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Asia Frontier Capital (AFC) - December 2022 Update


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“Don’t stand by the water and long for fish,
go home and weave a net”

– Chinese Proverb


Year to DateSince
AFC Asia Frontier Fund USD A1,221.92+0.3%-22.7%+22.2%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D679.96-0.2%-1.9%-32.0%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,736.70-0.1%-13.6%+73.7%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C2,884.81+6.1%-18.8%+188.5%
Ho Chi Minh City VN Index (in USD) +0.4%-35.1%+76.8%
  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.



AFC Funds continued to display stable performance relative to the first half of 2022. As we enter 2023, we remain cautiously optimistic about the outlook for Asian frontier markets since valuations in our universe are significantly discounted relative to history, while the possibility of inflation and interest rates peaking out presents a re-rating opportunity for Asian frontier markets.

We discussed and elaborated on these points in our annual AFC Asia Frontier Fund 2022 Review and Outlook for 2023 report titled “Cautiously Optimistic for 2023”. You can read the report using the link below:

Cautiously Optimistic for 2023 - AFC Asia Frontier Fund 2022 Review and Outlook for 2023

Asian Frontier Markets Update Webinar – Monday, 30th January 2023

We will be hosting our quarterly webinar on Monday, 30th January 2023, where we will discuss our views and thoughts on the outlook for Asian frontier markets in the year ahead. The webinar will be held on Monday, 30th January 2023, at 8:00am NY, 1:00pm UK, 2:00pm Swiss and 9:00pm HK/SG time.

The speakers on the webinar will be:

  • Thomas Hugger, CEO & Fund Manager
  • Ruchir Desai, Co-Fund Manager of the AFC Asia Frontier Fund
  • Ahmed Tabaqchali, Chief Strategist of the AFC Iraq Fund
  • Scott Osheroff, CIO of the AFC Uzbekistan Fund
  • Vicente Nguyen, CIO of the AFC Vietnam Fund

The webinar will run for an hour and include a 15-minute Q&A session after the fund managers' presentations.

During the webinar, we will discuss the following key points:

  • Are we at the end of the rising inflation and interest rate cycle?
  • What is the impact on Asian frontier markets if interest rates have peaked?
  • Key trends for 2023 and beyond in Asian frontier countries.
  • Our top country and stock picks for 2023.
  • Outlook for the AFC Asia Frontier Fund / AFC Iraq Fund / AFC Uzbekistan Fund / AFC Vietnam Fund.

Please click on the button below to register for the webinar:



Year of the Rabbit



The entire team at AFC would like to take this opportunity to wish all our Investors and Newsletter Readers a Happy and Prosperous Year of the Rabbit!



Year of the Rabbit


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Amman, Jordan until 25th January Ahmed Tabaqchali
Baghdad 26th January - 10th February  Ahmed Tabaqchali
Hong Kong 6th - 10th February Andreas Vogelsanger
Singapore 8th - 10th February Ruchir Desai
Ho Chi Minh City 11th February - 2nd March Ruchir Desai
Ho Chi Minh City 27th February - 3rd March Andreas Vogelsanger
Hong Kong 6th - 10th March Andreas Vogelsanger
Dubai 6th - 10th March Ruchir Desai
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AFC Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund returned +6.1% in December with a NAV of USD 2,884.81, bringing the year-to-date return to −18.8% and return since inception to +188.5%. The fund outperformed the benchmark, the Ho Chi Minh City VN Index, which gained 0.4% in December 2022 and has lost 35.1% year to date in USD terms. The fund’s annualized return since inception stands at +12.5% p.a. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.94%, a Sharpe ratio of 0.77, and a low correlation of the fund versus the MSCI World Index USD of 0.47, all based on monthly observations since inception.

Market Developments

Vietnam’s economy completed 2022 with impressive GDP growth of 8.02%, a record high that hasn’t been reached in more than 10 years. This is an amazing result compared to most countries in the world. Vietnam successfully overcame the challenges brought about by COVID-19 and fully reopened its economy. But in addition to impressive GDP growth in 2022, we also saw great economic achievements in industrial production, foreign direct investments (FDI), retail sales, trade volume, etc.


