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Asia Frontier Capital (AFC) - June 2021 Update

“ The best time to plant a tree was 20 years ago. The second-best time is now.” Chinese Proverb


The best time to plant a tree was 20 years ago.
The second-best time is now.”

Chinese Proverb


AFC Asia Frontier Fund USD A1,510.00+1.6%+12.8%+51.0%
    AFC Frontier Asia Adjusted Index2 1.0%+13.9%+33.8%
AFC Iraq Fund USD D749.81+7.3%+32.6%−25.0%
    Rabee RSISX Index (in USD) +4.5%+24.3%−44.2%
AFC Uzbekistan Fund USD F1,991.34+0.6%+48.5%+99.1%
    Tashkent Stock Exchange Index (in USD) 13.6%+29.6%+8.3%
AFC Vietnam Fund USD C3,040.86+8.4%+33.1%+204.1%
    Ho Chi Minh City VN Index (in USD) +6.2%+28.0%+153.9%
  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.

AFC Funds end the second quarter of 2021 on a positive note

It was a strong end to the second quarter of 2021 for Asian frontier markets with the AFC Vietnam Fund leading the way with a monthly gain of +8.4%, taking its year-to-date return to +33.1%. Its annualised performance since inception now stands at 15.9%.

After a soft month in May, the AFC Iraq Fund returned +7.3% this month which takes its year-to-date return to a robust +32.6%. The AFC Asia Frontier Fund continued with its stable performance with another positive monthly gain of +1.6% making it five quarters in a row of positive performance.

The AFC Uzbekistan Fund gained another +0.6% this month which takes its year-to-date return to +48.5%. Its annualised return since inception stands at +35.7% and these returns reflect the reform story unfolding in the country.

Overall, the performance of our funds has been supported by very strong stock market rallies across Asian frontier markets which in fact have significantly outperformed many regional peers since the bottom of March 2020. This is a reflection of the value available in Asian frontier markets as well as the ability of Asian frontier countries to bounce back economically from the pandemic. Despite a strong run, valuations for Asian frontier markets are still very attractive as earnings growth witnesses a robust recovery.

Learn more on this by viewing our 2Q21 Update Presentation for our AFC Asia Frontier Fund linked below: 

AFC Asia Frontier Fund 2Q21 Update Presentation




(Source: Bloomberg, % change in prices from 31st March 2020 – 30th June 2021)



(Source: Bloomberg, Asia Frontier Capital, P/E ratios are trailing 12 months)


Below please find the manager comments relating to each of our four funds for the month of June 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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Upcoming AFC Travel

Thomas Hugger, Ruchir Desai, and Peter de Vries are based in Hong Kong, while Andreas Vogelsanger is based in Bangkok, Scott Osheroff in Tashkent, and Ahmed Tabaqchali in London and Iraq. If you have an interest in meeting with our team at their homeports or during their travels, please contact Peter de Vries at This email address is being protected from spambots. You need JavaScript enabled to view it. .

Zurich, Geneva, Zug 19th - 23rd July Thomas Hugger
Amsterdam 23rd July - 14th August Peter de Vries


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AFC Vietnam Fund - Manager Comment



The AFC Vietnam Fund rose by 8.4% in June with a NAV of USD 3,040.86, a new all-time high NAV, bringing the year-to-date return to +33.1% and the return since inception to +204.1%. This represents an annualized return of +15.9% p.a. since inception. The Ho Chi Minh City VN Index in USD gained 6.2% in June 2021 to reach a new all-time monthly high of 1,408.55, in VND terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.92%, a Sharpe ratio of 1.08, 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

Sector rotation led to profit-taking in banks which were the main driver for the index gains in 2021 so far. We took some profits early enough in our bank holdings and therefore were able to add money to the insurance sector which started to perform well in June. Vietnam’s insurance market has grown significantly faster than other countries in the region. Currently, around 70 insurance enterprises are operating in Vietnam with total assets of just USD 25 bln in 2020, with the majority in the life insurance business (almost 90%). The sector is still in its early growth phase – around 12 mln Vietnamese have bought (albeit low value) life insurance, but only around 4% have bought health insurance.

