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Asia Frontier Capital (AFC) - April 2022 Update


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 "Invest for the long haul.

Don’t get too greedy and don’t get too scared."

- Shelby M.C. Davis - American philanthropist and retired investor and money manager


Year to DateSince
AFC Asia Frontier Fund USD A1,447.03-3.4%4-8.5%+44.7%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D738.21-8.2%+6.5%-26.2%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F2,024.25+2.0%4+0.7%+102.4%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,525.33-5.8%-0.8%+252.5%
Ho Chi Minh City VN Index (in USD) -8.9%-9.3%+146.9%
  1. The NAV given is for the lead share series for the relevant master fund. Investors’ holdings may be in a different share class, series, or currency and have a different NAV. See the factsheets and/or your statement for full details.
  2. Between 31st May 2017 and 30th November 2021 the benchmark was adjusted to be 37% of the MSCI Frontier Markets Asia Net Total Return USD Index “MSCI Index” and 63% of the Karachi Stock Exchange 100 Index in USD due to the removal of Pakistan from the MSCI Index during this period.
  3. NAV and performance figures are all net of fees.
  4. Performance is for the period from 1st March 2022 to 30th April 2022 as no NAV was issued for March 2022 for these funds.

AFC Market Update Webinar

We conducted a market update webinar for all four of our funds on Friday, 29th April 2022. Many current and prospective investors attended the event and posed some excellent questions. If you missed our webinar, you can still watch the replay by clicking on the link below, or view the webinar presentation, which is linked below as well.


The key takeaway from the webinar was that Asian frontier markets have historically bounced back strongly after any major global market downturn like we are seeing now and therefore investors should remain invested through the market cycle rather than exiting their frontier and emerging market exposure when we are now closer to the bottom.

We will conduct these webinars on a regular/quarterly basis in order to provide timely and detailed updates on the markets we invest in.

The next webinar update will be on Thursday, 28th July 2022 - save the date!

We will send out an invitation to attend in due course.

Economic growth in Asian frontier markets holds up despite IMF downgrades to global GDP growth

The International Monetary Fund (IMF) downgraded global GDP growth forecasts in its most recent World Economic Outlook update in April 2022 as the impact of the Russia-Ukraine conflict, higher commodity prices, and interest rates hinder economic growth.

Though these factors are global and will be felt by almost all countries, the GDP growth outlook for Asian frontier countries remains robust and ahead of other developing regions, which reflects the structural growth story in our universe.

GDP growth over the next five years will be led by Bangladesh and Vietnam, with both countries posting an average growth rate of almost 7% since both of them have rising exports, improving infrastructure, and very favourable demographics.




GDP Growth in Asia Frontier Capital

(Source: International Monetary Fund)



GDP Growth in Bangladesh

(Source: International Monetary Fund)


BarclayHedge Awards

BarclayHedge Awards



Our winning streak of performance awards from BarclayHedge is being extended for a seventh month with two additional awards this time for the AFC Vietnam Fund. The fund was ranked in the TOP 10 of funds in the sectors “Emerging Markets – Asia” and “Emerging Markets Equity – Asia”. These awards once again show the validity of the investment thesis of the AFC Vietnam Fund and underline that it is well suited as a diversification tool for many equity investors.

Please find the manager’s comments relating to each of our four funds for April 2022 below.

If you have any questions about our funds or would like to receive additional information, please be in touch with our team at This email address is being protected from spambots. You need JavaScript enabled to view it..



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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund (Non-US) Class F shares returned +2.0% during the period from 1st March 2022 to 30th April 2022 with a NAV of USD 2,024.25, bringing the return since inception (29th March 2019) to +102.4%, while the year-to-date return stands at +0.7%. On an annualized basis, the fund returned +25.7% p.a. with a Sharpe ratio of 1.74.

During April 2022, the previously mentioned stock dividend issue with the fund’s largest holding, Uzmetkombinat (TSE: UZMK), was resolved and the stock resumed trading, ending April up +53.9% from 28th February 2022. This helped lead the fund to end the month higher.

