ASF header

Asia Frontier Capital (AFC) - March 2021 Update


"In business, words are words; explanations are explanations, promises are promises, but only performance is reality. ” - Harold S.


"In business, words are words; explanations are explanations, 
promises are promises, but only performance is reality.

- Harold S. Geneen, prominent American businessman


AFC Asia Frontier Fund USD A1,422.91+1.3%+6.3%+42.3%
AFC Frontier Asia Adjusted Index2 +0.3%+5.8%+24.2%
AFC Iraq Fund USD D670.10+4.7%+18.5%−33.0%
Rabee RSISX Index (in USD) +2.3%+16.7%−47.6%
AFC Uzbekistan Fund USD F1,645.48+7.0%+22.7%+64.5%
Tashkent Stock Exchange Index (in USD) 44.8%+23.5%+3.2%
AFC Vietnam Fund USD C2,596.96+5.8%+13.7%+159.7%
Ho Chi Minh City VN Index (in USD) +1.7%+8.0%+114.2%
  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.

A positive end to the quarter for AFC Funds

It was another positive month for all AFC funds with returns being led by our AFC Uzbekistan Fund, which marked its second anniversary this month. The fund has delivered an exceptional annualised performance of +28.2% p.a. since inception and has seen a great amount of investor interest. The AFC Vietnam Fund and AFC Iraq Fund continued their good run with returns of +5.8% and +4.7%, respectively. Our AFC Asia Frontier Fund also celebrated its nine-year anniversary with a monthly gain of +1.3%, leading to the fourth consecutive quarter of positive returns. Furthermore, Asian frontier markets in general had a good quarter with most of them outperforming other larger markets and indices.



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


March 2021 marks the inception anniversaries of our flagship AFC Asia Frontier Fund and our newest fund, the AFC Uzbekistan Fund.

The AFC Uzbekistan Fund was launched on the 29th of March 2019 and has already shown an impressive performance with a total return of +64.5% over two years, and 22.7% YTD. The fund has received significant interest from investors worldwide which has brought the AUM of the fund to USD 11 mln at the end of March 2021, up from USD 2 mln at launch. You can read more about the fund in the AFC Uzbekistan Fund Manager Comment below.

The AFC Asia Frontier Fund celebrated its nine-year anniversary this month with a monthly performance of +1.3%, bringing its YTD return to +6.3% and the 12-month return to an impressive +39.5%. The fund provides diversified exposure to Asian frontier markets, a region which is expected to post superior long term GDP growth rates, has a large untapped consumer market and is also benefitting from the manufacturing shift into lower cost locations. You can read more about this month’s performance in the AFC Asia Frontier Fund Manager Comment as well as view the fund’s 1Q21 update presentation using the link below.

AFC Asia Frontier Fund 1Q21 Update Presentation

The AFC Vietnam Fund was recognized once again by BarclayHedge, this time for its February 2021 performance. The fund was awarded 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.



Below are the manager comments relating to each of our four funds for the month of March 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 +7.0% in March with a NAV of USD 1,645.48, a new all-time high, bringing the return since inception (29th March 2019) to +64.5%, while the year-to-date return stands at +22.7%. On an annualized basis, the fund returned +28.2% with a Sharpe ratio of 1.90.

March 2021 marks the second anniversary of the launch of the AFC Uzbekistan Fund on 29th March 2019. The fund launched with assets under management of USD 2 mln and ends its second year with USD 11 mln.

March saw a continuation of the broad, multi-month rally across the majority of the fund’s portfolio companies as the equity re-rating on the Tashkent Stock Exchange continues apace, backed by continued inflows of new investor capital from both locals and foreigners.

Capital Markets Update

New market participants continue to wake up to the reality that we have been beating the proverbial drum about for the past three years, even before the launch of the AFC Uzbekistan Fund, specifically that Uzbekistan is uniquely positioned with a strong balance sheet, low debt, young and entrepreneurial population of 34 mln, diverse economy, and strategic geographical location at the heart of Central Asia. Unsurprisingly, the listed equity market continues to attract more local and foreign investor attention due to the continued rare combination of deep value and strong growth on offer these days.

Upon AFC's entry into Uzbekistan in mid-2018 (first through the AFC Asia Frontier Fund), the AFC Uzbekistan Fund acted as the first substantial new money to enter the equity market in nearly a decade, providing liquidity to desperate sellers who were anxious to sell their shares to the fund at gift-giving prices!

One such example, and certainly not the exception, is the Uzbek Commodity Exchange (TSE:URTS). URTS is the local equivalent of the NYMEX, COMEX and LME rolled into one, and is the fund’s third largest holding with a current weighting of about 14%.

Over the past several years, the government has required an increasing number of commodities to be traded through the exchange to promote efficiency, and more importantly transparency, in a bid to stem corruption. Cement, plastics, timber, rebar, etc. are all traded through the exchange. URTS also has a platform for government procurement where tenders for services and equipment are listed, as well as platforms for car license plates and mobile phone numbers (the latter two platforms experience strong demand as auspicious license plates and mobile phone numbers are associated with “social status” in Uzbekistan, as is the case in many Asian countries). The government’s push to increase the number of items traded through the exchange as well as the growing demand for commodities has led URTS to continue to grow strongly.

