ASF header

Asia Frontier Capital (AFC) - May 2021 Update

Asian frontier markets continue to gain on regional and global markets


“My formula for success is rise early, work late and strike oil.”

J. Paul Getty, American-born British petrol-industrialist


AFC Asia Frontier Fund USD A1,486.30+3.0%+11.0%+48.6%
  AFC Frontier Asia Adjusted Index2 +6.6%+15.0%+35.2%
AFC Iraq Fund USD D698.94−2.5%+23.6%−30.1%
  Rabee RSISX Index (in USD) 4.4%+18.9%−46.6%
AFC Uzbekistan Fund USD F1,979.57+8.2%+47.6%+98.0%
  Tashkent Stock Exchange Index (in USD) +6.6%+15.0%+35.2%
AFC Vietnam Fund USD C2,806.11+6.4%+22.8%+180.6%
  Ho Chi Minh City VN Index (in USD) +7.2%+20.6%+139.1%
  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.

Asian frontier markets continue to gain on regional and global markets

It was an exceptionally strong month for Asian frontier markets and their year-to-date returns in 2021 are now ahead of regional as well as global peers. Very attractive valuations, relatively better pandemic management, a robust earnings recovery and higher commodity prices are key reasons for the outstanding performance of Asian frontier markets relative to peers.

AFC fund performance was led once again by the AFC Uzbekistan Fund, which gained +8.2% in May, taking its year-to-date return to +47.6% and its annualised return since inception to 36.9% p.a. The AFC Vietnam Fund continues to leverage the standout economic story of Vietnam and gained +6.4%, while its annualised return since inception now stands at 14.9% p.a. The strong momentum in Asian frontier markets led to another positive month for the AFC Asia Frontier Fund with a return of +3.0%, led by strong gains in Bangladesh and Pakistan. 



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




On 18th May 2021, the webinar organised by AFC to discuss investment opportunities in Uzbekistan and Vietnam witnessed a tremendous turnout. If you missed it, you can view the webinar here.




Invest Sri Lanka Forum

Ruchir Desai, co-fund manager of the AFC Asia Frontier Fund, spoke at the Invest Sri Lanka 2021 Investment Forum which took place virtually from 7th-9th June 2021. The event showcased long term investment opportunities in Sri Lanka and was organised by the Sri Lanka Board of Investment, The Ceylon Chamber of Commerce, and the Colombo Stock Exchange. Click on the links below to view our video discussion on the Sri Lanka opportunity or to learn more about the investment forum.



Invest Sri Lanka Forum

Ruchir Desai, co-fund manager of the AFC Asia Frontier Fund, spoke at the Invest Sri Lanka 2021 Investment Forum which took place virtually from 7th-9th June 2021. The event showcased long term investment opportunities in Sri Lanka and was organised by the Sri Lanka Board of Investment, The Ceylon Chamber of Commerce, and the Colombo Stock Exchange. Click on the links below to view our video discussion on the Sri Lanka opportunity or to learn more about the investment forum.




Hear from Ruchir Desai - Co-Fund Manager at AFC Asia Frontier Fund on his experience in investing in Sri Lanka's capital markets using the following link, or click on the image on the left:



HFM Symposium

Peter de Vries, Marketing Director at Asia Frontier Capital, spoke at HFM Virtual Symposium Asia 2021, which took place 2nd June 2021 in a panel discussion titled “Managing Volatility – Future Trends and Outlook”. A takeaway worth sharing is the notion that volatility cannot be completely mitigated, but a combination of in-depth research resulting in an appropriately diversified portfolio of quality names can result in significant outperformance over time. This is the result of a reduced impact from downside volatility combined with a relatively larger participation in upside volatility which will help overall performance in the medium and long term. This is something that we have shown in the performance of AFC’s funds.



MENA Investor Conference

Ahmed Tabaqchali, the CIO of our AFC Iraq Fund, participated in the Renaissance Capital 3rd Annual MENA Investor Conference held from 18-20 May 2021, in its roundtable panel titled "Spotlight on Iraq and Kurdistan". Click the image for a replay.

