ASF header

Asia Frontier Capital (AFC) - November 2021 Update

“ We make a living by what we get, but we make a life by what we give ” ― Winston Churchill, former British Prime Minister

AFC Banner


We make a living by what we get, 
but we make a life by what we give

― Winston Churchill, former British Prime Minister


 (USD)November 2021YTDSince
AFC Asia Frontier Fund USD A1,539.03-4.4%+15.0%+53.9%

AFC Frontier Asia Adjusted Index2

AFC Iraq Fund USD D635.22-18.9%+12.3%-36.5%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F2,067.58-1.7%+54.1%+106.8%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,615.51+2.4%+58.3%+261.6%
Ho Chi Minh City VN Index (in USD) +2.5%+36.1%+169.9%
  1. The NAV given is for the main share series for the relevant master fund. Investors' 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.

I am glad to announce that Roland Jossi, joined us as deputy CEO on 15th November 2021 to further strengthen our team and to support our ongoing growth. Roland is based in Hong Kong and will be assisting me with administration and compliance responsibilities, and he will also support the marketing of our funds. Previously, Roland has worked for UBS and Credit Suisse as a private banker in Hong Kong, Japan, Singapore, and Zurich, and as a fund manager at UBS.

Video Introduction to Asia Frontier Capital and the AFC Uzbekistan Fund

CEO and Fund Manager Thomas Hugger and CIO Scott Osheroff speak in the below video about Asia Frontier Capital and the AFC Uzbekistan Fund.


Asian frontier markets present a buying opportunity

Market volatility linked to new COVID-19 variants, higher interest rates, and higher inflation negatively impacted investor sentiment in Asian frontier markets in November. We have been here before and in the past such market uncertainties have provided investors with an excellent opportunity to invest in Asian frontier markets as the recovery from any market corrections have been very strong for all our AFC funds, as has been demonstrated post March 2020.

You can read more about our views and outlook for Asian frontier markets in the AFC Asia Frontier Fund 2021 Review and Outlook for 2022 which will be released before Christmas.

Despite the global volatility, the AFC Vietnam Fund stood out and reported a positive return of +2.4%, which takes its year to date and cumulative annualised return since inception to a very strong +58.3% and +261.6% respectively.


HFM Asia Performance Awards


In addition to this good performance, the AFC Vietnam Fund was awarded the best Single Country Fund award in the 2021 HFM Asia Performance Awards which was held on 11th November 2021.



I am glad to report, once again, that we have been recognized by Backstop BarclayHedge for our outstanding fund performance. This time, the AFC Uzbekistan Fund won the Top-10 performer awards for its October 2021 performance in the sectors “Emerging Markets – Eastern Europe/CIS” and “Emerging Markets Equity – Eastern Europe/CIS”. This further confirmation of the validity of the investment thesis of the fund shows that it is well suited as a diversification tool for many equity investors.


BarclayHedge Awards

BarclayHedge Awards



Below please find the manager comments relating to each of our four funds for the month of November 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 Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund rose by 2.4% in November with a NAV of USD 3,615.51, bringing the year-to-date return to +58.3% and the return since inception to +261.6%. This represents an annualized return of +17.6% p.a. since inception. The Ho Chi Minh City VN Index gained 2.5% in November 2021 in USD terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.87%, a Sharpe ratio of 1.21, and a low correlation of the fund versus the MSCI World Index USD of 0.52, all based on monthly observations since inception.

The VN-index continued its upward trend in November for the 4th consecutive month. Local investors were not very worried about the new COVID-19 variant, Omicron, where still few facts are known, and instead are focused on improving fundamentals and economic data. The gains were less broad-based than in the previous months, with foreigners being net sellers again.

Market Developments

The mixed picture for Vietnam’s market continued in November. Small and mid-caps continued to advance as of the beginning of the month, and closed significantly higher compared to October, while the blue-chip index VN-30 gave up most of its earlier gains. Nevertheless, turnover increased again to new record levels along with new all-time highs in the index, confirming the underlying bull-market.


VN30-Index September 2020-November 2021

VN30-Index September 2020-November 2021

(Source: Bloomberg)


As expected, the vaccination campaign has moved ahead much faster than in other countries, and Vietnam is now on par with many highly vaccinated countries in the western world. The unusually high number of first shots given proves the speed of this process as many people still have to wait the necessary interval in order to receive their second shot.




