition as a high-growth economy. GDP growth for the first half of 2021 rocketed higher by 6.2%, compared to 1.1% growth in the first half of 2020. The resilience of Uzbekistan’s economy, stemming from its significant commodity production (gold, copper, natural gas, agriculture, etc.) and increasing liberalization, has enabled the country to self-finance infrastructure and social projects which have led it to continue and accelerate its growth. The outstanding response Uzbekistan had to the COVID-19 pandemic which steadied the economy is a testament to the country being well positioned for a global climate of rising inflation and protectionism.

As a result of Uzbekistan's strong growth, J.P. Morgan recently published a report forecasting GDP growth of 8.1% and 6.3% in 2021 and 2022, while the Central Bank of Uzbekistan revised higher its 2021 GDP growth estimate from a prior range of 4.5%-5.5% to 5.8%-6.8%, and its estimate for export growth has also been revised higher from 8%-10% to 20-25%. Additionally, Moody’s has given Uzbekistan a rating of B1 with a “positive” outlook; this is the first time one of the big 3 ratings agencies has rated Uzbekistan “positive”. Further, Moody’s also estimates 5.5% and 6.3% GDP growth in 2021 and 2022. 

Central and South Asia Conference puts Uzbekistan on the geopolitical map

As Uzbekistan increasingly asserts itself as a growing geopolitical force (and naturally so, being the country is located at the heart of Central Asia and hosts the largest population in the region at just under 35 mln people), in a bid to integrate itself into the regional and global economy via South Asia, on the 15th and 16th of July, Uzbekistan hosted the Central & South Asia Conference. Roughly 50 countries were represented, including Russia, China, the USA, the United Arab Emirates and Pakistan, where Pakistan’s Prime Minister, Imran Khan, was a keynote speaker and signed deals worth USD 500 mln in the areas of trade, logistics, and cultural cooperation.



(Source: Central & South Asia Forum 2021)


One of the main areas of focus for the Uzbek government with regards to trade has been to lower the high logistics costs for the country due to its double landlocked status. In February of this year, Uzbekistan advanced its assessment of building a railway from Termez in southern Uzbekistan, through Afghanistan and into Pakistan’s eastern province of Peshawar in order to connect to Pakistan’s Gwadar Port on the Arabian Sea. Uzbekistan being one of two double-landlocked countries in the world (the other Liechtenstein), cost-competitive access to sea ports is paramount for it to unlock its potential as a regional export powerhouse, especially in the sectors of agriculture and light manufacturing.

As with most conferences, time will tell how much of the excitement surrounding it translates into tangible foreign direct investment and export opportunities, but at the very least it was beneficial as it brought many first-time investors to Uzbekistan.

One of the biggest hurdles to understanding the potential of Uzbekistan and committing to an allocation of capital, whether in the stock market, or in physical businesses, is no doubt the stigma of Uzbekistan being a “Stan” country and the general lack of familiarity investors have with the region. So, any event that brings investors to the country increases the chances of investment.

Scott Osheroff met several groups from the Middle East, Europe and Pakistan during the conference who were impressed by how developed Tashkent is, the quality of the infrastructure and cleanliness of the city. Many were also impressed by the high speed Afrosiyob train which runs from Tashkent to Samarkand and Bukhara when they learned it was self-financed and the trains are Spanish and not Chinese. In our view, this excitement is understandable, for Thomas and Scott had the same eye-opening realization in May 2018 when they first visited the country.


Uzbekistan’s bullet train – Afrosiyob

(Source: AFC Research)


Afghanistan Situation

As Uzbekistan shares a 144 km long border with northern Afghanistan and has bilateral trade of roughly USD 600 mln per year, the majority of which is exports, Afghanistan has the potential to become a large regional export market for Uzbekistan. However, the situation with the U.S. withdrawal from the country is delicate and something we are watching closely. From our observations, it appears that the Taliban is seeking to fill the power vacuum and at the very least be influential in the government going forward as they have been establishing or enhancing relations with regional powers including Russia, China, and their Central Asian neighbours.

In a Sputnik news article on 22nd July 2021, a spokesman for the Taliban was quoted saying they control “approximately 90% of Afghanistan’s border with neighbouring countries” and 85% of total Afghan territory. From a thirty-thousand-foot view, we would hope to see the Taliban respect Afghanistan’s borders with neighbouring countries and foresee a potential new Afghan government facilitating increased trade with the region. This is of course a very fluid and sensitive topic and one which we will continue to monitor, as stability in Afghanistan will be a net positive for Uzbekistan as it seeks to enhance connectivity through northern Afghanistan (by road currently) via railway to Pakistan which will not only facilitate exports to the global market but expand Uzbekistan’s access to the Afghan market which hosts a sizable population of 40 mln people.

At the end of July 2021, the fund was invested in 28 names and held 16.1% in cash. The markets with the largest asset allocation were Uzbekistan (83.7%) and Kyrgyzstan (0.2%). The sectors with the largest allocation of assets were materials (54.8%) and financials (12.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.07x, the estimated weighted harmonic average P/B ratio was 1.43x, and the estimated weighted average portfolio dividend yield was 8.02%.

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The AFC Iraq Fund Class D shares returned −3.3% in July with a NAV of USD 725.09, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 0.8% during the month. The fund is up 28.2% year to date versus 23.3% for the index. Since inception, the fund has lost 27.5% while the RSISUSD index is down 44.6%.

June’s heatwave continued into July with temperatures this year continuing to exceed recent averages (chart below). The heatwave, combined with the onset of summer holidays, led to a lull in the market.


