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Asia Frontier Capital (AFC) - August 2022 Update

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“Life consists not in holding good cards but in playing those you hold well.”

- Josh Billings, aka Henry Wheeler Shaw – American humour writer and lecturer


Year to DateSince
AFC Asia Frontier Fund USD A1,304.95+2.4%-17.5%+30.5%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D684.32+2.6%-1.2%-31.6%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,830.90+2.2%-8.9%+83.1%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,332.33+1.8%-6.2%+233.2%
Ho Chi Minh City VN Index (in USD) +5.7%-16.8%+126.6%
  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.

Strong rebound for Asian frontier markets

Asian frontier markets witnessed a strong rebound in August which further signifies the diversification benefits of our universe as they are less correlated with global markets. Despite the S&P500 correcting by -4.2%, all our funds posted a positive performance this month.

Pakistan, Sri Lanka, Kazakhstan, and Vietnam were among the top-10 performing markets globally in August as domestic investors in these markets took advantage of extremely attractive valuations. We have made this point before: valuations in Asian frontier markets are at a considerable discount to the historical average (as the chart below shows) and any volatility in global markets would be a good entry point into Asian frontier markets with a 12–18-month view from here.



Sri Lanka, Pakistan, Kazakhstan and Vietnam were among the top 10 performing markets globally in August (returns in USD)

(Source: Bloomberg)


The P/E ratio of the MSCI Frontier Asia Index
continues to trade at a big discount to the S&P 500

The P/E ratio of the MSCI Frontier Asia Index continues to trade at a big discount to the S&P 500

(Source: Bloomberg)


AFC participates in the Asia Investment & Banking Conference

As has become a norm, AFC participated in the Asia Investment & Banking Conference for the fifth consecutive year. We continue to support this excellent platform organised by the students at the London School of Economics. Ruchir Desai, co-manager of the AFC Asia Frontier Fund, once again took part in the Asset Management panel held on 5th September.










We are pleased to let you know that our AFC Vietnam Fund has been nominated for the HFM Asian Performance Awards 2022 in the category ‘Single Country Fund’. Once again, it shows that our overall AFC Vietnam Fund strategy has legs and with an outperformance of +10.3% so far this year, and an impressive outperformance of +106.6% since inception in December 2013, the rationale stands, whether for the medium term or for the long-term time horizon.




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London, UK 6th 30th September Ahmed Tabaqchali
Singapore 5th 9th September Ruchir Desai
Mumbai, India 12th – 16th September Ruchir Desai
Dubai, UAE 19th – 23rd September Ruchir Desai
Mumbai, India 25th  September – 7th October Ruchir Desai
Ho Chi Minh City 11th – 16th November Ruchir Desai
Hanoi 17th – 18th November Ruchir Desai
Bangkok 19th – 25th November Ruchir Desai
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AFC Iraq Fund Performance



The AFC Iraq Fund Class D shares returned +2.6% in August with a NAV of USD 684.32, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 2.0% during the month. The fund was down 1.2% year to date versus the index which was up 1.2%. Since inception, the fund has lost 31.6% while the RSISUSD index is down 44.8%.

The year-to-date performance of the AFC Iraq Fund is now well ahead of global benchmarks, and this signifies the diversification benefits of the fund and Asian frontier markets which have a low correlation with global markets, especially during this period of global market volatility and macroeconomic uncertainty.

July’s subdued economic activity was even more subdued throughout August, with the start of the 40-day Arbaeen pilgrimage in the second week of the month. The Arbaeen pilgrimage is among the world's largest annual pilgrimages, with official figures showing about 16.3 mn pilgrims took part throughout the 40 days of the pilgrimage in 2021. The pilgrimage climaxes at the end of the 40-day mourning period (Arbaeen in Arabic) of the death of Prophet Muhammad’s grandson, Imam Hussein. Leading to the climax, millions of pilgrims – with about two thirds from Iraq, and a third from Iran, Lebanon, the Gulf states, Pakistan, India, the U.K., and the U.S. – walk to Karbala from across Iraq.

Famed Iraqi hospitality is in full swing throughout the period as residents along the pilgrimage's many routes to Karbala, and especially in Karbala itself, open their homes to the visiting pilgrims, providing them with shelter and food.


Imam Hussein Shrine, Karbala

Imam Hussein Shrine, Karbala

(Source: Iraq Business News)


The market’s technical picture continues to be positive, as the RSISX USD Index is within its two-year up-trending channel (chart below) – an uptrend that ended a brutal multi-year bear market. The macroeconomic fundamentals discussed here four months ago explained that the market’s uptrend will likely remain in force. However, its upward slope might moderate, or even go sideways, as the liquidity injection – a consequence of the passage of the supplementary budget – works its way through the economy and eventually into the equity market.