(Source: Our World in Data)


Despite a resurgence in infections, with daily rates up to 13,000 (which is still much lower than currently in Western Europe), Vietnam continues to open its economy and even welcomed their first foreign tourists on 17th November, although only on a pilot project, where people have to stay in one of five designated provinces on a tour package without being quarantined on entry. A more regular opening for international tourists is not expected before the second quarter of 2022, but we know all too well how plans worked out so far in the west during the pandemic, as the last few days has proved once again...

After all, with competition from other opening tourist destinations in the region like Thailand, it just shows that Vietnam wants to advance to its self-induced “new normal” as best as possible and give up completely on its previous zero-COVID strategy. With domestic infection rates up again and several restrictions put back into place, it needs to be seen how this plan for tourism-reopening will work out. In HCMC for example, bars and karaoke parlours were shut down again, after opening up for only two days – poor business owners, who were forced to close for seven months and took a lot of preparations (and money) in order to re-open, just to be forced to close again.


4th wave fully hit Vietnam in April

4th wave fully hit Vietnam in April

(Source: Wikipedia; Ministry of Health)


Earnings growth in Vietnam, supported by inflation?

Despite economic difficulties throughout the year by imposed lockdowns, the IMF reckons that economic growth should reach 3.8% this year, which is the highest rate among the five major Southeast Asian economies - Indonesia, Thailand, the Philippines, and Malaysia. Even though this is a very low number for Vietnam, the growth for listed companies in Vietnam is rather positive. Growth for the first nine months was very strong at around 30% and is forecast to reach 56% for the full year 2021, and around 20% in 2022. Banks, oil and gas, real estate, and industrials saw the strongest results. When we break this down further and keep in mind that lockdowns in 2020 and 2021 distorted earnings in both years, we see that earnings from listed companies are strongly correlated to three main areas of the economy: the domestic economy, production for the export sector, and commodity-related businesses. While the consumer sector was certainly severely impacted by the lockdowns, the largest listed companies like Vinamilk, Masan or Mobile World all have pricing power and are highly profitable. This should show strong growth in the coming years will be with higher consumer spending. The export sector, while depending on the international economy, will continue to profit from companies ramping up production and diversifying out of China. Given the export size of the two countries, a 1% move out of China into Vietnam translates roughly into a 10% gain for Vietnam. Higher inflation also means higher sales for those companies, and as we all are currently experiencing everywhere, most companies are able to pass on those increases to their customers. As for commodity related companies, the transition into a “green economy” needs, absurdly enough, tremendous amounts of all kinds of commodities from coal, oil, metals, materials for semiconductors, concrete, etc., when at the same time producing those commodities is getting costlier as well because of higher labour costs and “greener” economic policies.




(Source: Haver Analytics)


For almost 40 years the world was able to enjoy a low inflation environment. This was not due to strict debt control from governments or tight money policy from central banks around the world, but mainly because of a globalization trend which lasted until just now. This trend was enabled only after (luckily timed) political events which opened up countries previously closed as production hubs and consumer bases, thereby dramatically increasing the number of potential consumers – as well as low-income workers. This in fact dramatically reduced production costs, and at the same time increased the number of potential consumers in developed countries from roughly 1bn (North America plus Europe) to the now ever-increasing number of developing country populations climbing up the wealth ladder. China, Southeast Asia, Eastern Europe, Latin America, and finally Africa became production bases for international companies in order to reduce their costs on the one hand and sell their products on the other.

Forty years later and we see not only one but several headwinds for keeping prices in check. Besides global money printing and rising debts, the world is running out of cheap production alternatives like China or Vietnam, with the exception of automation which certainly will be a necessity in certain sectors. Despite further productivity potential in developing countries, labour costs are constantly rising, adoption of emission reduction policies, higher social responsibility standards (such as eliminating child labour, safer working environments, etc.) will continue to drive up production costs in the same way as the transition from coal to renewable energy production is already driving up prices for electricity. With this outlook, we are glad to be in the stock market business where we can adapt our investment policies and find attractive investments in a country like Vietnam, and not be in a stiff position like bond investors, not to speak of central bankers without (m)any choices at all.

Giant economic stimulus package

In November 2021, the Vietnamese National Assembly organized meetings to discuss a giant economic stimulus package of USD 35 bln, equivalent to 10% of Vietnam’s GDP, in order to boost the economic recovery. According to initial discussions, no final decision has been reached yet how and where they should spend this stimulus package, since the State Bank of Vietnam is concerned that rising inflation could be a threat as it was back in 2011-2012. Many members of the National Assembly therefore suggested that the package should focus on public investments, social welfare, and consumption. Other members also suggested that the government should support enterprises through a “lending interest rate allowance” plan, similar to what they did in 2009-2010. However, all the suggestions triggered certain debate and push back.