After being heavily invested in ABI (Agriculture Bank Insurance) for years and owning around 6% of the company, we bought another undervalued insurance stock, with the profits we realized in LienViet Post Bank (LPB) which more than tripled over the past 12 months and had become our biggest holding for a brief period. Given the cheap valuation of ABI, which trades at just 7x earnings and has good long-term growth prospects, growing more than 20% per year, we believe there is a fair chance of a revaluation to market levels over the next 1-2 years, which would mean an increase from the current stock price of VND 60,000 to around VND 150,000. One of the many possible catalysts for this to happen could be a move from UPCOM, where ABI is currently listed, to the main market in HCMC, as we have seen with LPB which moved its listing in November 2020.


ABI (Agriculture Bank Insurance), since May 2017, trading on UPCOM, and 
LPB (LienViet Post Bank), which, since November 2020, is trading on HOSE

(Source: Bloomberg)


This catch-up from undervalued to a fair valuation has always been one of the main arguments for our fund to hold this position in ABI, as we are looking for growing companies trading at a discount to the sector and to the market. Early investors might remember our thesis, how an expansion in the valuation is far more important for the performance than the underlying growth in earnings. Now, while our scenario drawn in 2016 has occurred – and despite the average P/E of our portfolio having moved only from 7x to 10x since 2016 - we update this “5-year plan” with present data to show the still enormous potential of the AFC Vietnam Fund.

To explain this impact from revaluation, we can take the example of ABI. If earnings would just grow 12% annually over the next few years, net profit would grow 76% over 5 years, meaning that on a stable valuation of currently around 7x earnings the stock price should be 76% higher. Even if the stock market would drop and drag the valuation down to an excessively undervalued 5x earnings valuation, the stock should trade 17% higher from here. But our investment experience shows that at some point, as we currently encounter with ABI, the market will recognize the value of a stock like ABI and gradually revalue it to the market average, which is currently 19x earnings. In that case, this stock would trade 344% higher 5 years from today. Even without any earnings growth, but a revaluation to 19x earnings, the stock price would advance 152%, which would be much higher than by earnings growth alone.

ABI 2026
P/E 5 70.071
P/E 7 98.099
P/E 10 140.141
P/E 14 196.198
P/E 19 266.269

Current Price of ABI: 60.000


In the same way we did these calculations back in 2016, we have updated possible price scenarios for the fund and its holdings currently trading at an average of 10x earnings. Based on our conservative earnings growth calculation of 12%, we see the potential performance on various P/E adjustments over the next 5 years. 


Updated 2021 impact calculation of P/E changes

(Source: AFC Research)


What is shown here is the most optimistic scenario with tremendous potential, an average earnings growth of 12% for our companies in a strong and growing economy which is actually quite conservative. The potential valuation change of our portfolio to a P/E of 20x would also just track the current Vietnamese market valuation, which is still below the world’s average, even after recent gains. It is important to keep in mind that too many times, even long-term investors miss the momentum that undervalued stock markets develop once they are kissed awake after a prolonged time of beauty sleep.

ESG (Environmental – Social – Governance) as a growth driver in Vietnam

Vietnam, with its population of almost 100 mln, has had one of the highest economic growth rates in the world for many years, with all indications pointing to a continued positive trend over the next few decades. The announcement from the new U.S. administration in terms of infrastructure projects, which should bring its competitiveness back, is also happening in countries like Vietnam, which is building its own modern infrastructure for the very first time. Airports, highways, ports – just to name a few – should continue to help the country’s path to developed country status over the course of the next 1-2 generations. China is an excellent example of what a politically and collectively motivated country can achieve. Vietnam has already become a manufacturing powerhouse, often as a cheaper alternative to China, but urgently needs to upgrade its infrastructure. Its middle class should double over the next ten years from 1/3 to 2/3 of the total population of around 97 mln. All of this will increase its ever-growing hunger for more consumer spending, electricity – and, unfortunately, pollution. Learning from the experience and mistakes of the economic miracle of its big neighbour China, Vietnam will hopefully manage to execute its environmental and social issues better. As investors in Vietnam, it is our liability to take ESG into account when it comes to investment decisions. In the western investment world, ESG has seen huge money inflows and produced outstanding returns for investors, while in developing countries, impact and performance could be even bigger in the long run since continuing long term economic growth needs an overproportioned investment in green industries to reduce the risk that pollution gets out of control.