Click for Replay ≫




For a third month in a row, I am glad to report that we have been recognized by Backstop BarclayHedge for outstanding fund performances. This time, our AFC Uzbekistan Fund won the top performer award for its April 2021 performance in the sectors “Emerging Markets Equity - Eastern Europe/CIS” and “Emerging Markets Equity - Eastern Europe/CIS”. The fact that we win these awards regularly confirms the validity of our investment thesis, and we look forward to winning many more such awards in the future.


Below please find the manager comments relating to each of our four funds for the month of May 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 +8.2% in May with a NAV of USD 1,979.57, a new all-time high, bringing the return since inception (29th March 2019) to +98.0%, while the year-to-date return stands at +47.6%. On an annualized basis, the fund returned +37.7% p.a. with a Sharpe ratio of 2.33.

May 2021 was yet another strong month for the AFC Uzbekistan Fund, now up for 13 consecutive months. The two main contributors to performance during the month were a dividend and share split by two of the fund's largest holdings. Additionally, the fund saw a record inflow of new money from new and existing investors during the month.

Market Update

There were two primary catalysts for the fund’s positive performance during May. The first was the annual general meeting of Qizilqum Cement (TSE:QZSM), held on 22nd May 2021, where a dividend of UZS 989 per share was announced for financial year 2020. As of 31st May 2021, this translates to a dividend yield of 14.5%, well above Uzbekistan’s 12-month inflation rate of 10.9%. Inflation and currency depreciation are investor worries often expressed to us, and which is addressed in detail further below, but nonetheless, there are still plenty of opportunities to purchase shares in companies where dividend yields and returns on equity are well in excess of inflation and certainly well above any depreciation in the Uzbek Som versus the US Dollar.

QZSM’s dividend payout in nominal terms has risen steadily since we began investing in Uzbekistan in 2018. The dividends for 2018 and 2019 were UZS 227 and UZS 460 respectively. From the fund’s initial investment in QZSM, we have recouped well over 100% of our principal from dividends alone, and based on QZSM’s strong start to 2021, with first-quarter YoY earnings growth of 61%, we expect the dividend for 2021 to be as good, if not better than for 2020. The consistently strong performance of QZSM can be attributed to an annual deficit of cement supply in Uzbekistan of approximately three mln tons and which we anticipate will take some while to shrink as new residential construction and infrastructure projects countrywide appear to be absorbing new cement supply coming online.

Further, on 6th May 2021, the fund’s third largest holding, Toshkent Vino (TSE:TKVK) conducted a 10:1 share split. While share splits, from a valuation point of view, don’t make a stock any cheaper, they give the appearance that the nominal value of the stock is more palatable for retail investors to initiate or grow their exposure. So, while a retail investor may be pleased to own one share of TKVK post-split at UZS 66,000, he only owns 1/10th of a pre-split share. This is a pretty typical phenomenon that often happens globally after share splits, but especially in frontier and emerging markets. The AFC Uzbekistan Fund benefitted greatly from TKVK’s 119% price rise during May.

Forever a Country of Currency Depreciation

Recency bias can be a very dangerous trap for investors to fall into. Uzbeks have traditionally been very skeptical of keeping their savings in Uzbek Som (UZS) due to its consistent depreciation over the years. As of 31st May 2021, the USD/UZS rate is 10,573, though for investors who joined us on our Uzbekistan Tour in May 2019, we gifted everyone the first ever Uzbek Som note printed in the Republic, just after independence—a UZS 1 Uzbek Som note which due to historically high inflation is today a mere collector’s item, similar to what happened in Vietnam. So, Uzbeks, like Vietnamese, are no stranger to hyperinflation and have historically viewed the US Dollar and gold as better stores of value than the national currency.

Things began to change, however, when on 5th September 2017 the Central Bank of the Republic of Uzbekistan (CBRU) eliminated the peg it held on the UZS/USD, devaluing the currency by 48% overnight, from UZS 4,210 to UZS 8,100 as it transitioned the currency peg to a managed free float. The reason for the currency adjustment was a bid to eliminate the black-market (bazaar) exchange rate which was ~UZS 8,000 at the time, and to make it economically viable for foreign investors to re-engage the country with foreign direct investments.