Putting the URTS opportunity into perspective from when the AFC Uzbekistan Fund was launched relative to today, the fund’s initial purchase of URTS shares was at a split-adjusted UZS 2,000 per share (the average price of our position is modestly higher). The share price as of 31st March 2021 is UZS 12,000 per share. Dividends per share for fiscal years 2018, 2019 and 2020 were UZS 550, UZS 830, and UZS 1,100 respectively. Thus, combined dividends per share over these three years total UZS 2,480, while the share price is up 500%.



(Source: Tashkent Stock Exchange, AFC Research)


This is the type of incredibly deep value early investors in the AFC Uzbekistan Fund have benefitted from. While the market has begun to more rapidly re-rate over the past several months, we still see plenty of long-term value throughout the market and continue to believe we remain in the early innings of a multi-year bull market as Uzbekistan remains largely undiscovered by international investors. Further, amid the turmoil of COVID-19 and likely future volatility in global markets, Uzbekistan is benefitting from its “frontier” status as it’s not yet highly integrated into the global economy. This means external economic shocks have but a minimal effect on the country and it should increasingly attract foreign capital as a safe haven for investors seeking growth and stability.

Back to URTS, based on unaudited 2020 financials, as of 31st March 2021, URTS trades at a P/E ratio of 9.49x, P/B of 5.52x and a dividend yield of 9.17% - still cheap in our eyes as the company experienced YoY earnings growth of 16% and return on equity of 24%.

The market capitalization of the Tashkent Stock Exchange has also grown, 21% since 2019, from USD 4.94 bln to USD 6 bln on 31st March 2021. As the onramps for investors to open accounts and become active in the market, specifically foreign investors, becomes easier and liquidity of listed companies increases as the privatization process advances, it’s likely that the re-rating of the broader market and deeper investor base will encourage a wave of private company IPOs, which will transform the capital markets. AFC has witnessed this in Mongolia over the past decade, for in 2012, most of the listed companies were formerly state-owned enterprises. However, since 2015 there has been a mini-IPO boom with 12 IPOs, in addition to several reverse takeovers of listed shell companies.



(Source: Tashkent Stock Exchange, AFC Research)


Tashkent Stock Exchange Index Update

As discussed last month, the Uzbekistan Composite Index (UCI) soared by 109% in February due to insurance provider Universal Sug'urta's (TSE:UNSU) share price rising 199,999% from 23rd December 2020 to 28th February 2021, highly likely a result of share price manipulation. Therefore, it was not a surprise to see UNSU's share price collapse -84% during March (from UZS 20 to UZS 3.25), leading the UCI to fall -45% (from 1,443 to 793).


The economic events of the past year were rather muted as the majority of the news was naturally around COVID-19. The government did a superb job of handling the initial panic of the virus overall. Uzbekistan enacted two approximately one-month-long lockdowns, one in March and the other in July 2020.

The first lockdown was strict with a stay-at-home order and private cars banned from the road. Following this strict period, we believe the Uzbek government took a turn toward thinking more rationally and independently, realizing that through a strict lockdown they might be able to mitigate the spread of the virus, but would destroy the economy in the process, the latter of which many Western countries are doing with unfortunate pinpoint accuracy.

Therefore, the second lockdown was centred around limiting the movement of citizens while attempting not to hinder economic activity. This meant private cars were this time not barred from the road during the mornings and evenings (effectively allowing people to get to work until 10am and return home after 5pm). As this occurred during the summertime, schools were closed, but factories, construction sites, and cafes were all open and operating normally without any restrictions.

Following the second lockdown, during the autumn school semester, many schools began operating in-person classes again, and for the most part, the population stopped wearing masks, while quarantine facilities and emergency hospitals closed. Conversation and media coverage has returned to topics around the economy, politics and social news as movie theatres are open, concerts are happening regularly, and the recent Tashkent Marathon was even held on 28th March 2021.


The government has been working aggressively to privatize hundreds of state assets. Though things have been moving ahead slowly due to a variety of challenges, largely around the scale of the President’s privatization agenda and the valuation metrics being used to price assets for sale.

On 12th May 2020, President Mirziyoyev signed a decree, “On the Strategy for Reforming the Banking System of the Republic of Uzbekistan for 2020-2025,” which is intended as a roadmap for the continued liberalization and privatization within the sector. The main aspects of the decree included:

    Increasing the share of private bank’s assets in the sector from 15% to 60%; 
    Increasing the total share of bank debt to private clients from 28% to 70%; 
    Attracting foreign strategic investors for at least three state-owned banks; 
    Increasing the share of non-bank lending from 0.35% to 4% of total loans. 