It is therefore just an obvious consequence to see the government prioritizing green investments in the energy sector, which attracts billions of dollars in various green energy projects. 


A wind power project in Vietnam

(Source: VnExpress/Nguyet Nhi)


Thang Long Wind, a USD 11.9 bln, 3.4 GW offshore plant, is being built in the central province of Binh Thuan, while La Gan, another offshore wind farm and a joint venture between Asia Petroleum Energy Corporation (Asia Petro), Novasia Energy Company and the Danish fund management firm Copenhagen Infrastructure Partners (CIP), will have a capacity of 3.5 GW and a price tag of USD 10.5 bln. Other companies are following suit like Danish multinational power company Orsted, which already operates many wind farms in other Asian countries and has identified Vietnam as its next investment destination. With a coastline of 3,260 km, low sea levels and high wind speeds, Vietnam is attracting a lot of interest in offshore wind power in Southeast Asia. Qiao Liming, Asia director of the Global Wind Energy Council (GWEC), said a strong point of offshore wind power is the high efficiency of 29-52 percent, double that of solar energy, higher than onshore wind power and equal to gas-fired electricity. With new technologies, the efficiency of offshore wind power is increasing annually by 2.5 per cent, she said. The unit cost for 1,000 kWh of electricity generated by an offshore wind power farm is currently around USD 83, down from USD 255 in 2010, and should fall further in the years ahead.

On the other hand, the cost for offshore wind power is more than double that of onshore wind power, and it takes five to seven years to build a farm, excluding the time needed for investment procedures, licenses, geological surveys, gauging winds, and others. Therefore, it is evident that local companies active in this field should see excellent growth in the years to come, and while there are not that many listed companies we identified as attractive investment candidates, we found one which we believe could be a gem in the universe of energy companies in Vietnam.

TV2 – The leading green energy player

Power Engineering No 2 Consulting (TV2) is the leading EPC contractor (engineering, procurement, and construction) and consultant in building green energy plants such as solar, wind and biomass power. As a formerly state-owned enterprise, TV2 was privatized in 2007, where Electricity Group of Vietnam serves as the major shareholder with 51%. From 2009 the company was listed on Hanoi Stock Exchange, and it switched to the Ho Chi Minh City Stock Exchange in 2019. Over the last ten years, TV2 has been the pioneer in green power consulting. Most of the big hydro, solar, and wind power projects in Vietnam have been designed by TV2. The company invested aggressively in human resources and R&D to keep its growth, competitiveness, and market share, and was able to show impressive growth in net revenues and net profits over the last ten years. 


Net revenue TV2 (VND bln)

(Source: Company annual report)


My Son 3.1 solar farm designed and built by TV2

(Source: TV2 website)


According to the company’s strategic master plan for 2025, they are planning to build many green energy projects with a total capacity of more than 500 MW. TV2 also intends to reach net revenues of VND 10,000 bln by 2025, three times the net revenues of 2020. TV2 is playing an important role in helping to build the electricity master plan of Vietnam, given that they are a pioneer in designing renewable energy projects and transforming and upgrading inefficient and old power plants.

Vietnam is a manufacturing hub with a very high economic growth rate, which unfortunately also generates an increasing greenhouse gas output, similar to what we saw in China 20 years ago. The strong and fast economic growth has turned China into one of the largest CO2 producers in the world and, in order to improve its carbon footprint, Vietnam has huge demand for green and renewable energy companies such as TV2. This is one of the main reasons for investing in TV2, besides the fact that TV2 is grossly undervalued. The company is trading at a P/E of 7.7x and P/B of 1.7x. The total market cap of the company is around USD 87 mln. We strongly believe that TV2 will continue to proliferate in the future and attract more and more investors, particularly international investors, many of whom are looking for investments in attractive ESG companies.