GDP Growth of Vietnam over the Last Ten Years (%)

GDP growth of Vietnam over the last ten years (%)

(Source: GSO, AFC Research)


Impressive Economic Achievement in All Aspects (%, yoy)

Impressive economic achievement in all aspects (%, yoy)

(Source: GSO, AFC Research)


Nevertheless, 2022 was a rather difficult year for investors around the world, and especially the Vietnamese stock market which experienced a massive selloff, mainly triggered by corruption investigations in the real estate sector and disciplinary measures in the financial market. With a falling stock market, overleveraged domestic retail investors got hurt most, with ever increasing margin calls from forced sellers. But it looks like the VN-Index reached its bottom in mid-November and the stock market has started to recover strongly since then. These government measures were certainly painful in the short term, but are very important and beneficial for the long-term development of the Vietnamese stock market. 

This sharp decline of the Vietnamese stock market in 2022, brought down valuations to a very attractive level, with a 2023 forward P/E ratio for the VN-Index of around 9.48x, according to Bloomberg. Current valuations are certainly very attractive in comparison to other markets around the region and in our view offer a great buying opportunity for long-term value investors!


2022 Global Stock Markets Comparison in USD

2022 global stock markets comparison in USD

(Source: Bloomberg)


Unfortunately, investors in our AFC Vietnam Fund also lost money this year, albeit much less than the VN-Index or most other Vietnam funds, such as for example the VanEck Vietnam ETF.




(Source: Bloomberg)


The Vietnamese dong went through a roller coaster ride but finished the year with a loss versus the USD of -3.2%, which compares relatively favourably to most other currencies globally.



Vietnamese dong

(Source: Bloomberg)


Positive Forecasts for 2023

The growth of the Vietnamese economy is expected to slow down a bit in 2023 to around 6% to 6.5%, which is still one of the highest GDP growth rates worldwide. This lower growth forecast for Vietnam is mainly due to possibly less consumption in Europe and the U.S., given that both might face a recession next year. But given that Vietnam is expected to be one the main beneficiaries from current geopolitical tensions between the U.S. – China – Taiwan, with an accelerated manufacturing shift from China into Vietnam and Vietnam’s huge public investment plan to support the economy, we believe that a 6% to 6.5% GDP growth target for Vietnam’s economy is very realistic.

Despite global political and economic uncertainties, Vietnam’s economy performed very well in 2022, especially in international trade with a total volume of over USD 700bn. Back in 2007, Vietnam’s trade value surpassed the USD 100bn threshold for the first time. It then took around 5 years to increase the trading volume by another USD 100bn, unlike in 2022, where in only 12 months the same increase in trading volume of USD 100bn was achieved.


Vietnamese Trade Value (USD bn)

Vietnamese trade value (USD bn)

(Source: Bloomberg)


The economic situation in the EU and U.S. is expected to weaken in 2023, which will have a negative impact on Vietnam’s export volume, which has already started to decline since Q3/2022. Despite this harsher trade environment, we expect that Vietnam will manage to achieve its GDP growth target of around 6% to 6.5%. One beneficial factor for Vietnam’s economy is the much lower freight costs in comparison to one year ago. The Drewry’s composite World Container Index decreased by almost 80% to USD 2,127 per 40ft container since the peak in September 2021. It is expected that freight cost will remain low in 2023, which will help exporters in Vietnam to reduce their selling prices to customers in order to keep up demand.


Drewry World Container Freight Index

Drewry World Container Freight Index

(Source: Bloomberg)


Besides exports, Vietnam’s domestic consumption is gaining rapidly in importance, with one of the fastest growing middle-classes in the world. With a population of almost 100 million people, the size of middle-class Vietnamese households is expected to double in the next decade to around 70% of its population, significantly increasing the average purchasing power for goods and services. But also, foreign direct investments (FDI) are a key factor to Vietnam’s economic success story. Vietnam has managed to attract important amounts of foreign direct investments since the economic reform “Doi Moi” back in 1986. Since then, FDI into Vietnam has increased gradually and plays a very important role in Vietnam’s economic growth story.