AFC Uzbekistan Fund valuations as of 30th April 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 6.09x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 4.68%


Uzmetkombinat pricing issue resolved

On 12th April 2022, after a multi-week trading halt, Uzmetkombinat (TSE: UZMK) resumed trading and its share price subsequently adjusted lower to account for the 10 bonus shares received in lieu of a cash dividend. Shares of the company ended April 53.9% higher from 28th February 2022, ending the month at UZS 17,490.

On the privatisation front, during April 2022 the Ministry of Finance announced a request for proposal from underwriters as the ministry looks to place up to 5% of the shares it holds in Uzmetkombinat for sale. The government currently holds 80.68% of UZMK, and this further privatisation is the first phase in the government’s plan to decrease its ownership. We believe this share sale represents a great opportunity for investors looking to enter Uzbekistan’s capital markets, especially those seeking bigger tranches of shares which are challenging to acquire on the open market due to the low free-float.

UZMK is set to remain a long-term core holding of the AFC Uzbekistan Fund as it provides us with high quality exposure to the rapidly growing Uzbek economy. Furthermore, in the middle of the decade, once UZMK has completed its capacity expansion, the company should be able to expand on its current 70-75% domestic market share in the steel market and further crowd out foreign imports. 

On the earnings front, during April UZMK reported first-quarter earnings results which were once again spectacular. First-quarter earnings per share and book value per share grew by 50% and 70% respectively. This translates into a P/E ratio on a trailing-twelve-months basis of 5.52x and a price-to-book value of 2.62x. The stock therefore remains cheap relative to its growth prospects, even though the company’s month-end closing share price represents a 1,649% gain from our initial purchase of shares, excluding dividends! 

We are optimistic about a handful of listed companies with similar growth prospects to UZMK and continue to see long-term growth opportunities on the Tashkent Stock Exchange continuing to trade at deep value prices, indicating to us that we are still in the early innings of Uzbekistan’s secular growth story. 

Uzbekistan - better positioned than most for a potential global food crisis

The 2020’s may very well come to be characterised as the “decade of instability” due to volatile commodity prices which will likely lead to social unrest in many countries left unprepared. Therefore, we think it is worth taking a brief look at Uzbekistan’s agricultural sector and how the industry is being repositioned to bolster domestic food security, along with preferential policies in the broader consumer market for agricultural products. While the AFC Uzbekistan Fund has only a moderate exposure to agriculture through consumer goods companies and vegetable oil crushing plants (we are consistently looking for ways to grow this exposure), as the world is in the early throes of what is shaping up to be a prolonged energy and subsequent food crisis, maintaining Uzbekistan’s economic and social stability through ample supply of food and energy will be critical in positioning the country to prosper over the long-term.

As Sri Lanka, and surely other countries in due course will show, food and energy security are paramount to maintaining economic and social stability in a world of shortages and inflation. Sri Lanka is among the most pronounced cases today of a country that has lost control of its economy, having nearly run out of foreign exchange to purchase fuel and rapidly heading toward an IMF bailout. The effects of Sri Lankan President Gotabaya Rajapaksa’s move to lower income taxes led to falling government revenue, which was exacerbated by COVID-19, and the government then decided to ban the import of various goods, including fertilizer, to slow the rate of foreign exchange depletion. As the country pivoted toward more organic agriculture in light of the fertilizer import ban, within six months farmers were witnessing a 20% decrease in rice yields. The general strain put on countries who are net importers of food and energy is not to be taken lightly, and while we are of course biased, we believe Uzbekistan is among the best countries in Asia, if not the world, to weather the growing storm.

The sixth-largest producer of cotton in the world, Uzbekistan’s cotton sector is water-intensive, while the Central Asian region is experiencing rising levels of water stress due to increasing agricultural output and rising populations. The Uzbek government has therefore been looking to decrease cotton allocation and reallocate land for grains and horticultural products. 