  1. Public investments: the chairman of the national assembly said that “there is still more than VND200,000 bln (USD 8.8bln) which has not yet been disbursed in 2021, why do we have to pump more money into this sector?” The chairman therefore recommended that the government should clarify why public investment disbursement is so slow before pumping more money into the economy.
  2. Lending interest rate allowances to enterprises: The governor of the state bank said that it may cause a huge risk to the economy because of the increased inflationary pressures it would create. She is also worried that many enterprises may get the allowances to buy assets rather than support their own businesses.
  3. Social allowances: The national assembly asked the government to work out a solution to better allocate these social benefits to people in need and to reduce abuse of the system as they have experienced in the past.
  4. With all above arguments and opinions, the national assembly requested the government work out a clearer plan with more details and solutions on how to allocate this stimulus package more efficiently. They will organize another meeting before the end of year and finalize and approve this package.

National Assembly Meeting

National Assembly Meeting

(Source: National Assembly)


Consumption recovery

COVID-19 had a severe impact on the consumer sector in Vietnam, the same as most other nations, but given its young population, with around 50% of its almost 100 mln habitants below the age of 35, and its rapidly growing middle class, we expect a fast recovery once the economy is open again.


Consumption fell sharply due to COVID-19

National Assembly Meeting

(Source: GSO, AFC Research)


Retail revenues in Vietnam grew around 10% before the pandemic, then fell to 2.6% in 2020 and are expected to decline by 8% in 2021. According to the General Statistic Office of Vietnam, total retail revenues decreased 8.7% y/y, mainly due to the 5-month long lockdown in Ho Chi Minh City, the economic hub of Vietnam. All restaurants, coffee shops, traditional markets, retail stores, etc., were completely closed during this period. In the 35 years since 1986 (when Vietnam launched a political and economic innovation campaign “Doi Moi” that introduced reforms intended to facilitate the transition from a centralized economy to a "socialist-oriented market economy"), this is the first time that Vietnam has seen negative growth in retail revenues. This is on the one hand a very disappointing experience, but on the other it’s also a golden chance for new investors to gain exposure to this market, given that there is a strong chance that consumption will recover as soon as the economy is open again – at the end of the day, people want to shop and entertain themselves after this long lockdown. Vietnam has secured enough vaccines to ensure that all adults can be fully vaccinated by year-end, and it is expected that the vaccination rate for adults will soon reach 95% which would be very beneficial for a safer and more stable rebound of the consumer sector. 

One of the largest consumer companies in Vietnam is Vinamilk (VNM). The stock price of VNM fell 36% from its peak in January 2018 to the current level of 87,600 Dong/share.


Vinamilk (VNM) share price

Vinamilk (VNM) share price

(Source: Bloomberg)


Vinamilk is the largest dairy company in Vietnam with market share of around 45% after taking over Moc Chau Milk. The second largest dairy company is Friesland Campina with 15.8% market share. The market capitalization of Vinamilk is USD 7.9 bln and the stock is trading currently at PER of 18x.


Vinamilk net profit (VND trln)

Vinamilk (VNM) share price

(Source: Vinamilk, AFC Research)


 Vietnam dairy market share in 2020

 Vietnam dairy market share in 2020

(Source: Vietnam Credit)


But Vinamilk’s share price performed poorly over the last four years against the index, because investors became frustrated with Vinamilk’s slowing earnings growth. Due to aggressive competition in the dairy industry, Vinamilk couldn’t expand as rapidly as they wished. This is why Vinamilk’s net profits were unable to grow over the past four years. Nevertheless, despite the serious impact of COVID-19 in 2021, the company was able to keep its net profit at the same level as the year before. Meanwhile, many small dairy companies are now on the verge of bankruptcy, or had to close down completely, which worked in favor of Vinamilk, given that they were able to capture some market share from them. Looking ahead, the expected 2022 government stimulus package of around USD 35bln - equivalent to around 10% of GDP - will certainly help to drive consumption and consumer companies such as for example Vinamilk should nicely benefit from it. 

At the end of November 2021, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.8%) – an insurance company, Tuong An Vegetable Oil JSC (6.3%) – an edible oil producer, Power Engineering Consulting JSC No. 2 (4.9%) – a consulting firm, PVI Holdings (4.8%) – also an insurance company, and Idico Urban and House Development JSC (3.9%) – an energy, construction, and real estate business.