Six state-owned banks are slated for privatization, including Ipoteka Bank (TSE:IPTB), with 90% state ownership, SQBN (TSE:SQBN), with 90% state ownership, Aloka Bank (TSE:ALKB), with 100% state ownership, Qizhlok Qurilish Bank (TSE:KKBN), with 80% state ownership, Turon Bank (TSE:TNBN), with 97% state ownership, and Asaka Bank, with 100% state ownership. Meanwhile, the National Bank of Uzbekistan, Microcredit Bank (TSE:MCBA), and Agro Bank (TSE:AGBA) will not be privatized.  

A rumoured piece of legislation that may be announced this year could see an increase in the minimum paid-up capital of banks from UZS 100 bln (USD 9.5 mln) to UZS 500 bln (USD 48 mln) by 2025, to further strengthen the sector.

Further, at the beginning of March 2021, the government published a list of publicly listed companies slated for full privatization, including the largest consumer goods conglomerate in Uzbekistan, Toshkent Vino (TSE:TKVK), construction and bottle glass producer, Kvarts (TSE:KVTS), and industrial fabrication company, Qo'qon Mexanika (TSE:KUMZ), all three of which the fund holds.


One of the biggest challenges hindering competition in the Uzbek market has been the dominant presence of monopolies, specifically state-owned monopolies. To address this elephant in the room, during March 2021 a presidential decree was signed regarding the liberalization of the commodities markets and their de-monopolization, specifically stating that:

From 15th June 2021, state monopolies with greater than 50% direct or indirect state ownership will lose their monopolies. This applies to monopolies in the PVC, ethanol, and silver industries.

From 1st January 2022, non-monopolist companies or companies with less than 50% state-ownership in the cement, cotton and related by-products, and oil and gas condensate industries will no longer have price control protections, instead having their prices regulated by the market forces of supply and demand. Further yet, logistics providers which served monopolies will lose their exclusivity and will have to compete for tenders based on price and service.

Of notable interest in the decree is the planned establishment of commodity futures and derivatives trading on URTS’ exchange platform. Settlement procedures will be enhanced, enabling traders to have foreign bank accounts in order to trade with regional commodity exchanges in other countries. This will provide another long-term bullish catalyst for URTS.

Looking forward

We continue to see opportunities abound in Uzbekistan over the next several years as the economy undergoes continued liberalization and maturation, which in time should drive the capital markets into a more pronounced phase of development, on the back of accelerated state privatizations and future private sector IPOs.

While COVID-19 has slowed the attraction of investors to Uzbekistan, it will not deter them, specifically the Chinese. The Shanghai Cooperation International Summit is planned to be held in Samarkand in 2022, with a reported 20 heads of state expected to attend. Uzbekistan’s location at the heart of Central Asia makes it a natural logistics hub, while it is also the country with the largest consumption potential due to it having the largest population in Central Asia. We anticipate that after the summit significant Chinese investment will pour into the country, spurring a likely prolonged period of “caffeinated” economic growth.

On the subject of caffeine and increasing investment in Uzbekistan, the country will see the grand opening of Starbucks’ flagship store in central Tashkent in 2022. Located on Taras Shevchenko, one of several “high streets” in the city, Starbucks will open in a recently renovated commercial building and be yet another global brand to enter the highly underserved consumer market that will surely attract dozens more foreign brands over the coming years as investors increasingly discover the untapped potential of Uzbekistan.


The planned location for Uzbekistan’s flagship Starbucks Coffee

(Source: AFC Research)


At the end of March 2021, the fund was invested in 28 names and held 14.0% in cash. The markets with the largest asset allocation were Uzbekistan (85.3%) and Kyrgyzstan (0.7%). The sectors with the largest allocation of assets were materials (53.3%) and consumer staples (13.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.45x, the estimated weighted harmonic average P/B ratio was 1.26x, and the estimated weighted average portfolio dividend yield was 7.46%.

 Back To Top 



AFC Vietnam Fund - Manager Comment



The AFC Vietnam Fund rose by 5.8% in March with a NAV of USD 2,596.96, a new all-time high NAV, bringing the year-to-date return to +13.7% and the return since inception to +159.7%. This represents an annualized return of +14.0% p.a. since inception. The Ho Chi Minh City VN Index in USD gained 1.7% in March 2021 and this index is just shy of its all-time high of 1,211.34, in VND terms, reached on 9th April 2018. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.80%, a Sharpe ratio of 0.95, and a low correlation of the fund versus the MSCI World Index USD of 0.55, all based on monthly observations since inception.

Market Developments

The index tested its old high before retreating on profit taking. A breakout is in reach, but good things come to those who wait!



(VN-Index, 2000-2021; Source: Viet Capital Securities)


It has now been roughly three years since the index reached its all-time high of 1,211.34, while in comparison, the S&P 500 rose 50% over the same period. At the end of 2017, Vietnam’s GDP was USD 223.8 bln, compared to USD 269.5 bln in 2020, an increase of 20%; company profits are much higher than in 2017 and other economic indicators improved significantly as well - total exports for example have risen from USD 213.8 bln to USD 281.5 bln, an improvement of 32%. We even saw almost the same index level in 2007, when neither the Vietnamese stock market nor the economy were in any way comparable to the present. It is no surprise to see some profit taking at old highs, but a breakout into uncharted territory seems to be just a question of time. At current valuations, and with economic and profit dynamics continuously positive, we see tremendous further potential for the index in general and our portfolio in particular over the next few years.