Uzbekistan is surprisingly quite self-sufficient in satisfying its protein demand, with 93% of animal protein (chicken, beef, lamb, fish) produced domestically, the balance of which is sourced mainly from Kazakhstan and Belarus. However, the grains (soy, corn, and wheat) used in the production of animal protein are mainly imported, along with oilseeds (soy and sunflower) which are then crushed to produce cooking oil. It thus makes sense that the government is searching for ways to further increase the resiliency of the country’s food supply chain.

Uzbekistan hosts a little over 4 mln hectares of arable land, equating to about 10.3% of the country’s land area, and on roughly 1 mln hectares of this land, cotton is grown. In a bid to increase domestic food production, last November President Mirziyoyev announced that 80,000 hectares of land for cotton would be re-allocated for food production. This is in line with the government’s plan to increase wheat production to 7.7 mln tons (up from 6.5 mln tons in 2020) and 23 mln tons of horticultural products. It was further announced that the Ministry of Agriculture will be tasked with reclaiming 100,000 hectares of agricultural land in order to further increase planting area.

In April, the government also proposed extending the exemption of value-added tax (VAT) on imported foodstuffs through the remainder of 2022 in order to decrease domestic prices and counteract rising inflationary pressures. The VAT exemption will cover meat, oilseeds, butter, and a variety of horticultural products.

While we are anxiously waiting for some food processors and dried fruit companies to IPO (we believe they will in due course as the capital markets develop further, making it easier for companies to raise larger amounts of capital), in the meantime, we believe Uzbekistan is well-positioned in the current global environment of rising protectionism and resource nationalism. Uzbekistan continues to impress us with its semi-protectionist policies and focus on decreasing reliance on the global economy for its economic and social stability. Certainly taboo in the context of “pro-globalisation”, we don’t think it would be unlikely to see countries following in Uzbekistan’s footsteps over the coming years as the battle to secure resources and bolster domestic supply chains goes mainstream; this is one of the key ingredients to Uzbekistan maintaining social stability and allowing the government to focus on growth and further liberalization initiatives. We continue to remain optimistic about Uzbekistan and believe now is the time to be involved in the country’s growth story as the proverbial train is only just leaving the station.

At the end of April 2022, the fund was invested in 28 names and held 8.0% in cash. The portfolio was allocated to Uzbekistan (91.93%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (53.0%) and financials (23.2%). The fund’s estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.09x, the estimated weighted harmonic average P/B ratio was 1.29x, and the estimated weighted average portfolio dividend yield was 4.68%.

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AFC Asia Frontier Fund - Manager Comment

AFC Asia Frontier Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares returned −3.4% during the period from 1st March 2022 to 30th April 2022 with a NAV of USD 1,447.03 at the end of April 2022. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−9.5%), and the MSCI World Net Total Return USD Index (−5.8%) but underperformed the MSCI Frontier Markets Net Total Return USD Index (−2.8%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +44.7% versus the benchmark, which is up by +4.3% during the same period. The fund’s annualized performance since inception is +3.7%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualized volatility of 10.5% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.55, all based on monthly observations since inception.

The last two months were volatile for global markets as investors adjusted to a more aggressive outlook on interest rate hikes by the Fed. However, like in previous episodes of global risk-off, the AFC Asia Frontier Fund once again outperformed the MSCI World Index, which corrected by -5.8% versus our fund, which declined by 3.4%. In the past, we have seen the AFC Asia Frontier Fund withstand such a risk-off environment due to the lower correlation of our fund vs. global markets.



AFC Asia Frontier Fund Returns

(Source: Bloomberg, *when MSCI World Index has dropped more than 5% in a month)


Though there is a widely held perception that the conflict between Russia and Ukraine will be negative for Central Asia, we do not fully agree with these perceptions and believe that there will be longer term benefits for the region. We are already seeing the positive spillover of the economic and geopolitical ramifications on Russia which is benefitting countries in our portfolio like Georgia, Kazakhstan, and Uzbekistan.