When we began investing in the country in 2018, it was easy for locals to be confused that we were comfortable owning assets denominated in UZS, and further to buy shares in companies whose dividend yields were lower than term deposit rates offered at banks (at the time term deposit rates were as high as 24%). Though part of our thesis for the overall opportunity in Uzbekistan was that as inflation was brought under control from the devaluation and the CBRU’S policy rate was able to be lowered, the currency should begin to stabilize. Then, as foreign direct investments increasingly grew over the coming years, there would be a higher risk of currency appreciation rather than rapid depreciation as foreign investors would convert their foreign exchange into UZS to build factories, make financial investments and the like. Of course, we did not fall prey to recency bias and have so far had our thesis validated, further benefitting from rising equity prices and compressing dividend yields (still high in our view with further compression to come). Since 2019, inflation has fallen from 15.2% to 10.9%, as of May 2021—this successful reigning in of inflation can be partially contributed to the CBRU’s transitioning to an inflation-targeting regime and aiming for 10% inflation by 2022. This disinflation in recent years has also led the CBRU to lower its policy rate 200 basis points in 2020, from 16% to 14%.


Uzbekistan Inflation Rate

(Source:, AFC Research)


When considering annual depreciation of the Uzbek Som versus the USD, in 2019 the currency fell 13.9% and about 10% in 2020.


5-Year USD/UZS Rate

(Source: Bloomberg)


Year-to-date however, the Uzbek Som has depreciated a mere 1%. If we annualize this and make it conservative, we could expect depreciation of ~3%; this happens to be in line with a recent analyst report from Gazprom Bank which estimates that currency depreciation “will not exceed 3% in 2021 and 2% in 2022” and that “in conditions of a weaker role of the CBRU in exchange rate formation, the UZS will be supported by a positive net inflow of FX into Uzbekistan’s economy”. We continue to believe that the historical fears of consistent double-digit currency depreciation are behind us and local financial institutions are beginning to realize the same, playing catch-up to our narrative after several years. With a stable exchange rate and attractive business environment, the stage is set for the Uzbek economy, and of course the equities market, to thrive over the coming years.

At the end of May 2021, the fund was invested in 27 names and held 11.4% in cash. The markets with the largest asset allocation were Uzbekistan (88.1%) and Kyrgyzstan (0.5%). The sectors with the largest allocation of assets were materials (56.0%) and financials (14.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.94x, the estimated weighted harmonic average P/B ratio was 1.48x, and the estimated weighted average portfolio dividend yield was 8.12%.

 Back To Top 



AFC Vietnam Fund - Manager Comment


The AFC Vietnam Fund rose by 6.4% in May with a NAV of USD 2,806.11, a new all-time high NAV, bringing the year-to-date return to +22.8% and the return since inception to +180.6%. This represents an annualized return of +14.9% p.a. since inception. The Ho Chi Minh City VN Index in USD gained 7.2% in May 2021 to a new all-time monthly high of 1,328.05, in VND terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.77%, a Sharpe ratio of 1.02, 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

Despite renewed foreign selling throughout the month, the index continued its way to new highs, beating most other markets around the world. One of the likely reasons for the continued negligence could be the general assumption that Emerging Markets could see a weaker or slower recovery in economic activity as many Asian countries are pretty much closed for travel and are behind in vaccination rates compared to the Western world. Certainly, the new COVID-19 wave in many Asian countries did not help, but even the highest numbers in Vietnam (~100-300 daily new infections) have to be seen in relation to the population of almost 100 mln. On a positive note, the recent surge in cases was also a wakeup-call for politicians in these countries and efforts to secure vaccine supplies and start vaccinating the broader population has increased significantly in recent weeks.

As Vietnam is just a tiny financial market within the Asian Emerging Market and Frontier universe, people simply do not differentiate much and throw out the baby with the bathwater. By any economic comparison, measured both from the crisis year 2020, as well as the outlook for 2021 and beyond, Vietnam is ranked in the top countries in the world. 