FDI Disbursement into Vietnam (USD bn)

FDI disbursement into Vietnam (USD bn)

(Source: GSO, AFC research)


One great example of a foreign company investing in Vietnam is certainly Samsung Electronics. The company just announced that they will raise their total investment in the country from USD 18 bn to USD 20 bn. Samsung’s Chairman, Lee Jae-yong, visited Vietnam in December to join the grand opening of their largest R&D Centre in South East Asia. The centre will be in charge of R&D for Samsung’s mobile devices, including smartphones and tablets, as well as software and hardware products, and is expected to hire about 2,000 workers in Vietnam.


Grand Opening of Samsung R&D Center

Grand opening of Samsung R&D Center

(Source: Cafef)


Great Opportunity for Long Term Investors

Although the economy has performed very well in 2022, the Vietnamese benchmark dropped by -34.9% in USD terms. As mentioned, this fall has mainly to do with government investigations and interventions and has nothing to do with the economic performance of Vietnam. But it did bring down valuations to very attractive levels and the trailing P/E ratio for the VN-Index is now trading at 10.3x. There have only been 4 times the P/E ratio of the market has traded at around 10x since 2007 and each time the index performed very well in the following 12 months by a range between 35% to 150%.




(Source: HOSE, AFC Research)


VN-Index (2007 to 2022)

VN-Index (2007 to 2022)

(Source: Tien Phong Securities)


We do think this time around it won’t be any different than the past 4 occasions when the VN-Index was trading at these trailing P/E ratios and hence we are quite optimistic for next year.

In the second half of 2022, the Vietnamese government became much stricter in allowing companies to issue corporate bonds and sell them to retail investors. These new restrictions created a liquidity crunch for many companies, especially in the real estate sector, and they had to find alternative means to finance their business expansion, such as bank loans. Consequently, banks had to raise their deposit interest rate to attract more capital inflow from depositors in order to fund their loan business, and hence interest rates went up substantially. Towards the end of 2022, 12-month fixed term deposit rates increased to around 10%, levels we haven’t seen for over 5 years.


Deposit Interest Rate for 12M Term (%)

Deposit interest rate for 12M term (%)

(Source: banks, AFC Research)


The impact of higher interest rates is especially hard for real estate companies. Real estate buyers have become much more cautious in buying houses or land, given that mortgages are less affordable. Hence, sales volume for real estate have tumbled dramatically and on top of this, real estate companies are also struggling to pay back their outstanding corporate bonds of around USD 5.6bn which are maturing in 2023. These companies therefore have to dispose of some of their assets at dumping prices, which impacted their stock prices severely, with some real estate shares losing up to 90% of their value this year.


Real Estate Stocks Plunged

Real estate stocks plunged

(Source: Bloomberg)


The Vietnamese government, however, recently intervened in the market and issued a new regulation which allows enterprises to restructure and extend the maturity of their outstanding corporate bonds. The government also increased the credit quota for banks in Vietnam and raised the credit growth from 12% to 14% in 2022 and we expect it to be at the same level for 2023. This should help to ease the pressure on some of these companies a little bit.

Tet Holiday

The Vietnamese New Year is also called Tet. It falls on 22nd January in 2023. Vietnamese people enjoy a 6-day national public holiday from 21st January (Tet Eve) to 26th January 2023. The Vietnamese New Year is the most important festivals of the year in Vietnam, celebrating love, the start of spring, and the best of hopes for the new year. It is observed on the first day of the first month of the Vietnamese Lunar Calendar and ranges between late January and mid-February on the Gregorian calendar. Many people prepare for Tet by cooking special holiday food and cleaning their houses. There are a lot of customs practiced during Tet such as visiting a person’s house on the first day of the new year (xông nhà), ancestral worship, wishing New Year’s greetings, giving lucky money to children and elderly people and opening a shop. Tet is also an occasion for pilgrims and family reunions. During Tet, Vietnamese visit their relatives and temples, forgetting the troubles of the past year and hoping for a better upcoming year. In Vietnam there are three regions, the north, the central and the south. In different regions, they have different cultures, from food to other customs. For example, Vietnamese people will prepare food for ancestors and pray for better things. If we look at the way they prepare the food, we also see different styles between the north and the south.