In Kazakhstan, the country’s leading bank, Halyk Bank, (which the fund holds) announced last month that it would be acquiring Sberbank’s consumer portfolio in Kazakhstan. Before the sanctions hit, Sberbank was Kazakhstan’s third largest bank by assets and the addition of a clean consumer portfolio to Halyk Bank’s balance sheet will only strengthen the bank’s position in Kazakhstan. (Note: Sberbank is the largest bank in Russia by assets)

Furthermore, the well-known Russian motorcycle manufacturer, Ural Motorcycles, announced that it will be shifting its motorcycle production from Russia to the northern city of Petropavlovsk in Kazakhstan. We would not be surprised if other Russian companies also move some of their production to Central Asian countries like Kazakhstan which offers a well-established manufacturing base.


The world-renowned Ural Motorcycles is shifting its production to Kazakhstan from Russia

Ural Motorcycles

(Source: Ural Motorcycles)


Georgia’s tourism sector is also benefitting from the arrival of a larger number of long-term Russian visitors as the country’s tourism revenues witnessed a large spike in March 2022. Rental demand in the capital Tbilisi has shot up over the past few months primarily due to the arrival of longer-term Russian visitors who can live and work with easy access to financial services and travel.



Georgia tourism revenues

(Source: Galt & Taggart)


Sticking to Central Asia, the fund’s fintech holding in Kazakhstan, Kaspi, declared excellent results with 1Q22 net profits growing by 49%. More importantly, the company maintained its guidance of 20-30% net profit growth in 2022 which reflects management execution capability in a volatile macro-economic environment. Kaspi remains undervalued in our view given that it has built a profitable and scalable fintech platform unlike many of its peers in Asia which are expected to be loss making in the foreseeable future. Kaspi’s stock price gained 30% in April making it the best performing stock for the fund this month.

As discussed in last month’s manager comment, the fund initiated investments in Arab Potash and Jordan Phosphate Mines as both companies will benefit from significantly higher potash and phosphate prices. Arab Potash and Jordan Phosphate Mines reported results with their 1Q22 net profits growing by 3x and 2.6x respectively which reflects the significantly higher potash and phosphate selling prices. Both stocks now trade at about 5x their estimated 2022 earnings which still leaves more upside on the table. 

Vietnam’s VN-Index corrected by 8.4% on the back of a retail investor sell off due to concerns surrounding an investigation into market practices of certain individuals and smaller brokerage houses. Furthermore, there are worries on the outlook of the real estate sector since there has been a crackdown on bond issuances by real estate companies and this could also impact credit growth for the banking sector if the property market slows down due to the overhang on bond issuances. The fund does not hold any bank or property companies in its portfolio currently. 

The details above is all “noise” to us and we are not concerned by this market correction in Vietnam as we own quality companies which have declared excellent results in 1Q22. Our top picks, FPT and GMD, reported net profit growth of 37% and 86% respectively. 

Furthermore, besides owning blue-chip companies in Vietnam, the country’s macro indicators continue to strengthen with April 2022 numbers showing export growth of 25%, industrial production growth of 9.4% and retail sales growth of 12.1%.



Vietnam Exports

(Source: Bloomberg)



Vietnam Retail Sales

(Source: Bloomberg)


Sri Lanka has finally bitten the bullet and has approached the International Monetary Fund (IMF) for a loan program. However, before signing off on an IMF deal the country would need to restructure its international sovereign bonds on which it has decided to suspend payments to bondholders. If all goes to plan, Sri Lanka could be looking at an IMF deal sometime this summer or in the fourth quarter of 2022. 

The IMF deal will come with very strong strings attached in the form of tax increases, further reforms, and potentially higher interest rates. It would not be surprising to see a new government come into power as passing such tough measures would be politically unstable for any ruling government. However, there are few good policy choices given the situation the country is in.

The fund’s weight to Sri Lanka is currently only 2%. The Colombo All Share Index is now down -66% this year in USD terms and it trades at a P/E of 6.4x which could provide some near-term opportunities. But taking a longer-term view and looking at the past dilly-dallying track record of successive governments in executing policy, we would watch to see how any current or future government will overcome the near-term challenges in executing policy.