(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 31st August 2022)


Political Stalemate Erupts into Civil War, or Does it?

The 10-month political impasse over government formation, as a consequence of the surprising results of the October 2021 parliamentary elections, deteriorated sharply at the end of the month. Unlike last month, the melodrama of the occupation of parliament by the supporters of the Sadrist Movement (the apparent winners of the elections), and the counter-demonstration by their opponents, the supporters of the Coordination Framework (the apparent losers of the elections), evolved beyond the theatrics of street demonstrations into a night of intense armed conflict in Baghdad’s Green Zone. The fighting on the night of 29th-30th August revived Baghdadis’ worst memories of the civil war of 2006-2008 that almost tore the city apart.

The conflict - as ugly, terrifying, and real as it was - was nevertheless an unlikely epicentre in Baghdad’s Green Zone for the much feared and anticipated war between the two opposing sides. The Green Zone, apart from the presence of the two opposing demonstrators over the last few weeks, does not house either party of the conflict, and as such only a fraction of the militias of either side took part in the conflict, with some heading to it from strongholds elsewhere in Baghdad. However, as the seat of the government and the location of most of the foreign missions, its choice for staging an armed clash is symbolic, highly visible, and crucially draws attention to the potential costs of a failure to reach an agreement over the 10-month impasse over government formation. 

Moreover, the high probability of a violent clash in the Green Zone was telegraphed three-days earlier through social media, stating that a failure to meet the latest demands of the leader of the Sadrist Movement would lead to his withdrawal from politics and allow the movement’s followers the freedom to follow through with their demonstrations as they saw fit without the earlier constraints imposed on them to avoid violent clashes.

The conflict ended the next day, following a speech by the leader of the Sadrist Movement instructing the movement’s followers to withdraw from the Green Zone. That was quickly followed by a series of synchronized conciliatory statements from most, but not all, of the political leaders of the Coordination Framework, heads of other political parties, as well as by the holders of the highest offices in the government, that hailed the withdrawal and called for new national dialogue to resolve the conflict. Shortly afterwards, almost like clockwork, the government ended a curfew imposed earlier, removed road barriers and blocks, and life swiftly returned to normal in Baghdad.

As discussed here last month, both parties in the conflict, irrespective of their fierce rivalry, have been members of the all-inclusive governments formed following successive elections post the US invasion in 2003. Importantly, as major players in the post-2003 ethno-sectarian political system, both parties have built substantial patronage networks, and consequently could risk the loss of the wealth and sources of economic rent created by these networks if their conflict evolved into a civil war.

Following through with this argument, it is logical to conclude that the contours of a re-negotiation of the post-2003 elite bargain either took, or more likely is taking, place that ended the clashes with a redistribution of power and re-allocation of resources to accommodate the increased relative strength of the Sadrist Movement. However, the less than conciliatory statements by some of the leaders of the Coordination Framework indicates that they are likely to have been losers in the re-negotiated elite bargain, and as such the political impasse is hardly over with likely negative surprises in the offering – but highly improbable to be anywhere as violent as the clash that just ended.

This implies that a continuation of the status-quo, despite the continued political uncertainty, would be a preferred solution for all political parties, as it would preserve the country’s ethno-sectarian parties’ share of the state’s resources achieved in the 2018 elections, while they work on the torturous process of modifying the recently renegotiated elite bargain to accommodate the dissenting parties.

Markets Discount and Look Through the Violent Conflict

The market was down for most of the month, with the Rabee Securities RSISX USD Index down as much as 5.0% for the month by the start of the third week of August; but it turned around as the month came to a close, ending up 2.0% – with the best daily gains happening in the three days following the telegraphing of the imminent conflict (above). This discounting and looking through the violent conflict were repeated in the currency market of exchange rate of the Iraqi Dinar (IQD) versus the USD. The spread between the official exchange rate and the parallel market exchange rate (delta in chart below), narrowed significantly throughout the month – with the sharpest decline taking place in the days following the storming of parliament late last month.




(Source: Central Bank of Iraq, AFC Research, data as of 31st August 2022)


While a few days of positive market action in both the stock and currency markets are not sufficient to make a firm conclusion, they do imply that the markets are discounting events along the logic proposed above and discussed here over the last few months.