This is also – thankfully for our investors - reflected in the performance of the stock index, short- and long-term. While China (the Shanghai Composite) lagged significantly this year, Europe (the EURO STOXX 50) performed better than the US (S&P 500), but all three indexes are clearly trailing Vietnam (HSX) so far in 2021.

More importantly, our bullish long-term stance on Vietnam is also bearing fruit as can be seen on the five-year performance chart below, where interestingly Vietnam has beaten the US market, while China and Europe showed a surprisingly high correlation. 



(Source: Bloomberg)


Despite fragmented smaller lockdowns over the past year, the positive attitude from Vietnamese is still unbroken, as can be seen from the consumer confidence index which ranks consistently much higher than global average. Together with the strong demand for products made in Vietnam, this is the backbone of the continued strong economic development.

Inflation – a threat for the world?

In recent weeks, business media has increasingly reported about the rising risk of the return of inflation, and some fear that central banks around the world would ignore it for too long altogether. While the ghost of inflation has been painted on the wall too many times over the past 20 years, the current period can hardly be compared to any other in the past 40 years.

Most central bankers still speak of “temporary inflation” which will subside in the near future without the need to raise interest rates soon or by much, but this reminds us a bit of Trump’s statement last year that “the virus will disappear magically”. The fact is that for 40 years, when the inflation phase of the 70’s was overcome, inflation had only a brief moment in 2008, while interest rates have known only one way over the years – down. 

As with all statistics, these are only as good as their database is - and as long as it is comparable. The inflation calculation method has been changed a few times since 1980, to adjust for technological advances and changing spending habits. It is certainly true that prices for computers, TV’s, communication prices, etc. have fallen, but nobody would buy a five-year-old computer or TV, not to speak of an iPhone 7. The absolute amount of money we are spending now on computers or TVs has likely gone up somewhat compared to 20 years ago. The composition of the basket for consumer costs, including housing, is also questioned by many, especially by the consumers themselves. It is not much of a surprise that many people like to know the inflation rate, if not adjusted time and time again. Many middle-income earners would likely agree more on that rate than the official consumer inflation statistic.



(Source: ShadowStats, CLSA)


Prices, and at least as important, interest payments for consumers, companies and governments were held in check by two crucial components – ever lower global interest rates and outsourcing of production to low-income countries mainly in Asia. But with all those long-term trends stretched (record low or negative interest rates, rising salaries in low-cost producing countries, logistical efficiency improvements like just-in-time production, etc.), where should we go from here? The COVID-19 crisis just accelerated the possible turnaround of those decade-long trends. Spending cuts and fights over budget allocation to sectors like health care or education were top priorities of governments, whereas 2020/21 will be seen as a historical moment in financial history where financial supports and helicopter money easily outstripped the financial crisis of 2008/09. 

Since money is still “cheap”, global debt levels have increased sharply, with governments, companies and consumers paying hardly any interest on their debts. But this will also limit the future ability for central banks to normalize interest rates again as it should be done in a regular economic cycle when the economy recovers strongly and inflation is on the rise.

As can be seen below from the 10-year U.S.-treasury bond chart from 1962 until today, the debt level today is 3x higher than in the early 60’s when interest rates where much higher than today and therefore servicing that debt was much harder. Not many governments would be able to survive interest rates we have seen in the past, not to speak of many companies and consumers which are also only able to spend because of this low interest rate environment.


10-Year U.S.-Treasury Bond 1962 - today

(Source: Bloomberg)


Since we do not expect central banks to commit financial suicide and also push a good percentage of their population over the “financial cliff” into bankruptcy, the most likely outcome is a continuation of negative real interest rates – and hoping that many of the current inflationary signs are really only temporary and will subside as worldwide production and shipments normalize.

Nevertheless, we should see a discontinuation of the global trend of production outsourcing as the world currently recognizes the risks of too much dependency in that a few global players are producing most of the necessary products in certain parts of the world. The recent surge in prices for many commodities and shortages in certain sectors such as electronics is also a reason to have a close look at this development.