The best performing indexes in the AAFF universe during the period from 1st March 2022 to 30th April 2022 were Jordan (+12.1%) and Pakistan (+1.8%). The poorest performing markets were Sri Lanka (−34.1%) and Kazakhstan (−9.8%). The top-performing portfolio stocks in this period were a Mongolian coking coal miner (+73.8%), a Jordanian phosphate miner (+59.7%), a Jordanian potash miner (+23.8%) a Mongolian convenience store operator (+21.1%), and a Pakistani beverage can producer (+19.5%).

During the period from 1st March 2022 to 30th April 2022, the fund bought one potash miner and one phosphate miner in Jordan, purchased a nickel miner in Vietnam and sold a mall operator in Mongolia. The fund also added to existing positions in Cambodia, Kazakhstan, Mongolia, and Sri Lanka and reduced exposure to some positions in Mongolia.

At the end of April 2022, the portfolio was invested in 78 companies, 2 funds and held 3.4% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (4.2%) and a convenience store operator in Mongolia (4.1%). The countries with the largest asset allocation were Mongolia (23.5%), Vietnam (12.3%), and Iraq (11.6%). The sectors with the largest allocation of assets were consumer goods (27.7%) and materials (14.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.40x, the estimated weighted harmonic average P/B ratio was 1.13x, and the estimated weighted average portfolio dividend yield was 3.21%.

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AFC Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund returned −5.8% in April with a NAV of USD 3,525.33, bringing the year-to-date return to −0.8% and return since inception to +252.5%. This represents an annualized return of +16.3% p.a. since inception. The Ho Chi Minh City VN Index lost 8.9% in April 2022, and −9.3% year-to-date in USD terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.95%, a Sharpe ratio of 1.11, and a low correlation of the fund versus the MSCI World Index USD of 0.54, all based on monthly observations since inception.

Market Developments

The reason for April’s correction in the Vietnamese stock market is severalfold. On one hand, the stock market held up impressively well over the past few months, despite global volatility. But short-term sentiment started turning negative at the beginning of the month due to increased inflation pressure and hence higher interest rate expectations, and the ongoing investigations by the government into manipulations in the real estate sector and the stock market. All these led to a sell-off which triggered many margin calls, accelerating the decline, and hence pushed the indices sharply lower. The VanEck Vietnam ETF, for example, shows a negative return of over −20% for the first four months of 2022!


VN Index (November 2003 – April 2022)

VN Index (November 2003 – April 2022)

(Source: Bloomberg)


From a technical angle, it looks like this correction could come to an end, given the strong support levels. For the first time in two years, the RSI (relative strength index) shows an oversold condition, after many inexperienced investors had to sell their highly leveraged positions. Also, the valuation with a P/E of around 15x now looks very attractive, combined with the latest upbeat GDP growth forecast from the IMF of around 6% for 2022, despite the current turmoil, and 7.2% for 2023! Also, their 2022 inflation forecast is moderate, at 3.8%, and 3.2% for 2023.

Credit tightening for Asset Speculations

As in many countries around the world, house and land prices in Vietnam increased sharply during the COVID-19 pandemic and hence attracted huge investment capital last year. Also, the Vietnamese stock market attracted significant capital inflows and the VN Index achieved phenomenal performance of over 35% in 2021. After the recent correction, the index is now up 39% over 3 years, which brings the market to a better alignment with the development of the economy. With the approval of the giant economic stimulus package of USD 15 bln at the beginning of 2022, the Vietnamese government made sure this economic stimulus capital flowed into manufacturing rather than into asset speculation. The State Bank of Vietnam had therefore informed the various financial institutions in Vietnam to reduce credit lines to real estate and to reduce their margin lending business for securities to focus on providing more credit lines to the manufacturing sector. Local investors started worrying that these policies might affect the stock market, given that the real estate and banking sector is more than 50% of the total stock market capitalisation. We therefore saw a sharp sell-off in banking and real estate stocks in April, with many stocks in these two sectors plunging more than 10%. Already since the middle of 2021 we started reducing our exposure to these two sectors aggressively and we now have a combined weight of less than 1%.