At the end of August 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of −1.2%. 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 (98.0%), Norway (2.7%), and the UK (0.5%). 

The sectors with the largest allocation of assets were financials (65.0%) and consumer staples (15.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.54x, the estimated weighted harmonic average P/B ratio was 0.88x, and the estimated weighted average portfolio dividend yield was 2.62%.

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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 +2.4% in August 2022 with a NAV of USD 1,304.95. The fund underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+4.9%) but outperformed the MSCI Frontier Markets Net Total Return USD Index (+1.8%) and the MSCI World Net Total Return USD Index (−4.2%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +30.5% versus the benchmark, which is down by −8.9% during the same period. The fund’s annualized performance since inception is +2.6%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.7% 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.

It was a strong all-round performance for the fund this month with the key drivers being Kazakhstan, Pakistan, Vietnam, Georgia, Iraq, Sri Lanka, and Uzbekistan. In addition to the all-round performance, the fund significantly outperformed the MSCI World Index which declined by −4.2% and this only goes to show the diversification benefits of the AFC Asia Frontier Fund since stock markets in our universe are dominated by local investors who are not very much in sync with what is happening in developed markets.

The fund’s Kazakh holdings witnessed a strong rebound in August with Halyk Bank and Kaspi rallying by +17% and +15% respectively. In July we saw Kaspi upgrade its full year 2022 earnings outlook while last month, Halyk Bank also significantly upgraded its net profit outlook for 2022 to greater than KZT 500 bn from its earlier guidance of KZT 300-350 bn.

Large upgrade to Halyk Bank 2022 net profit guidance (in KZT bn)

Previous Guidance New Guidance
300-350 >500

(Source: Halyk Bank)

The upgrade to net profit outlooks for both Halyk Bank and Kaspi reflects that well established companies can handle a volatile macroeconomic environment better than smaller players while also showing that the fallout from the Russia-Ukraine conflict on Central Asia is not as bad as initially feared six months ago. Valuations for Halyk Bank and Kaspi still remain very attractive at a 2022 P/E ratio of only 3.9x and 9.7x respectively.

Georgia continues to indirectly benefit from the conflict in Ukraine with the tourism sector posting all time high revenues in July 2022, overtaking pre-pandemic levels by a fair margin. With Georgia expected to post GDP growth of at least 10% this year, the fund’s holding in TBC Bank is playing out very well, with the stock price now well above pre-Ukraine crisis levels and almost back to its all-time high in 2018.



Georgia tourism revenues surpassed pre-pandemic levels in July 2022

(Source: Galt & Taggart)


Good quarterly results, strong execution of its Uzbekistan digital bank strategy, and the momentum in Georgia’s economy are the key reasons for the rebound in TBC Bank’s stock price. Despite the stock price rally, valuations for the stock remain attractive at a 2022 P/E ratio of only 3.8x.


TBC Bank stock price has recovered since the Russia-Ukraine conflict

TBC Bank stock price has recovered since the Russia-Ukraine conflict

(Source: Bloomberg)


Pakistan renewed its IMF program this month and received additional funds of USD 1.2 bn which will go a long way in stabilising the country’s foreign exchange reserves as the re-start of the IMF program will also lead to further funding from other bilateral and multi-lateral partners.

The floods in Pakistan have caused both agricultural and infrastructure damage but they are currently restricted to the South and Southwest of the country while the Northern province of Punjab, where most of the agricultural activity takes place, has been less impacted by these floods so far.

Sri Lanka was also successful in sealing a deal with the IMF for USD 2.9 bn over a 4-year period. However, these IMF funds will be disbursed only once the country finalises the restructuring of its international sovereign bonds with creditors and this is still a few months away. Until then, Sri Lanka will need to raise funding from bilateral and multi-lateral partners.

Having said that, the IMF deals for both Pakistan and Sri Lanka are a move in the right direction for both countries in terms of bringing in more macro stability. The political outlook is still a bit grey but valuations for Pakistan and Sri Lanka are now at all-time lows and at very attractive levels.

These attractive valuations and the anticipation of the IMF deals led to a strong rally with Pakistan’s KSE100 Index and Sri Lanka’s CSEALL Index being the second and third best performing markets globally in August with gains of 17.2% and 15.7% respectively in USD terms.