Food for Ancestors during TET

Food for ancestors during TET

(Source: AFC Research)


Normally the people in the south prepare a much simpler menu than the north. And in the north, Chung Cake (Bánh Chưng) is a MUST but in the south, Tet cake (Bánh Tét) is an important dish even though both Chung and Tet cake are cooked with same recipe and method. The only difference between them is the shape. Chung Cake has a square shape which represents for the sun and Tet Cake has a round shape which represents for the moon.


Chung Cake and Tet Cake

Chung Cake and Tet Cake

(Source: AFC Research)


If northern people enjoy Chung Cake with cabbage pickles, the southern people will eat Tet cake with beansprout and carrot pickles. They fit each other perfectly. If you have a chance to visit Vietnam during the Tet holidays, please don’t miss out on trying some of the festive dishes.

At the end of December 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.3%) – an insurance company, PVI Holdings (7.6%) – also an insurance company, Everpia Vietnam JSC (5.8%) – a bedding manufacturer, BIDV Insurance Corporation (5.8%) – an insurance agency, and Minh Phu Seafood Corp (5.7%) – a seafood company.

The portfolio was invested in 48 names and held 2.1% in cash. The sectors with the largest allocation of assets were consumer (39.0%) and financials (32.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.68x, the estimated weighted harmonic average P/B ratio was 1.11x, and the estimated weighted average portfolio dividend yield was 5.70%. The fund portfolio carbon footprint is 19.73 tons per USD 1 mn invested.

 Factsheet AFC Vietnam Fund
 Presentation AFC Vietnam Fund



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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 +0.3% in December 2022 with a NAV of USD 1,221.92. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−4.0%), the MSCI Frontier Markets Net Total Return USD Index (−1.5%), 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 +22.2% versus the benchmark, which is down by −29.2% during the same period. 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 0.52, all based on monthly observations since inception.

Fund performance continued to remain stable in the latter part of 2022 after a more challenging first half. The main drivers of positive performance this month were Vietnam, Mongolia, Bangladesh, and Georgia, while the main drag on performance in December was from Pakistan. The fund also continues to display its diversification benefits in periods of high market volatility with a significant outperformance against the MSCI World Index, which lost 4.2% in December.

Vietnam delivered solid 8.0% GDP growth in 2022 which was the highest in the region, as it benefited from a post-pandemic domestic consumption recovery as well as export-led growth due to its favourable position in an era of shifting global supply chains.

However, 4Q22 GDP growth at 5.9% reflects the waning of a favourable base effect and an export slowdown as key markets like the U.S. and the E.U. face economic headwinds. If Vietnam can achieve a GDP growth rate of greater than 5% in 2023, that will be commendable given the headwinds its exports and domestic consumption could face in 2023.


Vietnam GDP growth recovered very strongly in 2022

Vietnam GDP growth recovered very strongly in 2022

(Source: International Monetary Fund, Bloomberg)


However, the VN-Index corrected by close to 33% in 2022 and at a P/E ratio of 10.5x looks attractively valued relative to history. The country should continue to benefit from the supply chain shift taking place in the region and it is by far the star in Asia for attracting manufacturing-related foreign investments. Another potential positive trigger for Vietnam could be the return of Chinese tourists, who accounted for 32% of 2019 tourist arrivals, since China has removed all travel-related restrictions. 

The fund’s holdings in Vietnam did very well in 2022, and December was no exception, with our Vietnam holdings gaining 5.5% this month. One key reason for this outperformance against the VN-Index, as we have mentioned in the past, is that we do not hold any real estate companies or any of the banks heavily exposed to the real estate sector, which is currently in the midst of a crisis.

Despite concerns about a global economic slowdown, government and private spending on infrastructure development in Asian frontier countries remains very strong. Bangladesh inaugurated its first ever metro line in the capital Dhaka, which should help ease some of the notorious congestion that Dhaka is known for. 