Key investment factors



Market cap

VND bln


Net profit

VND bln











Total assets

VND bln


Cash balance

VND bln



VND bln


  • of which bank loans

VND bln


Owner’s equity

VND bln


(Source: TV2 audited reports)

At the end of June 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.9%) – an insurance company, VNDirect Securities Corp (6.9%) – an online brokerage firm, PVI Holdings (4.2%) – an insurance company, Military Commercial Joint Stock Bank (4.0%) – a bank, and Power Engineering Consulting JSC No.2 (4.0%) – a consulting firm.

The portfolio was invested in 43 names and held 3.7% in cash. The sectors with the largest allocation of assets were financials (34.1%) and consumer (32.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.79x, the estimated weighted harmonic average P/B ratio was 1.68x, and the estimated weighted average portfolio dividend yield was 4.62%.

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The AFC Iraq Fund marked its sixth anniversary with a 7.3% increase in June with its Class D shares reaching a NAV of USD 749.81, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 4.5% during the month. The fund is up 32.6% year to date versus 24.3% for the index. Since inception, the fund lost 25.0% while the RSISUSD index is down 44.2%.

June also saw the publication of’s third instalment piece on investments in frontier markets focusing on the compelling investment potential of Iraq’s equity market, and generously highlighted the AFC Iraq Fund as a vehicle for capturing this potential. The article is a must-read on the misconceptions versus the reality on the ground in Iraq, and what that means for potential investment returns. It is written from the perspective of a global investor focusing on frontier markets. The author shares AFC’s passion for investing in frontier markets and the long-term outsized returns that they can provide, and thus it’s fitting to focus this newsletter on the shared themes that the fund has with the’s piece.

The author reviews the current entrenched negative view on Iraq, which is solely focused on the country’s recent history of conflict and notes that “Even I hesitated and wondered if this subject was pushing it a bit too far. In the end, it was this deep-seated, widespread pessimism that made me take a closer look. Quite often, when there is a widely-held belief that few people care even to question anymore, it turns out that the tide has already started to turn – without anyone noticing yet.”  The tide and the pessimism that the author refers to could be seen in the market’s strong year-to-date performance in which the Rabee Securities RSISX USD Index is up 24.3% despite the worst-case prognosis made last year for Iraq as it was yet again faced with the ingredients of a perfect storm. In a replay of the most recent perfect storm marked by the onset of the ISIS conflict and the fall in oil prices in 2014, the worst-case prognosis reappeared and entrenched this pessimistic view of Iraq.

Such a pessimistic view overlooks the potential opportunities that the country offers in-spite of its recent history of violence and conflict that gave rise to such pessimism. The AFC Iraq Fund’s investment thesis is based on arbitraging the delta between the real Iraq risk, high as it is, versus the perceived risk, which is much higher still. Its long-term risk-reward proposition argues that as this delta narrows, helped by a better understanding of Iraq’s risks, then asset prices – priced at the perceived risk – should rise, reflecting the real risk. 

This opportunity for arbitraging the delta between the real Iraq risk, high as it is, versus the perceived risk, is sought and pursued on the ground in the real economy by some of the best companies operating in Iraq. Three such companies, listed on the Iraq Stock Exchange (ISX), and among the AFC Iraq Fund’s top holdings, in alphabetical order, are mobile telecom operator AsiaCell (TASC), Pepsi bottler Baghdad Soft Drinks (IBSD), and banking group the National Bank of Iraq (BNOI). These opportunities, discussed in more detail in our newsletter of February 2021, briefly are: 

The opportunity pursued by TASC in 2021 was the introduction of 4G-LTE (fourth-generation long-term evolution), which follows from its offering of 3G in 2015 in the middle of Iraq’s prior perfect storm. While in the very early stages, 4G-LTE promises to bring significant advantages to both internet users and to TASC. Growth in mobile internet usage expanded considerably after 3G was launched and will likely expand much further in the coming years. While 2020 was a challenging year for TASC as it was negatively affected by the lockdown as many users switched to fixed-line broadband from mobile broadband for their internet access, in which revenues declined 9.4% for the year, yet pre-tax profit was down only 0.6% thanks to solid cost controls. TASC’s confidence in its outlook, even in the middle of the tough 2020, was demonstrated by its announcement of a dividend equivalent to a yield of 14.3% in July 2020.