Government Investigations

The Vietnamese Government recently stepped up its efforts to investigate real estate and stock market manipulation. In a surprise move, they arrested a Vietnamese billionaire and two of his company’s executives for manipulating the price of his listed real estate company, FLC, together with connected companies such as ROS, ART, HAI, and AMD. Authorities have also arrested the founder of a large unlisted real estate company on suspicion of "fraudulent appropriation of assets".

These government investigations also triggered disciplinary actions of the top management of the Ho Chi Minh Stock Exchange, along with the State Securities Commission (SSC) for failing to perform their duties and allowing for ethically questionable events to occur.

We believe these government actions are positive for the long-term development of the Vietnamese stock market, but they do have a shocking effect in the short-term sentiment mainly for new investors who viewed this fraudulent behaviour as “normal”.

Inflation Pressure

Local investors were also worried about global inflation pressures which will certainly have an impact on Vietnam too. The March CPI (inflation rate), however, increased only slightly so far to 2.1%, which is of course at a much lower level than in Europe or in the U.S. But the fear is that rising inflation and interest rates will have a negative impact on stock and real estate markets. For example, Vietnam Prosperity Bank (VPB), the second largest private bank in Vietnam, announced last week it would increase deposit rates by 20-80 basis points across tenors and e.g. their 3 year deposit rate increased from 6.1% to 6.9% with a minimum investment of VND 50 bln. But the 3-year deposit rate at Techcombank, the largest private bank in Vietnam, is already at 7.8% with a minimum investment of VND 999 bln. This fear of higher interest rates and hence the stock market sell-off is quite visible when you look at the VN Mid-cap Index, which declined by -13% in April, but the long-term uptrend is still intact. When looking at the RSI, it is in oversold territory as well. 


VN Mid-cap Index (July 2016 – April 2022)

VN Mid-cap Index (July 2016 – April 2022)

(Source: Bloomberg)


Vietnam valuation since 2015 (P/E) - Valuation Comparison to other Markets

Vietnam valuation since 2015 (P/E) - Valuation Comparison to other Markets

(Source: Bloomberg, AFC Research)


The average earnings growth of listed companies in Vietnam is expected to be around 20% in 2022 which would bring the forward P/E of the VN Index to a very attractive 12x. On a trailing basis, the VN Index is trading at its lower band over the past 6 years.

As we mentioned in our previous reports, we believe that the insurance sector will benefit in a rising interest rate environment and year-to-date this sector outperformed the VN-Index by over 14%. Given our positive view, the insurance sector has an exposure of around 25% in our portfolio.

Positive Outlook for Seafood and Garment Sectors

Besides the immense human tragedy, the conflict in Ukraine also has a negative impact on economic growth around the globe and is affecting many companies negatively. But the seafood sector in Vietnam, for example, saw strong demand out of Europe, triggered by EU sanctions on Russian goods, including seafood such as catfish and shrimps. Given that Vietnam has had a free trade agreement in place with Europe since late 2020, some companies in Vietnam are significantly benefitting from this increased European demand. Vietnam’s shrimp exports to Europe increased by 66% YoY, to USD 159 mln and pangasius (catfish) exports to Europe increased by 76% yoy, to USD 28 mln in the first 3 months of 2022.

China’s “Zero-COVID” policy forced many garment factories to shut down completely or to reduce production capacity. Due to Vietnam’s much more liberal COVID-19 policy, opening up its economy completely, many garment orders were redirected from China to Vietnam. Given that the Chinese garment industry is so much bigger than Vietnam’s, it only needs a small shift in production from China to Vietnam in order to make a significant impact. Often large brands, such as Nike or Adidas, have production facilities in both countries and they can easily shift part of their production from one country to the other. Vietnam’s garment export revenues in the first 4 months of 2022 therefore reached USD 11.8 bln an increase of +21.6%.