Vietnam and inflation

Unlike most parts of the world, emerging economies like Vietnam have more recent experience with inflation. During the bubble in 2008, inflation peaked at 28%. Only in recent years have Vietnam and other emerging markets shown quite acceptable levels of inflation. The recent rise can so far be seen as a normalization to the 5-year average after the brief negative value last year, and anything up to around 4% is not a cause for concern.


CPI - Year on Year

(Source: Bloomberg)


U.S. and Vietnam 10 Year Bond Yields

(U.S.-blue, VN-green, U.S.-VN spread-maroon; Source: Bloomberg)


Historically, higher interest rates were accompanied by falling prices for most stocks and bonds, and surging interest in investments seen as a vault of wealth. As a store of value, usually gold comes to mind, followed by real estate which should keep its value, but with potentially stretched consumers not being able to pay back their mortgages, real estate prices eventually could also come under pressure. It is hard to tell if cryptocurrencies would offer any protection which in theory they should, but given their short history of existence, it is simply too speculative to be certain. Equities, on the other hand - and this is most important for us - should see a mixed picture. Loss-making startups in constant need of capital will be hit hardest, while cash rich, healthy companies offer good protection, and certain sectors will even benefit from rising pricing power.

We therefore are analysing our portfolio very thoroughly in order to make potential adjustments, although we certainly do not want to make a bet on inflation. In our investment process we already look out for financially sound companies, so we simply want to reduce sector risks and find new ones or increase current positions where we see positive developments in the current environment.

One of these examples is Phu Tai (PTB), which is one of the largest furniture exporters in Vietnam. Surging furniture demand in the U.S. during COVID-19 and the trade war between China and the U.S. helped Vietnam’s furniture exports.  

Vietnam surpassed China to become the largest furniture exporter to the US

We have recently witnessed a dramatic shift of furniture imports in the U.S., where Vietnam has overtaken China as the largest exporter of finished goods to the US market. According to “Furniture Today”, Vietnam shipped slightly over USD 7.4 bln of furniture to the US in 2020, up 31% from USD 5.7 bln in 2019. By comparison, China shipped USD 7.3 bln in 2020, down 25% from the USD 9.7 bln in 2019. 



(Source: Furniture Doay/BridgeTower Media)


“That doesn’t surprise me at all,” said Fred Henjes, CEO of Riverside Furniture Corp. “We are no longer buying product out of China, and I know there are many others besides us.”

The main reasons for China’s decline in furniture exports to the US is driven by the antidumping duties and the (China) tariffs. Vietnam is creating production capacity, but they still have a long way to go, especially for upholstery products.

Phu Tai, one of the largest furniture exporters in Vietnam, has benefited from this trend. The company has a very strong management team, and when they realized the upsurge in furniture demand from the US in 2017 and 2018, they decided to acquire several furniture factories in Vietnam in order to expand their capacity aggressively. In the first quarter of 2021, PTB revenues from furniture exports jumped 36% and total net profits gained 65%. The furniture business continued to grow continuously over the last 4 years, since the US tariffs on Chinese products were applied. In 2017, furniture contributed only 33% of total net profits and the stone business stood at 57%. But in the first quarter of 2021 the furniture business surpassed their stone business and contributed 68% of net profits. 

We think Phu Tai is still undervalued with a trailing P/E of 10x and forward P/E of around 7.9x with an estimated earnings growth for the next five years of around 20% per annum.


Net profit of Phu Tai in the last 5 years (VND bln)

(Source: PTB, AFC research)


Key financial ratios of Phu Tai

Key ratios

Last 12 months


Net revenue


VND bln

Gross profit


VND bln

Net profit


VND bln










Dividend yield



EPS growth (last 5 years)




PTB from March 2020 to May 2021

(Source: Bloomberg)


Of course, Vietnam’s exports to the U.S. in general are benefiting from the trade war between China and U.S. According to the Wall Street Journal, Vietnam has risen to the 6th position in terms of U.S. imports, a marked improvement from 12th position in 2018. Vietnam surpassed South Korea, Ireland and India with nearly USD 86 bln of exports to the U.S. in the last 12 months.