The portfolio was invested in 49 names and held 3.9% in cash. The sectors with the largest allocation of assets were consumer (40.8%) and financials (22.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 11.36x, the estimated weighted harmonic average P/B ratio was 1.83x, and the estimated weighted average portfolio dividend yield was 3.52%.

 Back To Top 



AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned −1.7% in November with a NAV of USD 2,067.58, bringing the return since inception (29th March 2019) to +106.8%, while the year-to-date return stands at +54.1%. On an annualized basis, the fund returned +31.2% p.a. with a Sharpe ratio of 2.09.

November was a relatively quiet month, though the Uzbek economy continues to hum along and accelerate its growth, confirmed by the European Bank for Reconstruction and Development, the latest organization to raise its 2021 GDP growth forecast (from 5.6% to 6.8%). Equally, the stock market saw muted activity as the share price of many companies drifted modestly lower during the month. The chop and relative range-bound trading in share prices is coming ahead of what should be an exciting 2022.

AFC Uzbekistan Fund valuations as of 30th November 2021:

Estimated weighted harmonic average trailing P/E (only companies with profit): 6.80x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 5.40%


Privatisation programme

The Ministry of Finance is preparing to implement its ambitious privatization programme of state-owned enterprises (SOE’s) through IPO/SPO of at least 14 companies on the Tashkent Stock Exchange, and eventual dual listing abroad. Scheduled to kick off in 2022, in our view the two most anticipated deals in the first half of 2022 are the SPO of shares in Uzmetkombinat (TSE: UZMK), Uzbekistan’s largest steel plant and the AFC Uzbekistan Fund’s second largest position, and Almalyk Mining and Metallurgical Kombinat (Almalyk), Uzbekistan’s largest copper producer. 

With Uzbekistan’s “crown jewel” assets up for privatisation, previous strict controls on investor access have been lifted as these companies transition toward being publicly traded and therefore are increasing their focus on investor relations. In October 2021, I visited the facilities of Uzmetkombinat and during November our friends at Bluestone Investment Bank hosted a 3-day investor tour they were kind enough to invite me on. The tour included meetings with a handful of private and listed companies, though the highlight was a visit to Almalyk city, about a ninety-minute drive from Uzbekistan’s capital, Tashkent, to meet the CFO of Almalyk, Feruza Rustamovna, and subsequently visit the operating mine.

Almalyk, established in 1949, is the largest copper mine in Uzbekistan, and once their geological reports are publicly available, it will most definitely make the list of the world’s top ten largest copper mines. The company has been undergoing a corporate transformation with the help of international consultants since 2018 and in the first half of 2022 is scheduled to have an IPO of up to 5% of the company on the Tashkent Stock Exchange. 

In 2018 the mine produced 110,000 tons of copper, while 2021 production is estimated at 148,000 tons, and a current USD 10 bln expansion will bring production to 390,000 tons per year by 2028. As part of this expansion, an existing open-pit mine will be connected with a newly built pit, which once connected, will measure 10 km in length and several kilometers wide. Almalyk this year received a JORC resource estimate by international consultancy SRK Consulting which confirms 19 bln tons of ore containing 45.3 mln tons of copper, 5,374 tons of gold, and 34,800 tons of silver, translating to another 70 years of mine life. According to SRK, Almalyk’s ore is graded 0.37% copper, 0.54 grams per ton of gold, and 3 grams per ton of silver.


Almalyk’s existing super-pit measuring 2 km in length

Almalyk’s existing super-pit measuring 2 km in length

(Source: AFC Research)


Few large-scale copper discoveries have been made in recent years and there is often a decade-long lead time between discovery and the commencement of production. While the world is increasingly focused on accelerating the adoption of wind power, electric cars, per attempts at a degree of carbon neutrality, and the more basic electrification of emerging and frontier market economies, Almalyk’s capacity expansion is well-timed for what is likely to be an emerging structural copper deficit over the coming decade.



Touring Uzmetkombinat’s factory

(Source: VisualCapitalist)


Private sector companies are also increasing engagement with investors

As stated in previous updates, if the government’s privatisation programme is successful it should significantly improve the capital markets ecosystem (including enhancing free-floats of listed companies, new IPO’s, and new local and foreign investors), paving the way for private companies to IPO. 

As part of the Bluestone investor tour, one of the private companies we met with, and which is likely to pursue an international debt issue prior to an IPO, is Artel Electronics Group, Central Asia’s largest electronics and home appliance manufacturer.