We register continued outperformance of small- and mid-cap stocks as can be seen from the advance/decline ratio in Hanoi where the majority of smaller companies are listed, which should bring back more confidence to local speculators once a breakout in the main index occurs. This might happen as soon as foreign selling subsides as it has continued to hold back the upward trend. Foreigners continued to be net sellers throughout March on the HSX!



(Foreign trading activity, January-March 2021; Source: Vietstock)


Why is the banking sector in Vietnam attractive?

Currently, only around 30% of Vietnamese adults have bank accounts and hence the government has made modernising the nation's payments industry a top priority. The government is therefore actively promoting e-commerce, directing banks to reduce cash transactions as they target at least 70% of Vietnamese over the age of 15 to have a bank account in the near future. The banking sector has the largest index weighting with 25.8%, (USD 49.9 bln) on the Ho Chi Minh City Stock Exchange.


Banking sector leads weighting on the Ho Chi Minh Stock Exchange

(Source: HSX, AFC Research)


The banking sector in Vietnam also stands out in terms of financial performance compared to other ASEAN markets such as Indonesia, Malaysia, Philippines, Singapore or Thailand. 

Profitability – high ROE

Compared to other countries, the Vietnamese banking sector shows a much higher Return on Equity (ROE) than in other countries.



The Vietnamese banking sector generates an ROE of more than 18% compared to just 13% in Indonesia, 10% in Singapore, 9% in Malaysia, 8% in Thailand and 7% in the Philippines. Higher ROE usually also translates into higher valuations, and therefore we believe Vietnamese banks deserve higher stock prices.



Over the last three months, the Vietnamese banks have reported impressive stock price performance, averaging 30%. This is compared to 22% in Thailand, 7% in Indonesia, and 6% in the Philippines, Malaysia and Singapore. Foreign investors always paid close attention to the Vietnamese banking sector and were willing to pay a premium to market price for shares since most of the listed banks had full foreign ownership, meaning they needed to buy out other foreign investors who would sell at a premium to the market price.

Strong economic recovery and growth 

Vietnam was one of the few countries which successfully contained the COVID-19 pandemic from the beginning of the outbreak and was able to post positive GDP growth of +2.9% in 2020. According to many forecasts, GDP growth in Vietnam is expected to reach around 7% - 8.5% in 2021.



Vietnamese banks play an important role in stimulating the economy. For example, the Vietnamese government requested banks to cut their interest rates at the beginning of the pandemic. The government also issued various policies to provide support to COVID-19 affected businesses which helped to substantially reduce the number of bankruptcies. All of these measures had a positive impact on NPL (non-performing loan) ratios of the various banks, especially when compared to other countries in the region.

Improving net interest margin

In the last 12 months, the 1-year deposit rate in Vietnam has fallen from around 10% to around 5%. Due to a reduction in interest rates, financial markets and the real economy have been stimulated. This also had a huge positive impact on banks, which were able to increase credit growth and at the same time increase their net interest margins. Most Vietnamese banks define their lending rate as their cost of capital, plus they add on their fixed costs and at least another 2% margin.



Long term outlook 

The Vietnamese banking sector has a huge long-term growth potential given that around 70% of the adult population still does not have a bank account yet. Additionally, only around 4% of the population has credit cards. With 87% of the population under the age of 54, there is a great opportunity for the development of retail banking activity in Vietnam.


% of population above 15 years age with a bank account

(Source: World Bank 2017, AFC Research)


The Vietnamese banking sector still lags far behind most ASEAN countries and hence we see huge long-term growth potential. Many banks in Vietnam have already invested strongly into online mobile banking solutions in order to meet growing demand for digital banking.


Mobile Internet Usage

(Source: Globalwebindex, Hootsuite, AFC Research)



We believe that Vietnamese banks are still undervalued compared to other banks in the region, given that they are generating much higher returns and stronger growth. According to Bloomberg, the banks in Vietnam are trading at a PER of just 11x, compared to 12x in Thailand, 15x in Singapore, 15x in Malaysia, 15x in the Philippines and 31x in Indonesia. 

In our portfolio, we currently hold 4 banks in our top 10 holdings (“AFC banks”), and all of them are undervalued compared to the index and the banking sectors of other countries in terms of PER (Price Earnings Ratio).


Banking PER Valuation Comparison

(Source: HOSE, Bloomberg, AFC Research)


Climate Risk

Vietnam is one of the most vulnerable countries from a climate change perspective. Extreme weather events globally are becoming more frequent and intensifying. Rising sea levels are threatening important economic zones in coastal areas and potentially displacing millions of Vietnamese people. Vietnam, with around 60,000 deaths related to air pollution, was rated to have the second worse air pollution in Southeast Asia in 2019, behind Indonesia.