(Source: Wall Street Journal)


The U.S. tariffs on Chinese goods will most likely not disappear overnight even with the new president, Joe Biden. President Biden sees China as a serious competitor to the U.S. economy and we therefore still see strong foreign direct investments into Vietnam in order to avoid punitive U.S. tariffs. Besides key export products to the U.S., other sectors are benefiting from this trend such as ports and logistics, industrial parks, construction and other accessories in the manufacturing sector. 

Summer holiday

With summer approaching, people around the world are eager to escape from the depressing months where most countries experienced various lockdowns and travel restrictions. Europe and the US are in a better position this year as most countries are expected to have the majority of their population vaccinated by this summer, enabling them to travel again to many parts of the world, although still with limitations and restrictions. Tourism was weak last year, with any (partly) normalization in the Western world expected to have a positive effect on their economies, while still sharply down from 2019. Vietnam – along with many other Asian nations – is still mostly closed for tourism and will experience another dull summer season. What many people forget when they think of the economic consequences is that besides another year of low tourism numbers and difficulties for the sector, the total impact on GDP growth will be marginal since weak 2021 numbers will be compared to next to zero 2020. A significant rebound in those countries is then expected for next year with all the positive impact on 2022 GDP. 

At the end of May 2021, the fund’s largest positions were: LienViet Post Joint Stock Commercial Bank (8.0%) – a bank, Agriculture Bank Insurance JSC (7.1%) – an insurance company, VNDirect Securities Corp (5.8%) – an online brokerage firm, Tien Phong Commercial Joint Stock Bank (4.0%) – a bank, and Military Commercial Joint Stock Bank (3.8%) – also, a bank.

The portfolio was invested in 42 names and held 6.0% in cash. The sectors with the largest allocation of assets were financials (35.1%) and consumer (32.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.15x, the estimated weighted harmonic average P/B ratio was 1.59x, and the estimated weighted average portfolio dividend yield was 4.75%.

 Back To Top 



AFC Asia Frontier Fund - Manager Comment


The AFC Asia Frontier Fund (AAFF) USD A-shares increased by 3.0% in May 2021 with a NAV of USD 1,486.30. The fund underperformed the AFC Frontier Asia Adjusted Index (+6.6%), the MSCI Frontier Markets Asia Net Total Return USD Index (+3.4%), the MSCI Frontier Markets Net Total Return USD Index (+4.0%) but outperformed the MSCI World Net Total Return USD Index (+1.4%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +48.6% versus the AFC Frontier Asia Adjusted Index, which is up by +35.2% during the same period. The fund’s annualized performance since inception is +4.4% p.a. 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.

It was a very strong month for almost all the markets in our fund universe which led to another positive gain for fund performance. Uzbekistan, Pakistan, Bangladesh, and Kazakhstan led performance this month while Iraq was the largest detractor.



(Source: Bloomberg, USD returns for May 2021)


As written in previous manager comments, Pakistan has witnessed a very robust post pandemic economic recovery and this was reflected in the performance of the KSE100 Index which gained +8.5% in USD terms this month, making Pakistan one of the best performing markets globally in May 2021. GDP growth estimates at almost 4% for the financial year ending June 2021 have come in much ahead of expectations and the upcoming financial year could see a continuation of the momentum as the State Bank of Pakistan provides a stable hand to economic growth as it left benchmark interest rates unchanged in its latest monetary policy meeting on 28th May 2021. Performance for the fund in Pakistan was broad based with Lucky Cement and Pak Suzuki Motors leading returns.

Garment and textile exports from Pakistan, which have grown at 17% over the past ten months, are ahead of the growth rates being reported by regional peers. Economic reopenings in the U.S. and Europe, some manufacturing shift from China, and neighbouring countries suffering from COVID-19 related lockdowns have resulted in robust demand for Pakistani garment and textile exports.



(Source: Topline Securities)


During the month, the fund invested in Nestle Pakistan, the Pakistani subsidiary of Nestle SA, which is the largest consumer food & beverage company in Pakistan by sales and market capitalisation. Like in many countries that it operates in, Nestle has well established brands and is a household name in Pakistan and we believe it is very well positioned to capture future demand from a growing young and urbanising population in Pakistan.