Founded in 2011 to manufacture gas and electric stoves and vacuum cleaners, the company has grown its product line to include several dozen products including washing machines and TVs. Artel is also a regional partner of Samsung and manufactures products under the Samsung brand in their factories, while exporting to over 20 countries in Asia, Europe, the Middle East and Africa. In 2020 Artel sold over four-million appliances.

Artel is one of the most attractive consumer-electronics companies in the region and a company we will be keeping a close eye on as they are ideally positioned to benefit from the ongoing real estate boom in Uzbekistan as new homeowners will stock their homes with white goods, but also expanding its export markets as it can service Europe, the Middle East and Africa cheaper than many Chinese and Turkish producers at present due to global supply-chain bottlenecks.


Artel's washing machine production line

Artel's washing machine production line

(Source: Artel)


At the end of November 2021, the fund was invested in 27 names and held 16.6% in cash. The portfolio is allocated to Uzbekistan (83.40%) and Kyrgyzstan (0.03%). The sectors with the largest allocation of assets were materials (50.9%) and financials (15.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.80x, the estimated weighted harmonic average P/B ratio was 1.53x, and the estimated weighted average portfolio dividend yield was 5.40%.

 Back To Top 



AFC Asia Frontier Fund - Manager Comment


AFC Asia Frontier Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares returned −4.4% in November 2021 with a NAV of USD 1,539.03. The fund underperformed the AFC Frontier Asia Adjusted Index (−3.4%), the MSCI Frontier Markets Asia Net Total Return USD Index (−1.2%), and the MSCI World Net Total Return USD Index (−2.2%) but outperformed the MSCI Frontier Markets Net Total Return USD Index (−4.6%). The performance of the AFC Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +53.9% versus the AFC Frontier Asia Adjusted Index, which is up by 22.2% 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 10.5% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.53, all based on monthly observations since inception.

Concerns over the new “Omicron” COVID-19 variant had a negative impact on both equity and commodity markets globally which led to a correction across frontier markets, and this correction could be viewed as “healthy” after a strong run so far in 2021. After a very robust run since March 2020, the AFC Asia Frontier Fund had its first major correction in its NAV, led by weakness in Iraq, Pakistan, Kazakhstan, and Uzbekistan.

Despite a volatile month, there were very positive and significant developments for some of our portfolio companies. In Bangladesh, Softbank announced that it will be acquiring a 20% equity stake in the country’s leading fintech platform, Bkash, at a valuation of USD 2 bln. BRAC Bank, which the fund holds, and which has a 41% stake in Bkash, saw its stock price react positively to this news. At a valuation of USD 2 bln for Bkash, BRAC Bank’s core banking business is now available for almost free, which leaves further room for the stock to re-rate.

The Softbank investment is also a big vote of confidence for Bkash and its growth plans as it looks to build on its already-dominant position in the Bangladeshi digital payments space. Eventually, it would not be surprising to see Bkash IPO at some point in the future at a much higher valuation as has been the case with other Softbank fintech investments in the region, the most recent example being Paytm in India.




(Source: AFC Research)


We initiated a position in Square Pharmaceuticals (Square) during the month. Square is the largest pharmaceutical company in Bangladesh by market share and revenue. At a one year forward P/E ratio of 11.04x, the stock is now trading at its lowest ever P/E multiple since it was listed on the Dhaka Stock Exchange, and this makes it the cheapest “blue chip” stock in Bangladesh today. 

Lower revenue growth over the past few years compared to the competition has resulted in a de-rating in Square’s P/E multiple, but with sales growth picking up over the past few quarters the fortunes of the company could be turning. Furthermore, the fundamentals of the company are exceptional with a return on equity of 19.1%, minimal debt and a net cash position which is equal to 27% of its market capitalisation. This is pure value on offer even though the DSE Broad Index is up 29% this year.


Square Pharmaceuticals is currently the most attractively valued large cap stock in Bangladesh


(Source: Bloomberg)


The fund’s bank holding in Georgia, TBC Bank Group (TBC), declared excellent results with net profits for the quarter growing by 36%. TBC UZ, the bank’s Uzbek digital banking initiative, continued to gain significant traction with the number of users almost doubling in the past three months. This digital bank venture is a first for Uzbekistan on a large scale and it could potentially be a significant value generator for TBC shareholders. On the back of good results and a still very attractive P/E ratio of only 4.85x its estimated 2021 earnings, we increased the fund’s exposure to TBC during the month.