IMF deals for Pakistan and Sri Lanka provide macro stability – valuations for both markets at all-time lows

IMF deals for Pakistan and Sri Lanka provide macro stability – valuations for both markets at all-time lows

(Source: Bloomberg)


The manufacturing prowess of Vietnam is gaining further strength as Samsung announced that it will begin manufacturing semiconductor parts in the country in 2023 while it is reported that Apple will also begin assembling the Apple MacBook and Apple Watch in Vietnam for the first time. These two announcements not only show that Vietnam continues to benefit from supply chain shifts, but it is also moving up the manufacturing value chain in terms of sophistication. Overall, these developments are big wins for Vietnam.

The fund’s key holdings in Vietnam continue to do very well and have outperformed the VN-Index by a large margin this year. These companies are very well established and have a dominant position in their respective industries and are all leveraged to Vietnam’s future economic growth.



AFC Asia Frontier Fund's key Vietnam holdings have outperformed the VN-Index (returns in 2022)

(Source: Bloomberg, % change in prices between 31st December 2021-31st August 2022)


Soft drinks bottler Coca Cola Icecek, which the fund holds, declared a 71% net profit growth in 2Q22 despite raw material price pressure. Even though the stock is listed in Turkey, the company now generates 63% of its volumes from Asian frontier countries. Uzbekistan was the fastest growing market for the company in 2Q22 with a volume growth of 30% while Pakistan and Kazakhstan grew volumes by 18% and 14% respectively.



Asian frontier countries now account for a majority of Coca-Cola Icecek sales

(Source: Coca-Cola Icecek)


These results reflect the strong consumer demand for well-established brands in the Asian frontier universe while also showing that bottom-up stock selection matters in a volatile macro environment as Coca-Cola Icecek’s stock price has outperformed all major indices in USD terms so far this year. The stock still trades very attractively at a P/E ratio of 10.2x its 2022 earnings.


Coca-Cola Icecek stock price has outperformed all major benchmarks in 2022 (in USD)

Coca-Cola Icecek stock price has outperformed all major benchmarks in 2022 (in USD)

(Source: Bloomberg, % change in price between 31st December 2021-31st August 2022)


The best performing indexes in the AAFF universe in August were Sri Lanka (+17.3%) and Kazakhstan (+6.7%). The poorest performing markets were Jordan (−2.3%) and Cambodia (−1.5%). The top-performing portfolio stocks this month were a Mongolian petroleum company (+64.0%), a Mongolian concrete manufacturer (+48.6%), a Maldivian resort operator listed in Sri Lanka (+41.0%), a Pakistani aluminium can producer (+35.0%) and a Pakistani automotive battery producer (+32.3%).

In August, the fund exited a Mongolian bakery and confectionary company and also reduced existing positions in Mongolia.

At the end of August 2022, the portfolio was invested in 75 companies, 2 funds and held 5.9% in cash. The two biggest stock positions were a convenience store operator (4.4%) and a beverage producer (3.6%), both in Mongolia. The countries with the largest asset allocation were Mongolia (17.5%), Iraq (12.7%), and Vietnam (12.3%). The sectors with the largest allocation of assets were consumer goods (24.3%) and materials (12.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.14x, the estimated weighted harmonic average P/B ratio was 1.22x, and the estimated weighted average portfolio dividend yield was 2.37%.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned +2.2% in August 2022 with a NAV of USD 1,830.90, bringing the return since inception (29th March 2019) to +83.1%, while the year-to-date return stands at −8.9% at the end of August 2022. On an annualized basis, the fund returned +19.3% p.a. with a Sharpe ratio of 1.25.

August brought about the most positive news for Uzbekistan’s capital markets so far this year with the appointment of Giorgi Paresishvili as CEO of the Tashkent Stock Exchange. Furthermore, the market showed renewed signs of activity in August after a multi-month period of subdued trading where stock prices drifted lower.

AFC Uzbekistan Fund valuations as of 31st August 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 6.13x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 2.59%


New Tashkent Stock Exchange CEO

One of the biggest challenges in Uzbekistan we have discussed over the years is the lack of capacity in government to successfully deliver on the reforms outlined by President Mirziyoyev. In regards to the Tashkent Stock Exchange (“TSE”), the two CEOs we have seen come and go since entering Uzbekistan in 2018 have arguably been asleep at the wheel, with no international experience and seemingly little enthusiasm or desire to enact much-needed reforms at the exchange. While this issue was blindingly obvious from our first meetings with the exchange in 2018, there was little we could do as investors except wait and be hopeful for an eventual change of management. 