The opening of the metro line in Dhaka comes on the back of the newly opened 6 km Padma Bridge earlier this year. These type of investments in infrastructure projects are one of the key reasons why we believe there is a lot of long-term potential to generate consistent economic growth in Asian frontier countries.


Bangladesh Prime Minister Sheikh Hasina Flagging off the Country’s First Metro Rail on 28th December 2022

Bangladesh Prime Minister Sheikh Hasina flagging off the country’s first metro rail on 28th December 2022



As stability returns to Sri Lanka, the country is seeing a revival in tourist arrivals, and we expect this trend to continue since we are in the peak season that runs until April 2023. For the full year of 2022, the country attracted more than 700,000 visitors, which generated more than USD 1 bn in tourism revenues. Though 2022 tourist arrivals are still at 38% of 2019 levels, a good 2023 season can generate significantly higher tourism revenues and hence it is critical the government maintain political and social stability as the tourism sector is the key for generating greater foreign exchange revenues.


Sri Lanka is Seeing a Revival in Tourist Arrivals as Stability Returns to the Island

Sri Lanka is seeing a revival in tourist arrivals as stability returns to the island

(Source: Sri Lanka Tourism Development Authority)


The best-performing indexes in the AAFF universe in December were Mongolia (+10.0%) and Kazakhstan (+6.1%). The poorest-performing markets were Laos (−11.5%) and Pakistan (−4.6%). The top-performing portfolio stocks this month were a diversified conglomerate in Myanmar (+27.2%), a Mongolian technology company (+25.5%), a Mongolian mining company (+20.0%), a Vietnamese airport retailing company (+12.4%) and an Asian frontier beverage producer listed in Turkey (+10.4%).

In December, the fund bought into existing positions in Mongolia and Sri Lanka, sold existing positions in Mongolia, and exited a steel producer in Mongolia.

At the end of December 2022, the portfolio was invested in 74 companies, 2 funds and held 6.9% in cash. The two biggest stock positions were a fintech company in Kazakhstan (4.1%) and a beverage producer in Mongolia (3.8%). The countries with the largest asset allocation were Mongolia (15.1%), Iraq (13.5%), and Vietnam (12.1%). The sectors with the largest allocation of assets were consumer goods (23.3%) and materials (12.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.69x, the estimated weighted harmonic average P/B ratio was 1.22x, and the estimated weighted average portfolio dividend yield was 2.98%. The fund portfolio carbon footprint is 0.73 tons per USD 1 mn invested.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned −0.1% in December 2022 with a NAV of USD 1,736.70, bringing the return since inception (29th March 2019) to +73.7%, while the return for the year stands at −13.6%. On an annualised basis, the fund has returned +15.8% p.a. with a Sharpe ratio of 1.00.

The AFC Uzbekistan Fund ended the last month of a volatile 2022 for global financial markets in negative territory. New money came into the Uzbek market during December, where buyers bid up equities across the board. The market’s relative resilience compared to the volatility experienced in global financial markets during the year is a testament to the continued liberalisation of Uzbekistan’s economy and its uncorrelated nature to international markets. Meanwhile, the companies listed on the Tashkent Stock Exchange continue to benefit from the tailwind of the country’s economic growth.

AFC Uzbekistan Fund Valuations as of 31st December 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.77x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 4.10%


2022 Year in Review

2022 could best be regarded as a transition year for Uzbekistan’s capital markets as the much-anticipated capital markets legislation and several planned IPO’s have been pushed into 2023. This is par for the course in a young market, especially considering how far Uzbekistan has come since we started investing in the country in 2018, as well as the capacity challenges that exist in all aspects of government and business. 

There were several notable events which occurred in 2022. The first was the fiasco surrounding Uzmetkombinat (TSE: UZMK), where it was expected at the company’s annual general meeting (AGM) on 15th March 2022 that a dividend would be paid. Traders decided to take advantage of this rumour and sold shares after the closing of the shareholder register on 7th March 2022 (in Uzbekistan this is five business days before the AGM, whereas in most all other countries the ex-date is after the meeting). 