(Source: TBC Bank Group)


During the month, the fund subscribed to the IPO of Central Express in Mongolia which was the largest IPO in Mongolian stock market history. Central Express has the master franchise rights to run and operate “CU” branded convenience stores in Mongolia. CU is the largest and most well-established convenience store chain in South Korea and Central Express is looking to double its store count in Mongolia to 360 over the next few years from 185 stores at present.

CU has a 74% market share in the convenience store business in Mongolia and its delivery services through the “CU app” have taken off with more than 300,000 users which makes this the most popular app in Mongolia at present. Central Express is now the only pure-play modern retail company listed on the Mongolian Stock Exchange which gives us exposure to the growing penetration of modern retail in Mongolia.


A CU convenience store in Ulaanbaatar, Mongolia

A CU convenience store in Ulaanbaatar, Mongolia

(Source: AFC Research)


The post-lockdown economic recovery in Vietnam continues to play out with industrial production and exports witnessing a strong November. With the government looking to roll out a massive economic stimulus package equal to around 10% of GDP, we expect the economic momentum to remain in motion. We increased the fund’s position this month in jewellery retailer Phu Nhuan Jewellery (PNJ) as 2022 is expected to be a better year for consumer spending while earnings will see a recovery from a low base of 2021 when most of PNJ’s stores remained closed due to the strict social distancing requirements.



Vietnam Manufacturing

(Source: Bloomberg)


The State Bank of Pakistan raised benchmark interest rates by 150 basis points, more than what the market expected. The increase does not come as a surprise given the widening current account deficit, weakening currency and higher inflation and we expect further interest rate increases in the following months in order to strengthen the softer macro-economic fundamentals.

Looking at past patterns, the KSE-100 Index could re-rate once there are indications that interest rates have peaked out and the current account deficit is declining. In the meantime, with the KSE-100 Index trading at a P/E ratio of only 5.0x, there will be selective stock-picking opportunities. On a positive note, the IMF program is back on track with additional loan disbursements expected to begin in the next few months which should provide another layer of comfort to the macroeconomic outlook.


The KSE-100 Index in Pakistan trades at an all-time low P/E ratio of 5.0x but interest rates need to peak out for any major re-rating


(Source: Bloomberg)


The best performing indexes in the AAFF universe in November were Sri Lanka (+12.6%) and Vietnam (+2.4%). The poorest performing markets were Iraq (-12.0%) and Bangladesh (-4.3%). The top-performing portfolio stocks this month were a Sri Lankan consumer and healthcare company (+38.5%), a Mongolian construction materials company (+27.7%), a Vietnamese construction contractor (+25.7%), a Mongolian cashmere producer (+25.2%), and another Mongolian construction materials company (+24.3%).

In November, the fund bought a pharmaceutical company in Bangladesh and a convenience store operator in Mongolia. The fund also exited a shoe manufacturer and retailer in Bangladesh and a consumer appliance retailer in Pakistan. During the month, the fund also added to existing positions in Georgia, Mongolia, and Vietnam and reduced some existing positions in Mongolia and Vietnam.

At the end of November 2021, the portfolio was invested in 76 companies, 2 funds and held 7.6% in cash. The two biggest stock positions were a pump manufacturer from Vietnam (5.2%) and a pharmaceutical company in Bangladesh (4.4%). The countries with the largest asset allocation were Mongolia (22.8%), Vietnam (13.1%), and Uzbekistan (10.7%). The sectors with the largest allocation of assets were consumer goods (28.8%) and financials (11.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.93x, the estimated weighted harmonic average P/B ratio was 1.17x, and the estimated weighted average portfolio dividend yield was 3.34%.

 Back To Top 



AFC Iraq Fund Performance


The AFC Iraq Fund Class D shares returned −18.9% in November with a NAV of USD 635.22, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 12.1% during the month. The fund is up 12.3% year to date versus 10.4% for the index. Since inception, the fund lost 36.5% while the RSISUSD index is down 50.4%.

Following extremely strong performance over the last ten months, the AFC Iraq Fund was down 18.9% for the month as an unexpected foreign “fire-sale” concentrated in a few stocks, some of which are major holdings of the AFC Iraq Fund, impacted stock prices negatively in the second half of the month. The silver lining though is that the correction in the fund’s NAV this month has provided an excellent opportunity for investors to invest in the AFC Iraq Fund as this decline is not driven by fundamentals since the outlook for the fund’s portfolio companies remains robust while the country continues to witness a macro-economic turnaround and valuations have only become more attractive with the AFC Iraq Fund having an average harmonic price earnings ratio of 8.6x, price to book of 0.8, and a dividend yield of 4.5%.