The opportunity pursued by IBSD was a continuation of its strategy of both expanding its product line and deepening its relations with PepsiCo; through the acquisition of privately held Al-Zaki Group - another bottler, but of juices and water, and to extend its offerings to bottled milk. This follows up on its prior takeover in 2016 of Ynabee' Al Zawraa Company, a bottler of Aquafina, PepsiCo's water brand. IBSD’s acquisition comes on the back of a strong 2020, which saw revenue growth of 12.6% year-over-year and pre-tax income growth of 20.9% year-over-year. IBSD announced a dividend corresponding to a 4.3% dividend yield in April 2021.

Finally, the opportunity pursued by BNOI is strengthening its position in Iraq’s nascent and high potential banking sector by the takeover of the Iraqi branch network of Lebanon's Bank Audi. In the process, BNOI increased its assets by 32%, vaulting it into the top three banks on the ISX as ranked by asset size. The acquisition came on the back of a strong 2020 which saw year-over-year pre-tax earnings growth of 116.0%, loan book growth of 88.0%, and deposit growth of 44.9%. BNOI announced a dividend corresponding to a 9.2% dividend yield in March 2021.

While reviewing the opportunities that Iraq presents the author further notes “Without a doubt, Iraq has its own set of political risk. This is not Switzerland or Norway, and you cannot even compare it to emerging markets like Egypt or Kenya. It is a war-torn country with one of the world's most underdeveloped economies. The progress mentioned above is set within a broad set of economic, political, and societal challenges … However, such problems are also the very point of investing in frontier countries. The idea behind frontier investing is to go in at a very early stage. The term "ground-floor opportunity" is used too often nowadays, but Iraq is a country that truly deserves this description”. The opportunities, discussed in the prior paragraph, as pursued by TASC, IBSD and BNOI, are living proof of this concept – especially as they are backed by solid operating performances during the time when the worst-case prognosis was supposed to be taking place. 

Furthermore, these opportunities could be further enhanced as the revenues from current high oil prices feed into the economy. The author notes “Throw in the current favourable dynamics driving the oil price, courtesy to the West's misguided policy of reducing its production of fossil-based fuels before alternatives are in place … Iraq not only has the world's third-largest oil reserves, but also some of the lowest production costs. Now that oil is back up at USD 70 per barrel (and with real potential to reach USD 80 or even USD 100), the country's extreme leverage towards oil could yet again reap dividends.” 

While there is a great deal of uncertainty and debate on the extent or timing of the transition away from fossil fuels, there is little doubt that the global economic rebound is accelerating – fuelled by an unprecedented fiscal stimulus by world governments – and thus supporting the current firm oil prices. Recently, the OECD raised its projections for global GDP growth to 5.8% in 2021 versus prior forecasts of 4.2%, and for growth of 4.4% in 2022 versus prior forecasts of 3.7%. A continued successful rollout of the developed world’s vaccination program, possibly joined by a quicker rollout of the emerging and developing world vaccination programmes, could see global GDP return by end of 2022 to the expected trendlines that prevailed before the onset of COVID-19 (chart below).



(Source: OECD’s latest Economic Outlook as of 31st May 2021)


Iraq’s extreme leverage to oil prices makes it just as leveraged to this post-COVID-19 rebound in the global economy and the associated rebound in oil demand, which works by driving Iraq's economy and consequently corporate profits, as discussed in “On the Economics of Coiled Springs, Crouching Tigers, and Chicken Lickens”.

The piece by deserves a read for the author’s take on the investment opportunity in Iraq, and noting that the performance by the Rabee Securities RSISX USD Index, in being up 24.3%, should be seen from the perspective of an equity market that is emerging from a deep multi-year bear market in which the Rabee Securities RSISX USD Index is still down about 60% by end of June 2021 from the 2014 peak.

Please see’s article: How to Invest in Frontier Countries (part 3): Iraq

There is an Iraqi phrase, often said in different forms that loosely asserts that “Iraqis can’t go to hell, because they already live in one” or that “hell does not worry Iraqis because they continuously experience it”. While symphonically this is true, given Iraq’s history of conflict as discussed above, this phrase is also literally true during the scorching summer months as witnessed in the last days of June. A heat wave engulfed the country and took temperatures in Baghdad to higher levels than recent averages - with temperatures in some days exceeding 50 degrees Celsius, or 122 Fahrenheit in the shade – an unwelcome sign for the usually even more scorching months of July and August. 