Everybody can still remember the pictures from China’s heavily polluted cities which were widely broadcast during the 2008 summer Olympics in Beijing. Even worse, many of us living in Asia still experience the consequences of the reckless air pollution on a daily basis, by just stepping out of the door from the – hopefully filtered – air inside of our homes and offices.


Sunny day in Hanoi?

(Source: Tuoi Tre News)


The government, the population, foreign and local companies, as well as foreign and local investors all want the same: high growth in FDI (foreign direct investments), high growth in production and high growth in profits. That this wish list comes with one consequence called pollution must be pretty clear to everyone, and as with any other emerging economy, specific actions to battle the deadly smog in the country are not a priority for decision makers unless they become too obvious to ignore. Only recently has the government began taking more proactive measures in an attempt to reduce or at least limit the growth in pollution before “Chinese levels” become the norm. 

Currently, Vietnam is the 19th biggest polluter globally in terms of CO2 emissions. If not alarming enough, Vietnam shows the highest growth rate since 2011 of the top 20 polluters, with even China stabilizing their CO2 output over the past few years, while developed countries already reduced their emissions.


Top-20 Polluters

(Source: Knoema)


The main reason for this unfortunate “leadership” is Vietnam being one of the fastest growing countries in the world in recent years. The hunger from the Vietnamese people to climb the wealth-ladder along with being one of the world’s most important manufacturing hubs has naturally translated into rising CO2 emissions. Despite the huge growth in absolute pollution levels, the CO2 emissions measured per capita are still far behind the other top 20 polluting countries, which unfortunately leaves much further room to grow. 


Fossil CO2 Emissions per Papita [Tons CO2 per Capita]

(Source: Knoema, AFC research)


A new government-backed environmental protection law which will create an emission trading scheme, set to take effect on 1st January 2022, is just one of many steps required. With Vietnam becoming the first developing country to adopt carbon pricing to fight the increasing pollution in the country, this is expected to strengthen Vietnam’s commitment to greenhouse gas emission reductions under the Paris Agreement on climate change and should improve Vietnam’s image internationally. 

International pressure

Other than government decisions, there is also growing pressure on international companies to reduce investments in environmentally unfriendly projects. Just recently, Mitsubishi Corp has decided to pull out of the 2-GigaWatt Vinh Tan 3 coal power plant in Vietnam where operations were due to start around 2024, as it shifts away from carbon intensive businesses in the face of climate change. Mitsubishi’s move to exit the estimated USD 2 bln project shows how willing Japanese companies and financiers are to drop their once strong support for coal, under pressure from shareholders and activists. In the short term, those dropped business activities will be simply picked up by other companies, namely by Chinese and others, but for the long term a clear trend to more sustainable investments is visible. Japan’s big banks regularly topped lending league tables for coal mines and power stations. But, in a little over a year they have committed to end their financing for the dirtiest fossil fuel, albeit over decades.

The snag of high growth

The Institute of Energy has calculated that commercial electricity will reach 491 bln kWh by 2030, and 877 bln kWh by 2045. By 2030, the total installed capacity of Vietnam's electricity sources is predicted to reach 137.2 GW (comprised of renewable energy at 29%, coal-fired power at 27%, gas thermal power at 21%, hydroelectricity at 18%, imported energy about at 4%, pumped hydroelectricity and other energy storage devices at ~1%).  Vietnam plans to ramp up solar and wind power generation capacity to boost the share of renewables in its power mix to 15% - 20% by 2030, and to 25% - 30% by 2045, from 10% at present. 


Estimated 2030 Electricity Production

(Source: Ministry of industry and trade, AFC Research)


In other words, Vietnam has to admit that even with expected very high growth in renewables, conventional fossil fuelled electricity production will increase in tandem to keep up with electricity demand. Nuclear power has therefore been one option the government has long considered for the very long term, whatever stance one might have into this source of clean and near carbon-free energy. Another important way to ensure the growing demand is met is by “outsourcing” production (and pollution!), with the establishment of transmission and distribution grid links with China, Laos and Cambodia in order to maximize each country’s energy potential. Those prioritized projects will reduce the environmental impact compared to domestic production, which in a global context is of course questionable, to say the least.

Further solutions also include the proportion of gas-fired power rising from 15% in 2020 to 21% - 23% by 2030, while decreasing the coal-fired thermopower proportion gradually from 34% in 2020 to 27% by 2030. The Ministry of Investment and Trade wants to strongly develop gas-fired power with capacity increasing from 7GW in 2020 to 13.5GW by 2025 and 28-33GW by 2030. 

Overall, the total investment capital for electricity development in the period 2021-2030 is roughly USD 128 bln, of which around 75% is for power sources and 25% for grid expansion.


By the end of 2020, the total operable solar power capacity (including floating solar energy systems) was about 17 GW, concentrated in the southern provinces and the central highlands. Transmission grids are inadequate, especially in Ninh Thuan and Binh Thuan provinces, to accommodate the increasing number of solar power projects with faster than ever construction times as a result of advanced technology. Consequently, most projects that have come into operation in such localities are being subjected to a daily decrease in generating capacity to avoid overloading the regional grid and are therefore highly inefficient.