Baghdad Temperature Graph July 2021 in Celsius



While market turnover slowed down considerably with a decline of 24% month-on-month (excluding block transactions), the market’s overall positive momentum continued in which this month’s decline maintained the recent uptrend (chart below), and the market continues its consolidation after the strong year-to-date gains.



(Source: Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital, data as 28th July 2021)


Economic activity continues to support the market’s consolidation thesis as can be seen from recent economic indicators, and from anecdotal observations from a recent four-month sojourn to Baghdad (photos below).

The first economic indicator is the continued expansion in the money supply, with broad money up 22% year-over-year in May 2021 paced by strong oil sales – that in Iraqi Dinar (IQD) terms approached the recent highs of 2018 and are within reach of the all-time highs attained during the last period of very high oil prices pre-2014 (chart below). This expansion in broad money is a function of the sizeable liquidity injections in 2020 as outlined in “On the Economics of Coiled Springs, Crouching Tigers, and Chicken Lickens”, and of the continued growth in lending to the private sector as outlined in “Private Sector Deposit & Loan Growth Continues”.



(Source: Central Bank of Iraq, Ministry of Oil, Asia Frontier Capital, data as of May 2021)


The second economic indicator is Google's mobility data (below chart) which shows that economic activity, in particular activity in the crucial sectors of retail and grocery has recovered by up to 55-150% above the levels that prevailed pre-2020’s great lockdown – supported by the return of the workplace and residential sub-indicators to pre-lockdown normal. The dips in early June and late July coincide with the two one-week Eid holidays – the first after the end of the fasting month of Ramadan, while the second came after the end of the pilgrimage season.



(Baseline is the median, for the corresponding day of the week, during 3rd January – 6th February 2020. Source: Google, data as of 28th July 2021)


Given that Google's mobility data provides a picture of economic activity but not transactions, the third economic indicator can be glimpsed indirectly from the volumes for USD-IQD transactions as conducted by the Central Bank of Iraq (CBI) in its weekly USD sales (transfers to facilitate foreign trade transactions as indicated by green bars and to satisfy the need for physical USD for Iraqis travelling abroad as indicated by the red bars). Demand for USD in the CBI's transactions is a reasonable proxy for consumer demand given the country's high dependence on imports to satisfy domestic consumption of goods and services. The figures in the last few months, expressed in IQD terms, show the extent of the recovery in demand for USD over comparable figures in 2020 (chart below), and imply that the rise in activity as seen from the Google mobility data have been accompanied by increased transactions. More details are available at “On the Economics of Coiled springs, Crouching Tigers, and Chicken Lickens”.



(Source: Central Bank of Iraq, Asia Frontier Capital, data as of 28th July 2021)


The above economic indicators are supported by anecdotal observations from a four-month trip to Baghdad that ended in early July. The first of these observations is the resumption of the 2019 revival in construction activity – discussed in AFC’s Iraq travel report “Significant social and economic transformation”. The economic crisis in the wake of COVID-19 for most of 2020 had put a halt to these activities, however they resumed in the recent economic rebound following the recovery in oil prices and increased domestic liquidity. This resumption in construction activity seems to include both commercial and residential construction as can be seen from the three photos below.


Qadysaia Expressway, Qadysaia District, Baghdad

(Work on this development has progressed considerably since 2019 as can be seen from an earlier photo of this development in AFC’s 2019 travel report)


Four-Streets Boulevard, Yarmuk District, Baghdad

(Construction of new restaurants and shops next to “Hundreds” restaurant, and Razan Cake in Yarmuk district’s trendy Four-Streets Boulevard. Many such shops and restaurants have been constructed and opened across Baghdad to meet the revival in consumer consumption demand)


The second of the anecdotal observations is a significant increase in discretionary consumer consumption across all sectors, but especially in the retail and hospitality areas, as can be seen from the two photos below.


Sinak Bridge Road, Sinak, Baghdad

(Bazars all over Baghdad have seen a revival in visits and purchases by consumers)


Babylon Rotana Hotel, Karada District, Baghdad

(“Helo Ya-Hawa Baghdad” shopping festival in early July)


At the end of July 2021, the AFC Iraq Fund was invested in 14 names and held 7.0% 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 (90.9%), Norway (1.6%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (52.2%) and consumer staples (18.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.81x, the estimated weighted harmonic average P/B ratio was 0.89x, and the estimated weighted average portfolio dividend yield was 4.71%.

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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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This Newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this Newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this Newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

The representative of the Funds in Switzerland is ACOLIN Fund Services AG, succursale Genève, 6 Cours de Rive, 1204 Genève. NPB Neue Privat Bank AG, Limmatquai 1 / am Bellevue, CH – 8024 Zürich, Switzerland is the Swiss Paying Agent. In Switzerland, shares shall be distributed exclusively to qualified investors.  The fund offering documents, articles of association and audited financial statements can be obtained free of charge from the Representative. The place of performance with respect to shares distributed in or from Switzerland is the registered office of the Representative.

AFC Asia Frontier Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. AFC Iraq Fund and AFC Uzbekistan Fund in Singapore, Switzerland, the United Kingdom, and the United States. AFC Vietnam Fund in Japan, Singapore, Switzerland, and the United Kingdom. 

By accessing information contained herein, users are deemed to be representing and warranting that they are either a Hong Kong Professional Investor or are observing the applicable laws and regulations of their relevant jurisdictions.

© Asia Frontier Capital Ltd. All rights reserved.

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