COVID-19 situation is improving

COVID-19 situation is improving

(Source: Vietnam Health Ministry, CSSEGISandData)


Many listed seafood and garment companies, such as VGG, VHC or MPC, were able to increase their profit targets by over 50% in 2022. Viettien Garment Group (VGG) is the largest local garment exporter in Vietnam with annual revenue of around USD 400 mln. The company has a strong balance sheet with no debt and a cash balance of USD 38 mln compared to a market cap of USD 81 mln. As with many other garment companies, VGG was severely impacted by the COVID-19 pandemic over the last two years due to reduced production capacity. Its profit tumbled from VND 504 bln in 2019 to VND 100 bln in 2021, but is now expected to recover quickly due to improved COVID-19 policies. The company is forecasting a profit of VND 150 bln in 2022, an increase of 50% compared to 2021. In addition to that, the stock is trading at attractive levels at around book value and with a forward P/E of 10x, compared to an average sector valuation of a forward P/E of 15x. 

At the end of April 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.3%) – an insurance company, PVI Holdings (6.6%) – also an insurance company, Tuong An Vegetable Oil JSC (5.3%) – an edible oil producer, Everpia Vietnam JSC (5.0%) – a bedding manufacturer, and Power Engineering Consulting JSC No. 2 (4.7%) – a consulting firm.

The portfolio was invested in 49 names and held 1.5% in cash. The sectors with the largest allocation of assets were consumer (44.4%) and financials (23.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 11.37x, the estimated weighted harmonic average P/B ratio was 1.66x, and the estimated weighted average portfolio dividend yield was 3.62%.

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AFC Iraq Fund Performance


The AFC Iraq Fund Class D shares returned −8.2% in April with a NAV of USD 738.21, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 7.0% during the month. The fund was up 6.5% year-to-date versus 8.2% for the index. Since inception, the fund has lost 26.2% while the RSISUSD index is down 41.1%.

The market’s strong gain of 27.8% from November 2021 to the end of March 2022 was an excuse for profit-taking during the fasting month of Ramadan which coincided with the month of April 2022. The market’s bullish technical picture is still intact as can be seen from the chart below showing that the RSISX USD Index has pulled back to the upper end of its two-year uptrend – an uptrend that ended a brutal multi-year bear market. A much healthier picture than that of most markets worldwide. This underscores its attractive risk-reward profile and diversification benefits versus these markets, especially considering that Iraq’s economy, unlike most economies worldwide, is a significant beneficiary of the high oil price environment, in place over the last 18 months and solidified following the invasion of Ukraine.



RSISX USD Index vs Average Daily Turnover

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 29th April 2022)


Among the index's constituents, the best performing was National Chemical and Plastics Industries (INCP) up 9.9%, followed by Al-Mansour Pharmaceutical Industries (IMAP) up 3.1%, and Asiacell (TASC) up 1.3%. All other constituents were down with the worst performer being the National Bank of Iraq (BNOI) down 19.4%. Other decliners were the Commercial Bank of Iraq (BCOI) down 11.1%, the Bank of Baghdad (BBOB) down 6.8%, Baghdad Soft Drinks (IBSD) down 4.1%, Al Mansour Bank (BMNS) down 3.9%, Al-Kindi of Veterinary Vaccines and Drugs (IKLV) down 1.3%, and Kharkh Tour Amusement City (SKTA) down 1.1%. Al-Kindi of Veterinary Vaccines and Drugs (IKLV) replaced Gulf Commercial Bank (BGUC) in the latest index rebalance on 3rd April 2022 by Rabee Securities as part of their regular index rebalancing.

Iraq is a massive beneficiary of high oil prices

The changed geopolitical landscape, as a consequence of the Russia-Ukraine conflict, will have significant consequences for the supply and demand of oil, which in turn will be transformational for Iraq, its economy and equity market over the next few years.