Hydropower production is at similar levels of around 18 GW installed, but much further expansion is harder to accomplish with the country’s small hydropower potential (less than 30 MW) which is only about 10 GW and poses a significant and long-lasting threat to the environment as entire ecosystems are flooded. Thus, many proposed hydro projects have been rejected for this reason. 

The total capacity of wind power put into operation by the end of 2020 is only about 600 MW, much less than the total wind power capacity approved which has reached 12 GW. By 2021, the remaining projects are expected to come into operation mainly in the southwest and south-central regions. The strongest growth over the coming years will therefore come from wind power where the capacity would rise from 600 MW in 2020 to the already approved 12 GW by 2025 and 18-19 GW by 2030. Wind power will account for 11% of total installed capacity by 2025 and rise to 13% by 2030.

As for solar power, capacity will increase from 17 GW in 2020-2025 to 19-20 GW by 2030, with solar power representing 17% of total installed electricity generation capacity by 2025, falling back to 14% by 2030.

Further plans see a strong push for wind and solar development in the in 2031-2045 period, accounting for a total of 42% of installed generation capacity nationwide by 2045.

Vietnam and Southeast Asia

Many countries are trying to outsource their energy and environmental issues by investing in other, usually low income countries to secure their energy needs. China is the best example by doing this around the region, but Thailand and Vietnam are also investing in Laotian hydropower projects, receiving cheap and (for their country) carbon-light electricity for decades (usually around 30 years) and handing over the power plant to the producing country towards the end of the expected lifespan. Is that an example of how to improve “sustainable development” rankings?



(Source: Bain & Company)


It is expected that Southeast Asian economies could experience up to USD 1 trn in annual economic opportunities by 2030, if governments, companies, and investors see what kind of threats lie in the structure of the growth we have seen in past decades, and which opportunities will arise from new technologies and a change in people’s mindsets. The latter is unfortunately the least developed in emerging countries like Vietnam and must be addressed strongly and timely from governments if a more sustainable environment for future generations in this very populated and growing region should be achieved. 

At the end of March 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.2%) – an insurance company, LienViet Post Joint Stock Commercial Bank (5.0%) – a bank, Vietnam Prosperity JSC Bank (4.2%) – a bank, Phu Tai JSC (4.1%) – a home and office furnishings company, and VNDirect Securities Corp (3.9%) – an online brokerage firm.

The portfolio was invested in 42 names and held 1.8% in cash. The sectors with the largest allocation of assets were consumer (35.3%) and financials (34.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.48x, the estimated weighted harmonic average P/B ratio was 1.52x, and the estimated weighted average portfolio dividend yield was 4.77%.

 Back To Top 




The AFC Iraq Fund Class D shares returned +4.7% in March with a NAV of USD 670.10, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 2.3% during the month. The fund is up 18.5% year to date versus 16.7% for the index. Since inception, the fund lost 33.0% while the RSISUSD index is down 47.6%.

The market’s 2.3% month-end gain masks a gain of 11.0% by mid-month which would have taken it to a year-to-date gain of 26.7%, before sellers came into the market in a spout of profit taking. However, the passage of the delayed 2021 budget on 1st April seems to have reignited the rally with the index up 6.9% over the following two days in response to the budget’s expansionary spending plans ahead of early elections planned in October.

March saw a continuation and the sustainability of the same positive trends that drove the index’s strong performance in February. Average daily turnover, excluding block transactions, continued the monthly increase – up 7% on the back of February’s 189% increase over January, and up 135% over the average of the prior 12 months (first chart below). Foreign buying, both in absolute terms and as a percentage of total buying, continued along the same lines as in February and was accompanied by continued declines in foreign selling, both in absolute terms and as a percentage of total selling (second chart below).

It is somewhat early to draw too many conclusions from such positive trends from two months of market action. Nevertheless, these trends reflect a very different tone to the market from that which prevailed over the last two years as the two charts show.



(Source: Iraq Stock Exchange (ISX), AFC Research, data as of 31st March 2021)



(Source: Iraq Stock Exchange (ISX), AFC Research, data as of 31st March 2021)


Moreover, just as in February, it was local buying that extended and sustained the rally throughout March, and similarly in response to the passage of the budget. February’s stalwart trio of Bank of Baghdad (BBOB) up 69.2%, Baghdad Soft Drinks (IBSD) up 30.7%, and AsiaCell (TASC) up 24.6%, had mixed performances in March. IBSD did not trade throughout the month, as it was suspended from trading while completing the procedures for its acquisition of Al-Zaki Group, as reported here in January. IBSD will resume trading on 5th April 2021 after announcing a 4.3% dividend yield in its latest annual general meeting (AGM). TASC ended the month down 3.0% after minor gains of 1.3% early in the month, while BBOB saw a continuation of February’s blistering performance, up 21.2% by mind-month before profit taking reduced these gains into a loss of 1.5%.