The Dhaka Stock Exchange Broad Index saw a big jump of +9.3% during the month as a strong quarterly results season and control of new COVID-19 cases swiftly brought back investor confidence. Performance in Bangladesh was led by a commercial vehicle assembler (IFAD Autos) which gained 28.1% and a bank (BRAC Bank) which gained 23.9% on the back of very impressive quarterly results in a tough operating environment. Net profits in 1Q21 for BRAC Bank grew by 41% despite regulatory pressures on net interest margins and having to deal with loan moratoriums over the past year.

Attractive valuations and the positive impact of higher commodity prices continues to make Kazakhstan a top 10 performing market globally this year and during the month all three of the fund’s Kazakh holdings, namely, Halyk Bank (a bank), Kaspi (a fintech play) and Kazatomprom (a uranium producer) added to their year-to-date gains.


The fund’s Kazakh holdings continued their strong run this year

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


Investor confidence in Vietnam was not dented despite a resurgence in COVID-19 cases as the VN-Index gained 7.2%, taking year to date returns to 20.3% - making Vietnam the best performing market in the ASEAN region. Vietnamese authorities have so far managed any new wave of COVID-19 cases very effectively and we believe it will do so this time around as well. In any event, the case numbers in Vietnam are miniscule compared to those being reported in other countries in the region. The economic engine in Vietnam continues to churn out robust results, with industrial production growing by 11.6% and exports by 35.6% in May, an outstanding achievement in the current global economic and trade environment.



(Source: Bloomberg)


Quarterly results from the fund’s Sri Lankan holdings also came in very strong and even though there is a base effect from last year, an average growth rate of 84% in net profits is very impressive with earnings growth being led by the fund’s consumer and healthcare holdings. More importantly, the Sri Lankan Parliament passed the Port City Economic Commission Bill, which will now allow further development of the Colombo Port City. This can potentially bring in much needed foreign direct investments in the long run since the Colombo Port City will qualify as a special economic zone which will provide attractive tax incentives and this can play a big role in transforming Colombo and Sri Lanka into a strategic regional hub.


The Colombo Port City can be a long-term game changer for the Sri Lankan economy



The best performing indexes in the AAFF universe in May were Bangladesh (+9.3%) and Pakistan (+8.2%). The poorest performing markets were Iraq (−3.7%) and Mongolia (-3.5%). The top-performing portfolio stocks this month were a Bangladesh commercial vehicle assembler (+28.1%), a Mongolian junior copper explorer (+24.0%), a Bangladeshi bank (+23.9%), a Pakistani consumer appliance company (+20.0%) and a Pakistani automobile manufacturer (+19.6%).

In May, the fund bought a Pakistani food & beverage company and added to existing positions in Laos, Mongolia, and Papua New Guinea and reduced some positions in Mongolia and Vietnam.

At the end of May 2021, the portfolio was invested in 75 companies, 2 funds and held 2.2% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (8.6%) and a pharmaceutical company in Bangladesh (3.8%). The countries with the largest asset allocation were Mongolia (20.4%), Uzbekistan (16.6%), and Vietnam (13.9%). The sectors with the largest allocation of assets were consumer goods (27.4%) and materials (12.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.97x, the estimated weighted harmonic average P/B ratio was 1.05x, and the estimated weighted average portfolio dividend yield was 3.42%.

 Back To Top 




The AFC Iraq Fund Class D shares returned −2.5% in May with a NAV of USD 698.94, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 4.4% during the month. The fund is up 23.6% year to date versus 18.9% for the index. Since inception, the fund has lost 30.1% while the RSISUSD index is down 46.6%.

The market, throughout a much-shortened month – due to a ten-day Eid holiday following the fasting month of Ramadan – followed through with the pattern of price declines on low turnover that started at the market’s relative peak in the middle of last month. The consistency of the declines on low turnover continues to suggest that the market is in the process of consolidating its recent gains within an up-trend (chart below).