Reflecting these changed oil supply-demand dynamics, future oil price expectations, as measured by Brent crude futures contracts, continue to be high (green line in the chart below), but moderating from the unsustainable highs in the immediate aftermath of the invasion (maroon line in the chart below). This in combination with similarly sharply increasing food prices, will inhibit future world economic growth, as articulated by the IMF in its latest “World Economic Outlook” in which it lowered the outlook for both 2022 and 2023 world economic growth to an increase of 3.6% following an estimated increase of 6.1% in 2021. Despite slowing world economic growth from the effects of high commodity prices, demand for oil will outstrip supply in the medium term, given the need by Western governments to ensure energy security and end dependence on Russian oil.  

Consequently, these lowered expectations for future oil prices, even if they moderate further, would still be significantly higher than those at the end of last year (grey line in chart below), supporting AFC’s thesis that “oil prices at these levels are positive for the country’s financial position in that they will provide governments, current and upcoming, with the wherewithal to continue with current expansionary economic policies that will also allow for the accumulation of budget surpluses.”



Brent Futures Contracts

(Source:, data as of 25th April 2022)


A sense of the expected government’s surpluses can be seen by considering that Iraq’s oil export sales could be USD117bn, and USD110bn in 2022 and 2023, should Brent crude prices average USD100/bbl and USD90/bbl for 2022 and 2023 (chart below). Contrasting these with 2021’s budget expenditures of about USD75bn gives a scale of the fiscal space available for the government to pursue expansionary budgets, as well as to mitigate the effects of rising food prices on the economy. To this end, the government is proposing a USD17bn “Emergency Food Security Support” bill under review by Parliament – which should have similar positive effects on the economy to those achieved by the economic support measures undertaken by governments worldwide in 2020 during the worst of the COVID-19 crisis.



Iraq Monthly Oil Sales

(Source: Ministry of Oil, AFC Research. Projections are based on assumptions of average Iraqi oil price at a 3.5/bbl discount to Brent crude as given by future contracts in the prior chart, and unwinding of the OPEC+ deal by end of 2022)


Iraq’s equity market in the meantime is in the process of emerging from a multi-year bear market, in which it discounted all conceivable negatives that dwarf, by orders of magnitude, those that other global markets are in the process of discounting. The Rabee Securities RSISX USD Index’s 68.0% decline from its 2014 peak to the end of 2020 includes back-to-back declines of 5.4% in 2020, 1.3% in 2019, 15.0% in 2018, 11.8% in 2017, 17.3% in 2016, 22.7% in 2015, and 25.4% in 2014. Clearly, the market’s year to date gain of 7.9%, coming on the back of a +21.4% return in 2021, represents a break from the past in that the market has established a sustainable up-trend as seen from the first chart. However, the index by the end of April 2022 is still 57.9% below the peak in 2014 – underscoring the potential catch-up upside for the equity market as it begins to fully appreciate the economic implications of a sustained period of high oil prices.

In conclusion, we believe that Iraq’s value proposition is compelling as its economy is a huge beneficiary of the high crude oil price environment, while its equity market is in the very early stages of emerging from a multi-year bear market, and as such its risk-reward profile is very attractive against most global markets (chart below). Moreover, we believe that the AFC Iraq Fund’s holdings will enable it to continue to outperform its benchmark, as they are well-positioned to capture and benefit from the revival of the broader macro-economic backdrop of the country on the back of the higher crude oil prices. 

These views were discussed on Friday 29th April 2022 during AFC’s “Asian Frontier Markets Update” webinar. The Iraq section starts at minute 24:42 following a broad review of all AFC’s Asian Frontier Markets.


Normalized five year returns for the RSISUSD Index vs MSCI World Index, MSCI Emerging Markets Index and MSCI Frontier Markets Index

Normalized five year returns for the RSISUSD Index vs MSCI World Index, MSCI Emerging Markets Index and MSCI Frontier Markets Index

(Source: Bloomberg, data as of 27th April 2022)


At the end of April 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of −0.6%. 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 (97.5%), Norway (2.5%), and the UK (0.6%).

The sectors with the largest allocation of assets were financials (64.7%) and consumer staples (14.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.39x, the estimated weighted harmonic average P/B ratio was 0.90x, and the estimated weighted average portfolio dividend yield was 2.61%.

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