To everyone’s surprise, at the AGM it was announced bonus shares would be paid in lieu of a cash dividend and the ex-date to be included in the register for the bonus shares would be different than that for the AGM. This caused chaos in trading of the company’s shares, ultimately leading the financial regulator to implement a trading halt on 14th March 2022 after the company’s shares fell 60% in five trading days. Due to these events and the size of UZMK in the AFC Uzbekistan Fund, we decided it was prudent to suspend issuing a NAV for March 2022. 

Thankfully, on 12th April 2022 shares of UZMK commenced trading after bonus shares had been issued and the price adjusted accordingly. However, the issuing of bonus shares to investors led to consistent selling in the market by retail investors which impacted the fund’s performance, but simultaneously allowed us to collect more shares of the company at attractive prices. Only in the final quarter of 2022 did the selling abate and in December 2022 alone the company’s shares are up 20%. 

The second big event for the fund and capital markets during the year was the appointment of Giorgi Paresishvili as the new acting head of the TSE. Mr. Paresishvili has 27 years of experience in banking and capital markets and had been the head of the Georgian Stock Exchange since 2014, prior to moving to Uzbekistan in September 2022. In addition to enhancing efficiency at the Tashkent Stock Exchange, his larger task is to connect the exchange to ClearStream which will enable foreign investors to trade Uzbek stocks and bonds without opening a local brokerage account, which is currently a bottleneck to increasing investor interest in the local market. 

Lastly, while we are anxiously awaiting the new capital markets legislation, supposed to have been passed by the Oliy Majlis (Parliament) this year, there were some reforms in the capital markets. On 17th January 2022 a presidential resolution was announced stating that, among other things:

  • From 1st April 2022 until 31st December 2024 there will be zero dividend tax on shares held in personal accounts (local and foreign individuals), while dividend tax for accounts held by non-resident legal entities will drop from 10% to 5%, in line with the dividend tax on local legal entities.
  • Interest income on corporate bonds will be tax free for both local and non-resident persons and legal entities.
  • From 1st July 2022 a stamp duty of 0.3% will apply to all transactions on the Elsis Savdo OTC platform, aligning its fee structure with that of the Tashkent Stock Exchange (previously, the Elsis Savdo platform charged a 20% duty on gross proceeds of a sale regardless of whether a profit or loss was made). Additionally, when a stock is demoted to the OTC market, minority shareholders will be able to request a mandatory buyback of their shares at the market price.
  • Foreign stock brokers will now be able to operate as underwriters in Uzbekistan, together with locally licensed brokers with at least UZS 500mln in equity (equivalent to about USD 46,200).
  • Local Uzbek entities will have to IPO locally before they can list abroad, or do both simultaneously.

Uzmetkombinat’s Roadshow Begins

A core holding of the AFC Uzbekistan Fund, and one we have written about many times over the years, is the largest steel producer in Uzbekistan, Uzmetkombinat (TSE: UZMK). On 15th December 2022 the underwriter for the privatisation of up to 5% of the company’s shares, Avesta Group, kicked off the company’s roadshow in anticipation of the offering which is expected to occur in the first half of 2023. Held at the Hyatt Hotel in central Tashkent, I had the opportunity to speak about the company and capital markets alongside Deputy Minister of Finance, Odilbek Isakov, management of UZMK, and the regulator of Uzbekistan’s capital markets. In our opinion, of the state-owned enterprises slated for privatisation, UZMK is among the most attractive from an investment standpoint.


Avesta Group Roadshow

Avesta Group Roadshow

(Source: AFC Research)


Capital “B” for Bureaucracy!

When operating in a developing market, and increasingly the developed world, bureaucracy in government is almost certain to be a topic of contempt. In most countries, the government only gets bigger over time and in many developed countries a bloated civil service breeds not only inefficiency and likely corruption, but an incentive for those in the game to vote for the incumbent political party. 

Well, in Uzbekistan, to quote Bob Dylan, “The Times They Are A-Changin'”, for during President Mirziyoyev’s annual address to the nation on 20th December 2022, he stated that from 1st January 2023 the government will be trimming the proverbial fat. The number of government ministries will shrink to 28 from the current 61 and up to 30% of government staff will be fired with the government using the savings to establish a fair wage system among civil servants and the balance for social programs, including providing school lunches to grade school children across the country. 