The heaviest foreign selling, in absolute dollar terms as well as relative to the average daily turnover for particular stocks, was in AsiaCell Telecommunications (TASC), which was up 32.2% for the year by October but down 26.8% for the month, the Commercial Bank of Iraq (BCOI) which was up 54.2% for the year by October but down 17.2% for the month, and in the National Bank of Iraq (BNOI) which was up 114.3% for the year by October but down 41.7% for the month – all of which are among the top five positions in the AFC Iraq Fund. Stock prices are adjusted for dividends equivalent to yields of 7.4%, 5.8% and 9.2% announced in the year by TASC, BCOI and BNOI respectively.

Such intensive foreign selling would normally spook local retail investors. However, the smart local money tends to appreciate the true value of local assets in a way that eludes most foreign investors, irrespective of their sophistication or experience in frontier markets. This was the case this month as the smart local money feasted on the opportunity provided by such a fire-sale in blue-chip stocks. One local investor explained: “… I keep on buying this stock knowing that the next day brings lower prices, but how else can I acquire such meaningful positions?” or another investor who explained: “… I have no idea how large this foreign selling is, or for how long will it continue at such intensity, yet I will keep on adding to my positions in this stock, as otherwise how often does such an opportunity presents itself ?”  What is not explicitly stated, is the expectation that these stocks will rebound significantly and resume their price momentum once the selling concludes. A glimpse of such a rebound can be seen from the 30.4%, 18.8%, and 10.3% price increases in BNOI, BCOI, and TASC in the few trading days up to December 5th following the pause in, or easing of the intensity, of foreign selling.

The case for owning these stocks is based on their business prospects and likely earnings growth. For mobile telecom operator AsiaCell (TASC), growth is rebounding so far in 2021 following a difficult 2020 in which the company was negatively affected by the lockdown as many of its customers switched to fixed-line broadband from mobile broadband for their internet access. This led 2020 revenues to decline 9.4% year-over-year while pre-tax profit was down 0.6%. However, growth resumed in 2021 with revenues in the third quarter of 2021 (Q3/21) which were up 25.1% over Q3/20 and increased by 11.7% for the first 9-months of 2021 compared to the same period in 2020. Pre-tax profit increased by 31.1% in Q3/21 over Q3/20, and increased by 22.0% in the first 9-months of 2021 over the same period in 2020. The continued rebound of economic activity, and crucially the rollout of 4G-LTE introduced in early 2021, should support future growth and lead to the stabilization, and eventually a recovery in both the numbers of total subscribers and in the average revenues per subscriber (ARPU) as seen from the two charts below. By month end TASC was trading at a price earnings ratio of 6.6x, price to book of 1.3x, and with an effective dividend yield of 10.9%.



Iraq's COVID-19 Statistics




Iraq's COVID-19 Statistics

(Source: Rabee Securities’ research report on TASC, dated 11th November 2021)


The rationale for owning the top banks in the country is based on the expected revival of fortunes for the sector as discussed in our newsletters last year. The dividend announcements cited above, and the earnings of the top banks for 2020 and for the first nine months of 2021 underpin this argument. In the case of the Commercial Bank of Iraq (BCOI), its loan book was up 87.6% in the first nine months of 2021 and up 64.6% for the year in 2020. Customer deposits declined 17.7% in the first nine months of 2021 but grew by 86.0% for the year in 2020, while pre-tax earnings were up by 113.9% for the first nine months of 2021 versus the same period in 2020, and up 515.9% for the year in 2020. While the National Bank of Iraq (BNOI)’s loan book was up 113.4% for the first nine months of 2021 and up 88.0% for the year in 2020; its customer deposits increased by 99.5% for the first nine months of 2021 and by 67.3% for the year in 2020, and its pre-tax earnings were up by 46.6% for the first nine months of 2021 versus the same period in 2020, and up 116.0% for the year in 2020. By the end of November, the indicators suggest that BNOI’s momentum should continue unabated, sustained by an acceleration in both retail and corporate market growth, so that full year 2021 results would surpass those seen so far in 2021. BNOI’s growth story was featured in last month’s newsletter.

This concentrated selling in TASC, BCOI and BNOI was somewhat mitigated by significant foreign buying in the Bank of Baghdad (BBOB), up 14.3% for the month and 134.1% for the year. BBOB’s price momentum for the year was amplified by expectations that its majority owner, Burgan Bank of Kuwait, would sell its 51.8% stake. However, it is difficult to see which of the current top-quality local banks, or regional banks, is in a position to make such an acquisition that could gain the approval of the Central Bank of Iraq (CBI) – all of which explains the selling this month by local investors and some foreign investors as the stock kept on rising. BBOB’s loan book was down 7.1% for the first nine months of 2021 and down 5.3% for the year in 2020. Its customer deposits increased by 4.3% for the first nine months of 2021 and 33.8% for the year in 2020, while its pre-tax earnings were up by 67.9% for the nine months of 2021 versus the same period in 2020, and up 137.8% for the year in 2020. 