Among the banking sector, low-priced Gulf Commercial Bank (BGUC) and Iraqi Middle East Investment Bank (BIME) were still up 17.6% and 26.3% even after shedding earlier gains of 35.3% and 57.9% respectively. February’s laggards Mansour Bank (BMNS), and Commercial Bank of Iraq (BCOI) ended March flat and up 6.8% after peeling-off gains of 15.0% and 15.9% respectively. The exception among the laggards was the National Bank of Iraq (BNOI), which sustained its gains throughout month end, up 14.9% after completing its acquisition of the Iraqi branch network of Lebanon's Bank Audi, and announcing a 9.2% dividend yield in its AGM. Within the consumer space, Al Mansour Pharmaceuticals (IMAP), sustained its grains throughout the month, up 7.8% on the back of February’s 15.2% gain.

The Index’s 6.9% gain for the two days following the budget’s passage was mostly led by these same stocks given their leverage to a consumer led economic revival on the back of the budget’s expansionary spending plans. Over the two days, BGUC was up 20.0%, BBOB up 16.9%, IMAP up 16.1%, BIME up 12.5%, BCOI up 10.6%, TASC up 2.4%, and BNOI up 2.0%.

These gains in the banking, consumer, and telecom stocks, both on that day and year to-date, build on the revival in economic activity that has returned to levels meaningfully above those that prevailed just before the nationwide lockdown in March 2020, as seen from Google’s mobility data (below chart). In particular, activity in the crucial sectors of retail and grocery has recovered to between 20-60% above the levels that prevailed pre-lockdown.



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


Such revival can be seen from what looks like a resumption of Baghdad’s construction projects, be they residential housing blocks, offices, or houses, as witnessed from the early days of a current visit to the city as can be seen from the picture below.


Early morning view across the Tigris River from the Babylon Hotel in Baghdad

(Source: AFC Research)


It remains to be seen if the index can sustain these early gains in April and beyond, though the broadening of the market’s breadth beyond the narrow lead of February’s trio is a promising sign for the rally’s continuation and staying power. But such a recovery’s pace is likely to be uneven with plenty of zigs and zags along the way. Nevertheless, the potential upside from a continuation of such a rally is substantial for even accounting for the most recent gains, the Rabee Securities RSISX USD Index is still down over 60% from its 2014 high.


Rabee Securities RSISX USD Index: 2011-2021

(Source: Bloomberg, data as of 4th April 2021)


At the end of March 2021, the AFC Iraq Fund was invested in 14 names and held 6.2% 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 (91.1%), Norway (2.0%), and the UK (0.7%). The sectors with the largest allocation of assets were financials (53.7%) and consumer staples (17.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 14.25x, the estimated weighted harmonic average P/B ratio was 0.56x, and the estimated weighted average portfolio dividend yield was 3.23%.

 Back To Top 



AFC Asia Frontier Fund - Manager Comment



The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 1.3% in March 2021 with a NAV of USD 1,422.91. The fund outperformed the AFC Frontier Asia Adjusted Index (+0.3%), the MSCI Frontier Markets Asia Net Total Return USD Index (-0.6%), the MSCI Frontier Markets Net Total Return USD Index (+0.3%) but underperformed the MSCI World Net Total Return USD Index (+3.3%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +42.3% versus the AFC Frontier Asia Adjusted Index, which is up by +24.2% during the same period. The fund’s annualized performance since inception is +4.0%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.68% 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 AFC Asia Frontier Fund celebrated its nine-year anniversary with another positive monthly performance, making this the 4th consecutive quarter of positive performance while returns over the past 12 months are at +39.5%. These returns are a reflection of the post pandemic stock market and economic recovery in Asian frontier markets as well as the re-rating of very attractive valuations in our fund universe.

Similar to the previous month, diversification helped fund performance with gains led by Uzbekistan, Vietnam, Iraq, and Kazakhstan while Sri Lanka and Bangladesh were the key markets which impacted performance negatively.

Higher crude oil and commodity prices this year have led to stock market gains for resource dependent economies with Mongolia, Iraq and Kazakhstan being among the top 10 performing markets globally in the first quarter of 2021.



(Source: Bloomberg, USD returns between 31st December 2020 – 31st March 2021)


In Kazakhstan, the fund added to its position in Kaspi during the month as we believe this is a highly profitable technology play in the frontier and emerging markets universe which is being overlooked relative to other tech names which may be good long-term stories but are still loss making or barely profitable at the moment.

Kaspi declared net profits of USD 632 mln in 2020 and has guided for almost USD 1 bln in net profits in 2021. The current 2020 level of net profits of Kaspi are already higher than most traditional banks listed in the frontier and emerging markets universe and this reflects how Kaspi has disrupted the traditional banking and financial services model to its advantage. Depending on how regulators respond in each market, we believe many Asian frontier markets could see the rise of fintech players especially in countries like Bangladesh and Pakistan which are seeing an increase in non-cash payments.



(Source: Bloomberg)



(Source: Kaspi)



(Source: AFC Research)


Vietnam delivered 1Q21 GDP growth of +4.5% which was not surprisingly led by the manufacturing sector which grew by 9.5% in 1Q21 v/s 7.1% in 1Q20. With economic growth and earnings expected to see a further recovery in the rest of year, the fund is well positioned to capture this growth due to its exposure to cyclical names in the auto, beverage, construction, logistics and modern retail sectors.