(Source: Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital, data as of 31st May 2021)


Leading the index’s action over the last few weeks, its main performance contributors have been the Bank of Baghdad (BBOB), Pepsi bottler Baghdad Soft Drinks (IBSD), and mobile telecom operator AsiaCell (TASC), all of which are in the process of consolidating their gains after blistering performances year-to-date. 

In particular, IBSD was down 1.4% for the month after peaking mid-month, yet IBSD is still up 42.0% year-to-date, and up 148.8% from the severe decline in April 2020 as the market reacted to the twin shocks of the collapse in oil prices and the economic disruptions in the wake of COVID-19. While TASC was up 0.9% for the month after peaking a month earlier, it is still up 21.5% year-to-date, and 70.8% from the April 2020 low (chart below). However, the disparity in performance between the two stocks is misleading as the Iraq Stock Exchange (ISX) does not adjust historic prices following dividend payments. TASC announced a dividend equivalent to a yield of 14.3% in July 2020, while IBSD announced a dividend equivalent to a yield of 5.6% in July 2020 and a further dividend corresponding to a 4.3% dividend yield in April 2021. Adjusting for the dividend payments, IBSD provided a total return of 192.4% from the market’s April 2020 low, while TASC provided a total return of 110.5% during the same timeframe (all price performance is in local currency terms).


Normalised returns for Baghdad Soft Drinks and AsiaCell

(Source: Bloomberg, data as of 31stMay 2021)


BBOB on the other hand, was down 3.0% for the month, having peaked a month earlier, yet it is up 66.7% year-to-date, and 140.0% from the April 2020 low. Within the leading banks, Commercial Bank of Iraq (BCOI) and Mansour Bank (BMNS) were respectively down 4.3% and 6.3% for the month; up 53.5% and 3.5% year-to-date; and 61.0% and 7.3% from the April 2020 lows. The exception in the performance of the leading banks for the month was the National Bank of Iraq (BNOI) which was up 9.2%, up 28.2% year-to-date, and 109.6% since the April 2020 low (chart below). BNOI’s performance from the lows in April 2020 reflects its strong performance in growing its deposit base and loan book compared to the other leading banks, as discussed in “Private Sector Deposit & Loan Growth Continues” in December 2020. Joining the leading banks was lower-priced Gulf Commercial Bank (BGUC). BGUC was down 13.0% for the month, but up 42.9% for the year and up 53.8% since the market’s low in April 2020 (all price performances in local currency terms).


Normalised returns for Gulf Commercial Bank, Commercial Bank of Iraq, Bank of Baghdad, National Bank of Iraq, and Mansour Bank

(Source: Bloomberg, data as of 31st May 2021)


Strong price performance from the market’s extreme COVID-19 lows are not unusual however, and a continuation of such moves following the market’s reaction to the devaluation in December 2020 are supportive of the argument made here then that “While the missing pieces of Iraq’s re-rating are many and will take time to materialise, this positive reaction to the devaluation suggests that the event might start the process of Iraq’s re-rating – which from a long-term perspective is extremely positive for the equity market and therefore also for the AFC Iraq Fund.” 

As such, the strong price performance discussed above 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 62% from the 2014 peak. Therefore, from a risk-reward perspective, the Iraqi equity market is still very attractive versus other markets worldwide, most of which have had multi-year bull markets. Moreover, their recoveries from the April 2020 lows have surpassed their all-time highs, while the Rabee Securities RSISX USD Index is just emerging from its multi-year lows.


Normalised returns for the RSISX USD Index vs MSCI World Index, MSCI Emerging Markets Index and MSCI Frontier Markets Index

(Source: Bloomberg, data as of 31st May 2021)


At the end of May 2021, the AFC Iraq Fund was invested in 14 names and held 6.0% 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 (91.6%), Norway (1.8%), and the UK (0.6%). The sectors with the largest allocation of assets were financials (54.3%) and consumer staples (17.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.31x, the estimated weighted harmonic average P/B ratio was 0.84x, and the estimated weighted average portfolio dividend yield was 4.84%.

 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.