Baghdad Temperature Graph June 2021 in Celsius

(Source: Accuweather)


At the end of June 2021, the AFC Iraq Fund was invested in 14 names and held 8.9% 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 (88.7%), Norway (1.8%), and the UK (0.6%). The sectors with the largest allocation of assets were financials (52.0%) and consumer staples (17.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.48x, the estimated weighted harmonic average P/B ratio was 0.85x, and the estimated weighted average portfolio dividend yield was 4.94%.

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AFC Asia Frontier Fund - Manager Comment



The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 1.6% in June 2021 with a NAV of USD 1,510.00. The fund outperformed the AFC Frontier Asia Adjusted Index (-1.0%) and the MSCI World Net Total Return USD Index (+1.5%) but underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+4.5%) and the MSCI Frontier Markets Net Total Return USD Index (+2.7%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +51.0% versus the AFC Frontier Asia Adjusted Index, which is up by +33.8% during the same period. The fund’s annualized performance since inception is +4.6%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.6% 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.

The second quarter of 2021 ended with another monthly gain for the AFC Asia Frontier Fund, making it five quarters in a row of positive performance. The main positive contributors to June 2021 performance were Iraq, Vietnam, Pakistan, and Kazakhstan, while Mongolia was a detractor this month after a powerful run so far in 2021.



(Source: Asia Frontier Capital)


In Kazakhstan, the fund’s fintech/ecommerce holding Kaspi gained another +15.6% this month, and it continues to outperform all other major fintech/ecommerce related names in the frontier and emerging markets universe as the company is already highly profitable and boosting profits further through its “Kaspi Super App”.



(Source: Bloomberg, % change in prices from 31st December 2020 – 30th June 2021)


Vietnam’s 2Q21 GDP growth came in strongly at +6.6% reflecting the post-pandemic economic recovery taking place in the country, led primarily by the manufacturing sector. The recent upsurge in COVID-19 cases in Ho Chi Minh City though could soften economic output in the third quarter. However, this does not derail the structural economic growth story of Vietnam and any stock market weakness in reaction to rising COVID-19 case numbers will be an opportunity to accumulate high quality names. The fund’s Vietnamese holdings saw an all-round positive performance in June, led by the +6.1% gain in the VN-Index.



(Source: Bloomberg, SSI Securities)


The fund’s transportation holding in Vietnam, Petrovietnam Transportation (PVT), continued to make gains this month. PVT transports the bulk of Vietnam’s crude oil, petroleum products and liquified petroleum gas (LPG), and besides its near-monopoly position in transporting these products, it is also benefiting from higher international freight rates. The stock has outperformed the VN-Index by a large margin in 2021 and also since the bottom of March 2020. The fund has been invested in this company since early 2017 and reflects the long-term view we take on the companies we invest in to let the “story” play out. Valuations for PVT are still not stretched with a trailing twelve months P/E ratio of 9.1x while on a trailing twelve months price/cash from operations basis it trades at only 4.1x.


The fund’s Vietnamese transportation holding – Petrovietnam Transportation (PVT) performance v/s the VN-Index since 31st March 2020

(Source: Bloomberg, % change in prices from 31st March 2020 – 30th June 2021)


Though the KSE-100 Index had a soft month after a very robust performance in May 2021, the fund’s Pakistani holdings outperformed the KSE-100 Index by gaining +2.1% in USD terms, mainly due to a 17% gain in Pak Suzuki (PSMC) which is expected to witness significant benefits from the duty and tax cuts for a specific category of passenger cars announced in the budget which took place on 11th June.

Passenger cars with an engine capacity of less than 1,000cc will now attract lower duties and taxes, which will reduce selling prices by 7%, making these products more affordable, and this move plays well into PSMC’s strategy as its main focus is on passenger cars in the compact and sub-compact segment with passenger cars with an engine capacity of less than 1,000cc accounting for 86% of its sales. The Pakistani passenger car industry in general holds a lot of promise as annual sales of around 150,000 units is significantly below regional countries with similar population levels and demographics. Despite a strong run, PSMC is valued very attractively at a P/E ratio of 9.0x its estimated 2021 earnings compared to 35.0x for Maruti Suzuki in India.