(Source: Vietcapital Securities)


Though it was a soft month for the KSE100 Index in Pakistan, the country’s macroeconomic indicators continue to improve with the manufacturing sector growing strongly, backed by an increase in automobile and cement sales. This robust growth in the manufacturing sector has led the State Bank of Pakistan to revise upwards its economic growth forecast for the financial year ending in June 2021 while continuing to maintain its dovish stance and holding off any interest rate increases in the near term in order to support the economic recovery.



(Source: Pakistan Bureau of Statistics)


As discussed in previous manager comments, this lower interest rate environment should remain positive for cyclicals stocks in the auto and cement sector. The fund took advantage of the market weakness and added to its position in Indus Motor which is Toyota’s JV partner in Pakistan. Besides Indus Motor, the fund also owns Pak Suzuki Motors (PSMC) which declared much better than expected results for the fourth quarter of 2020 as the company sees a recovery in sales volumes. PSMC focusses more on the affordable passenger car segment and its Alto model is the top selling passenger car by sales volumes in Pakistan.

PSMC’s share price gained 18.5% in March and 30% so far in 2021, outperforming the KSE100 Index by a large margin. The fund invested in PSMC in October 2019 at the bottom of the economic cycle in Pakistan at PKR 150 and since then the stock price has more than doubled. Besides increasing sales volumes, the stronger Pakistani Rupee (PKR) should also benefit PSMC’s profitability since it imports a large part of its components and raw materials. Based on its 2021 earnings, PSMC trades at a P/E of 6.4x compared to a P/E of 30.3x for Maruti Suzuki in India which reflects the consumer companies available in Pakistan trading at a big discount to regional peers.



(Source: IMS Securities)


The Pakistani Rupee (PKR) has been one of the best performing currencies globally this year not only because of a current account surplus but also due to the expected improvements in foreign exchange reserves through the recently approved IMF disbursement of USD 500 mln and the USD 2.5 bln raised through international sovereign bonds. Overall, the Pakistani economy is moving in the right direction and if any of the recent peaceful overtures between India and Pakistan do translate into fewer tensions on a sustained basis then this will be another positive for investor sentiment.


The Pakistani Rupee has appreciated by almost 5% v/s the USD in 2021 as foreign exchange reserves increase and the current account remains in surplus

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


The overall macro environment in general continues to improve in Asian frontier economies. Bangladesh in particular has seen a significant improvement in its foreign exchange reserves with its monthly import cover reaching 10 months even though its garment exports took a hit at the height of the pandemic. Higher worker remittances which have averaged USD 2 bln per month since June 2020 have been a key factor leading to higher foreign exchange reserves.



(Source: Bangladesh Bank)


In Sri Lanka, the country’s largest diversified conglomerate, John Keells Holdings (JKH), which the fund owns, entered into a joint venture agreement with Adani Ports of India to develop the West Container Terminal (WCT) in the port of Colombo. JKH is a joint venture partner in the existing South Asia Gateway container terminal at the port of Colombo which has a capacity of 2 mln TEUs (twenty-foot equivalent units). The addition of WCT to JKH’s ports business is a positive for its valuation as the new terminal will not only have a much higher capacity of 3.5 mln TEUs but it will also further strengthen the company’s foothold in the port of Colombo which is strategically located near important sea lanes and has become the busiest port in South Asia in terms of containers handled annually.



(Source: John Keells Holdings, AFC Research, TEU: twenty-foot equivalent unit)


A positive for the Sri Lankan tourism sector is the government’s decision to remove quarantine requirements for vaccinated travellers. As vaccinations pick up pace globally, there is the potential for tourist arrivals to increase in the latter part of 2021 which will be a much-needed boost for Sri Lanka’s foreign exchange reserves.

The best performing indexes in the AAFF universe in March were Kazakhstan (+5.2%) and Mongolia (+2.8%). The poorest performing markets were Sri Lanka (−4.7%) and Pakistan (-2.8%). The top-performing portfolio stocks this month were a Mongolian junior copper explorer (+46.8%), a Mongolian leather producer (+46.4%), a Mongolian concrete producer (+42.0%), a Mongolian financial services company (+37.6%) and a Mongolian construction materials company (+26.8%).

In March, the fund added to existing positions in Kazakhstan, Mongolia, Pakistan, and Vietnam and reduced some holdings in Mongolia.

At the end of March 2021, the portfolio was invested in 73 companies, 2 funds and held 3.6% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.6%), and a pharmaceutical company in Bangladesh (4.1%). The countries with the largest asset allocation were Mongolia (20.9%), Vietnam (16.0%), and Uzbekistan (14.6%). The sectors with the largest allocation of assets were consumer goods (27.1%) and industrials (12.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.22x, the estimated weighted harmonic average P/B ratio was 0.89x and the estimated weighted average portfolio dividend yield was 3.33%.

 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.