That change has finally come as Giorgi Paresishvili is the new acting head of the TSE and understands clearly what needs to be done to bring the market in line with international standards. Mr. Paresishvili has 27 years of experience in banking and capital markets and has been the head of the Georgian Stock Exchange since 2014, as well as chairman of the supervisory board of the Georgian Central Securities Depository. He is responsible for connecting the Georgian Stock Exchange to the international settlements platform, ClearStream, as well as licensing exchange data to Bloomberg (the latter which we aggressively pushed the two former CEOs to do, but to no avail). Georgia was in fact the second former Soviet country to get financial data hosted on Bloomberg terminals after Russia.

Mr. Paresishvili’s responsibilities in his new role will be based around modernizing the stock exchange. This will include improving market efficiency, establishing new listing and trading rules in line with international best practices, and working to increase the number of listed companies, which we predict will mean increasing free-floats of existing companies as well.

I first had the chance to meet Mr. Paresishvili in 2019 at the Georgian Stock Exchange, and upon hearing of his new appointment in Uzbekistan, had a call with him in August to share some of the big picture issues investors face. He is very receptive to understanding the challenges the stock exchange faces in attracting investors and what is needed in order to make state-owned privatisations on the exchange more successful than they would otherwise be. We have emphasized in the past that we believe Uzbekistan will in due course emerge as the largest and most influential economy in Central Asia and that if developed correctly, the TSE could become the largest stock exchange in Central Asia as well. 

While frontier markets evolve in fits and starts, Mr. Paresishvili’s appointment is an indication to us that the government is serious about developing a robust capital markets structure as they are willing to appoint international talent to key positions in order to ensure successful execution.

We look forward to engaging more regularly with Mr. Paresishvili upon his relocation to Tashkent and will aim to add value where and when we can, as we want to see the TSE operate at an international standard of quality. This will be needed to attract foreign investors and will, of course, benefit the AFC Uzbekistan Fund. However, more importantly, it will benefit the country as a whole. 

The TSE should be operating as a functional alternative to prohibitively expensive bank finance for capital raising which is approximately 25% with 125% collateral required. On this note, we will be watching the developments at the exchange closely as the coming months should be very exciting, especially as the government’s plans for privatisation of several state-owned enterprises draws nearer.

At the end of August 2022, the fund was invested in 27 names and held 7.2% in cash. The portfolio was allocated to Uzbekistan (92.80%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were financials (38.0%) and materials (37.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.13x, the estimated weighted harmonic average P/B ratio was 1.06x, and the estimated weighted average portfolio dividend yield was 2.59%.

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AFC Vietnam Fund - Manager Comment

AFC Vietnam Fund Performance


The AFC Vietnam Fund returned +1.8% in August with a NAV of USD 3,332.33, bringing the year-to-date return to −6.2% and return since inception to +233.2%. The fund significantly underperformed the benchmark, the Ho Chi Minh City VN Index, which gained 5.7% in August 2022 and has lost 16.8% year to date in USD terms. The fund’s annualized return since inception stands at +14.9% p.a. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.01%, a Sharpe ratio of 1.00, and a low correlation of the fund versus the MSCI World Index USD of 0.53, all based on monthly observations since inception.

Market Developments

As we mentioned in our last report, we believe that the VN-Index formed a bottom at the 1,200 level in July 2022 and we are very pleased to see that the market clearly is now on an uptrend on healthy volumes. The benchmark index closed the month at 1,280.51 points, +6.1% and it looks like it will continue this trend, given all the positive news, attractive valuations, and sound macro-economic numbers.


VN-Index from Nov 2016 to August 2022

VN-Index from Nov 2016 to August 2022

(Source: Bloomberg)


Upwards revisions of Vietnam’s economic growth forecasts

In mid-August the World Bank announced that it increased its 2022 GDP growth forecast for Vietnam to 7.5%, due to an accelerated economic recovery over the last six months on the back of resilient manufacturing and a robust rebound in services.

Only a few days later, Moody’s Analytics announced that the only Asia-Pacific economy to experience a significant upward revision in 2022 is Vietnam and they increased their 2022 GDP growth forecast to an impressive 8.5%! Moody’s Analytics is positive on the country’s prospects as it remains a beneficiary of investment inflows redirected from policy uncertainties in China.

Compared to the difficult times key economies such as the US, EU, and China are facing this year, Vietnam seems to be in a very privileged situation. The Vietnamese government successfully managed to control the recent pandemic and was able to bring back the country’s economic activities to pre-COVID-19 levels. Despite the current uncertainties in the global economy, Vietnam continues to be a rare beneficiary. The ongoing conflict between Russia and Ukraine and the current tensions between China and the US over Taiwan have helped to significantly increase Vietnam’s exports to the US and EU.