The fund’s Pakistani auto holding - Pak Suzuki (PSMC) performance v/s KSE-100 Index since 31st December 2020

(Source: Bloomberg, % change in prices from 31st December 2020 – 30th June 2021)



(Source: International Organisation of Motor Vehicle Manufacturers)


The other major positive to be announced in the budget was the cut in capital gains tax for listed equity investments from 15.0% to 12.5%, which should help in attracting more domestic investors into the stock market, especially when domestic interest rates are at the current low levels.

MSCI announced that it could potentially downgrade Pakistan from the MSCI Emerging Markets Index back into the MSCI Frontier Markets Index and if this does happen, it could attract more investor attention towards Pakistan since the country will have a higher weight in the MSCI Frontier Markets Index compared to its current miniscule weight of 0.02% in the MSCI Emerging Markets Index. Either way, it does not matter to us which index Pakistan is a part of as it will always be a part of our investment universe since it has one of the most under-appreciated and undiscovered consumer stories while valuations are still extremely attractive with a trailing twelve months P/E ratio of only 6.6x for the KSE-100 Index.

Speaking of the under-appreciated consumer story in Pakistan, Coca Cola Icecek, listed in Turkey and which the fund holds, announced a further expansion of its Pakistani operations with plans to set up its 7th bottling plant in the country. Pakistan is one of Coca-Cola’s Icecek’s fastest-growing markets in the region, with first quarter 2021 volumes growing by 41%.

Bangladesh also saw the announcement of its annual budget in June, with a key positive being the reduction of corporate income tax rates for listed companies from 25% to 22.5%, except for listed companies in the banking, telecom, and tobacco sectors where corporate tax rates will remain unchanged. This reduction in tax rates will be positive for earnings for a majority of the fund’s Bangladeshi holdings except for one holding in a bank and a tobacco company respectively.

More importantly, the Bangladeshi government continues to promote domestic manufacturing in a big way as the budget announced very favourable tax incentives for automobile and consumer durable manufacturing while continuing with the current tax incentives for domestic smartphone assembly. These incentives have already attracted the likes of Honda, Yamaha, and Samsung to begin local manufacturing operations in Bangladesh in the last few years. The fund owns a commercial vehicle assembler (IFAD Autos) and a consumer durable goods producer (Singer Bangladesh) which can benefit from these tax incentives.

These policies are essential steps being taken by the government to reduce the country’s dependence on garment manufacturing and will continue to build on the country’s macro-economic strength, with foreign exchange reserves reaching an all-time high of USD 46 billion. Bangladesh continues to stand apart its South Asian peers in terms of macro stability despite the economic impact of the pandemic.


Honda motorcycle factory in Bangladesh – government policies are attracting greater manufacturing sector investment



The best performing indexes in the AAFF universe in June were Vietnam (+6.1%) and Sri Lanka (+5.9%). The poorest performing markets were Cambodia (−15.5%) and Mongolia (-3.7%). The top-performing portfolio stocks this month were a Sri Lankan food and beverage company (+21.8%), a Pakistani automotive battery manufacturer (+21.0%), a Mongolian technology company (+20.9%), a Pakistani automobile assembler (+17.2%) and a Vietnamese transportation company (+16.3%).

In June, the fund added to existing positions in Mongolia and Vietnam and reduced some positions in Mongolia and Vietnam. 

At the end of June 2021, the portfolio was invested in 75 companies, 2 funds and held 3.2% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.6%) and pharmaceutical company in Bangladesh (3.9%). The countries with the largest asset allocation were Mongolia (19.9%), Uzbekistan (15.3%), and Vietnam (14.2%). The sectors with the largest allocation of assets were consumer goods (28.2%) and industrials (12.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.21x, the estimated weighted harmonic average P/B ratio was 1.05x and the estimated weighted average portfolio dividend yield was 3.28%.