While the concentrated selling this month has significantly dented the AFC Iraq Fund’s performance, cutting the year-to-date returns by about two thirds, for all the pain it has caused we view it as a significant buying opportunity in the fund as well as in the stocks sunk by such selling. Furthermore, we believe that this decline, unlike the fund’s other significant decline of 11.3% for the month in April 2020, is purely technical in nature arising from a fire-sale in stocks in an illiquid market that has exaggerated price declines – and we share the sentiment expressed by local investors cited earlier, that this provides a major opportunity to acquire excellent assets that are usually difficult to acquire without paying premium prices.

Unusually absent from the intense trading activity, until the last few days of the month when local selling hit the stock, was Baghdad Soft Drinks (IBSD). IBSD had its own share of unwanted excitement in the summer as a consequence of the Iraq Stock Exchange’s (ISX) delayed decision to implement the law limiting foreign ownership to 49%. The company’s stellar growth, of both the top and bottom lines (chart below), over the last few years made it a foreign investor’s favourite and probably the top holding by a wide margin among their investments on the ISX – as such foreign ownership exceeded the limits allowed by law. The implementation of the law on foreign ownership limits meant that the stock missed out on the demand coming from new foreign investments, and thus from the increased price momentum that it usually benefited from. All of which explains local selling that sent the stock down 16.1% in the month, or down 3.8% for the year by end of November – the price is adjusted for a dividend corresponding to a 4.3% dividend yield announced in April 2021.



Brent Crude Chart

(Source: Rabee Securities’ research report on IBSD, dated 9th September 2021)


Baghdad Soft Drinks’ consistently strong growth of both its top and bottom lines was not affected by the lockdown and the economic havoc brough in its wake in 2020. However, 2021 was a different story. The 22.7% devaluation of the IQD versus the USD in late December 2020 hurt the company’s cost structure as the prices for most of its raw materials and packing goods are in USD. The increases in costs were further exacerbated by the significant worldwide price rise of commodities – in particular imported aluminium used for cans, and domestically sourced sugar. As such, the cost of goods sold increased by 40.7% for the first nine months of 2021 versus the same period in 2020, overwhelming impressive revenue growth of 26.4%, with the result that pre-tax profits were down 17.5%. In 2020, year-over-year revenues increased by 12.6%, cost of goods sold by 10.9%, and pre-tax profit by 20.9%.

The changed fortunes for IBSD in 2021, however, are temporary and one-off in nature as the high year-over-year cost increases will moderate significantly and most likely decline next year and beyond; while sales momentum will continue to accelerate supported by both its organic strong product line-up as well as the line-ups from its recent acquisitions (chart below).



Brent Crude Chart

(Source: Rabee Securities’ research report on IBSD, dated 9th September 2021)


One of IBSD’s acquired line-ups is PepsiCo's water brand Aquafina, which came from its first acquisition of the Aquafina licence holder “Ynabee' Al Zawraa Company”. According to Rabee Securities, Aquafina’s unit production increased by 14% year-over-year in 2020 to account for 21% of total production. The product, like all company products, is manufactured in the company’s world-class production plants in Al-Za’franiya on the outskirts of Baghdad as can be seen from the photos below from a recent visit to the company.


Aquafina’s production lines with the new 70,000 bottles per hour line added in 2019

Brent Crude Chart

(Source: AFC Research)


Aquafina bottles ready for distribution

Brent Crude Chart

(Source: AFC Research)


To conclude, we strongly believe that the technical nature of this fire-sale concentrated in a few high-quality companies, with strong earnings profiles, presents a significant buying opportunity that the fund is well positioned to capture and benefit from as the broader macro-economic backdrop of the country continues to improve and which should lead to a reversion to the upside in stock prices. 

At the end of November 2021, the AFC Iraq Fund was invested in 13 names and had a cash level of −0.5%. 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 (97.8%), Norway (2.2%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (64.8%) and consumer staples (14.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.61x, the estimated weighted harmonic average P/B ratio was 0.84x, and the estimated weighted average portfolio dividend yield was 4.46%.

 Back To Top 



Seasons Greetings