These tensions were also the reason why Samsung, the South Korean technology giant, decided to invest another USD 3.3bn in Vietnam to start producing semiconductor components by July 2023. In addition to Samsung, U.S. chip tool maker Synopsys has also announced plans to expand in Vietnam and Apple announced plans to manufacture iPad parts in Vietnam and that its suppliers are in talks to produce the Apple Watch and MacBook in the country for the first time.

Vietnam is fifth most open economy in Asia

In a recent report by Fitch Solutions on “economic openness”, Vietnam ranks as the fifth most open economy in Asia out of 37 nations. Economic openness assesses the risks posed to businesses and investors looking to enter the market, assessing its overall openness to foreign direct investment and its attractiveness as an investment destination compared with its regional and global peers. The Vietnamese economy was assigned a score of 74.6 out of 100, surpassing both the Asian and world averages of 49.5 and 46, respectively. Fitch Solutions wrote that Vietnam is emerging as a key manufacturing hub in the East and South East Asia region, supported by government-led economic liberalisation efforts and integration into global supply chains, through trade agreements and membership to regional and international blocs.


Fitch Solutions' economic openness scores of East and Southeast Asian markets

Fitch Solutions

(Source: Fitch Solutions)


Tourism sector is on the rebound

Tourism is an important component of Vietnam’s economic growth. International tourism is only recovering very slowly so far, but domestic tourism is booming. According to the government, the number of domestic tourists reached 60.8 million, which is 40% higher than pre-COVID-19 levels (1H-2019). Even though domestic tourism doesn’t bring any USD from foreigners to the country, it nevertheless provides important support to local businesses and the economy overall.


Domestic tourist surpasses pre-COVID19 period (mn tourists)

Domestic tourist surpasses pre-COVID19 period (mn tourists)

(Source: Vietnam Tourism Department, AFC Research)


Tourists at Sam Son Beach during Liberation Holiday 30th April 2022

Tourists at Sam Son Beach during Liberation Holiday 30th April 2022

(Source: zing)


In addition, international tourism is on the path to recovery and a recent report from Fitch Solutions forecasts that foreign visitors should reach around 22 million by 2026, generating revenues of around USD 13.2 billion, which would be 25% higher than pre-pandemic levels.

Banking sector becomes attractive again

As we mentioned before, the banking sector went through a correction phase and offers now a great investment opportunity. Many banks are currently trading at around book value and forward P/E ratios of 4-5 times on 2022 earnings, which certainly looks very attractive in our view.


Price / Book Ratios of Vietnamese Banks

Price / Book Ratios of Vietnamese Banks

(Source: Vietstock, AFC Research)


Forward Price / Earnings Ratios of Vietnamese Banks

Forward Price / Earnings Ratios of Vietnamese Banks

(Source: Vietstock, AFC Research)


Saigon Hanoi Commercial Bank (SHB) stands out in particular, given its growth potential and attractive valuation with a forward P/E ratio of 3.5x and a P/B ratio of just 1x. When we recently visited SHB in August, we were impressed by the management and its business outlook. SHB is one of the four large commercial private banks in Vietnam, with more than 500 branch offices around the country. Unlike its competitors, SHB focuses mainly on wholesale clients which contribute more than 50% of its profits. SHB offers a wide range of services, such as fund management, securities trading, retail refinance and insurance products. In the first half of 2022, the bank reported an impressive 83.6% increase in net profit, but the stock price didn’t reflect this great result and declined further along with the sector.


Saigon Hanoi Commercial Bank profit before tax (VND bn)

SHB profit before tax (VND bn)

(Source: SHB 5y plan, Vietstock, AFC Research)


Although the Vietnamese banking sector has its fair share of challenges in the short term, the sector is certainly playing an important role in the long-term economic growth story of Vietnam and will perform accordingly. Given that a lot of these challenges seem to be priced in at current levels, we feel quite comfortable increasing our exposure to this sector. 

At the end of August 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.3%) – an insurance company, PVI Holdings (6.0%) – also an insurance company, Power Engineering Consulting JSC No. 2 (5.2%) – a consulting firm., BIDV Insurance Corporation (5.0%) – an insurance agency and Minh Phu Seafood Corp (5.0%) – a seafood company.

The portfolio was invested in 48 names and held 4.5% in cash. The sectors with the largest allocation of assets were consumer (41.4%) and financials (27.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.75x, the estimated weighted harmonic average P/B ratio was 1.41x, and the estimated weighted average portfolio dividend yield was 4.38%.

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