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AFC Uzbekistan Fund - Manager Comment


The AFC Uzbekistan Fund Class F shares returned +0.6% in June with a NAV of USD 1,991.34, a new all-time high, bringing the return since inception (29th March 2019) to +99.1%, while the year-to-date return stands at +48.5%. On an annualized basis, the fund returned +35.7% p.a. with a Sharpe ratio of 2.28.

AFC Uzbekistan Fund valuations as of 30th June 2021:

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


Estimated weighted harmonic average P/B:


Estimated weighted portfolio dividend yield:



Market Update

The annual general meeting (AGM) season concluded in June with no big surprises. The majority of our portfolio companies continue to execute and experience strong growth. Thus, the next catalyst for our portfolio companies will be second quarter earnings results, expected to be published over the next forty-five days or so.

During the month I had the opportunity to meet two companies that are planning eventual IPO’s. It is too early to delve into each of them as we will see what ultimately happens as plans could change, but if I am reading the tea leaves correctly, they could be eventual dual listings, most likely in Tashkent and London and each valued at roughly USD 1 bln+. Uzbekistan’s private sector companies have significant growth potential. We are optimistic that in the not-too-distant future we will see a growing number of IPO prospects as the need to raise capital through equity increases amid the underlying sustained strength in the economy and robust growth across industries.

Also, during the month of June the European Bank for Reconstruction and Development (EBRD) announced 2021 and 2022 GDP growth estimates for Uzbekistan of 5.6% and 6% respectively, while it estimates broader Central Asian GDP growth of 4.5% during both years. The underlying strength in the region’s growth is no doubt commodities-based as the region boasts world-class deposits of oil and gas, uranium, copper, gold, and silver, among many other commodities. On this note, Uzbekistan entered the top 10 countries in gold production. In 2020 Uzbekistan produced 101.6 tons of gold, making it the 8th largest gold producer in the world, advancing ahead of Mexico and Indonesia. With the eventual IPO of the state-owned gold company, Navoi Mining & Metallurgical Kombinat, which owns the world’s largest open-pit gold mine, Muruntau, gold production is likely to continue increasing, further stabilizing the Uzbek Som and helping to maintain a strong balance sheet for the country.

On the precipice of a consumption boom?

With rising commodity prices and strong domestic growth due to the growing manufacturing and agricultural sectors and eventual cheaper domestic financing, our feeling is that the rising demand for goods, services and subsequent labour (leading to more livable wages) puts Uzbekistan on the precipice of a consumption boom which will see the demand for steel, cement, chemicals and fertilizers, consumer goods, and consumables accelerate markedly.

During the final week of June, I flew to the Fergana Valley to attend several AGM’s. The Fergana Valley is located in the east of Uzbekistan and home to the majority of the country’s population. Spending the night in the city of Fergana, officially home to approximately 230,000, but likely closer to 500,000 people, I was pleasantly surprised by just how liveable the city is. Relative to Tashkent, the streets are quieter and there is less pollution. The infrastructure is great (Wi-Fi needs improvement but is much better than my last trip to the Valley in 2019) and with Fergana being one of the industrial centres for the region, the rising consumption trends are noticeable. I was told by my taxi driver that only two weeks ago, Fergana’s first Korzinka (the nation’s largest grocery store chain) opened its flagship store in the city. While most shopping is still done at bazaars, the eventual transition to supermarket shopping is likely not far afoot. Further, KFC is planning a push into the region this year, and with only one shopping mall in Fergana, as others open, no doubt many of the major food and beverage and clothing chains in Tashkent will expand into Fergana. This will likely be in relative alignment with more factories opening up in the city, specifically in textiles and pharmaceuticals, which will hopefully lead to strong direct and indirect employment opportunities, thus creating sustained demand for many of the goods the fund’s portfolio companies manufacture and distribute.


Fergana's Central Park at Dusk

(Source: AFC Research)


At the end of June 2021, the fund was invested in 27 names and held 17.6% in cash. The markets with the largest asset allocation were Uzbekistan (82.0%) and Kyrgyzstan (0.4%). The sectors with the largest allocation of assets were materials (52.9%) and financials (12.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.98x, the estimated weighted harmonic average P/B ratio was 1.44x, and the estimated weighted average portfolio dividend yield was 8.08%.

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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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