One of the biggest challenges for businesses in Uzbekistan since we arrived in 2018 has been the inefficiency of government. Luckily, investing in the stock market we don’t come across such issues, but by streamlining the government and increasing digitalization (a process which has been underway for several years) we hope that operating in Uzbekistan becomes more efficient and leads to a new phase of attraction for foreign investors looking to establish factories or general headquarters to gain Central Asian exposure.

At the end of December 2022, the fund was invested in 26 names and held 15.1% cash. The portfolio was allocated to Uzbekistan (84.87%%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (39.4%) and financials (28.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.77x, the estimated weighted harmonic average P/B ratio was 0.99x, and the estimated weighted average portfolio dividend yield was 4.10%.

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AFC Iraq Fund Performance


The AFC Iraq Fund Class D shares returned −0.2% in December with a NAV of USD 679.96, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 1.0% during the month. The fund is down 1.9% for the year versus the index which is down 3.8%. Since inception, the fund has lost 32.0% while the RSISUSD index is down 47.5%. The AFC Iraq Fund significantly outperformed all global benchmarks in 2022 reflecting its diversification benefits during this period of global market turmoil.

For the second month in a row, the decline in the parallel market’s price of the Iraqi Dinar (IQD) versus the U.S. Dollar (USD) negatively affected the market’s performance. But this month it went beyond exaggerating the market’s decline by reversing the index’s 0.7% increase in IQD terms to a decline of 1.0% in USD terms, as well as reversing the fund’s 1.6% increase in IQD terms to decline of 0.2% in USD terms. 

Putting the currency decline over the last two months into perspective, for the year the index was down 0.8% in IQD terms, and down 3.8% in USD terms, while the fund was up 1.0% in IQD terms but down 1.9% in USD terms. The volatility of the currency during the month dampened trading activity on the Iraq Stock Exchange (ISX). The index at year end is just under the low end of its 32-month up-trending channel (chart below) – which still supports the market’s positive technical picture as discussed here in the past few months. 

The macroeconomic fundamentals discussed here seven months ago support our view that this uptrend will likely remain in force; however, its upward slope might moderate or even go sideways, as this month’s action suggests. The 2023 budget proposal, expected to be submitted by the government to parliament in January 2023, with a hoped for ratification a couple of months later, is expected to provide the catalyst for the market’s next move – especially as all indications suggest that it ould be another expansionary budget as discussed here a few months ago.


RSISX USD Index Versus Average Daily Turnover

RSISX USD Index vs. Average Daily Turnover

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 30th December 2022)


In local currency terms, most of the index's constituents were down for the year, except for the Bank of Baghdad (BBOB) which was up 33.0%, Al Mansour Bank (BMNS) up 21.6%, while Kharkh Tour Amusement City (SKTA) was flat. The decliners were led by Al-Mansour Pharmaceutical Industries (IMAP) down 28.5%, Baghdad Soft Drinks (IBSD) down 23.3%, the Commercial Bank of Iraq (BCOI) down 19.4%, Iraqi for Seed Production (AISP) down 12.5%, the National Bank of Iraq (BNOI) down 10.6%, Al-Kindi of Veterinary Vaccines and Drugs (IKLV) down 10.3%, and AsiaCell (TASC) down 3.2%.

The ISX does not adjust stock prices for dividends and as such these figures represent total return figures. Five of the index’s ten constituents declared cash dividends during the year, with dividend yields at the time of announcements of 18.4% for BCOI, 11.8% for TASC, 8.0% for BMNS, 5.3% for IBSD, and 3.6% for BBOB. On the other hand, AISP declared a combination of a 22.1% stock dividend and a 5.2% cash dividend at the time of the announcement, and BNOI declared an 8.0% stock dividend. Rabee Securities notes that 21 out of the ISX’s 103 listed companies declared cash dividends with a dividend yield, at the time of the announcements, of range of 0.6% and 18.4%, with an average dividend yield of 4.3%, and a median dividend yield of 2.8%.

Currency Volatility

The Central Bank of Iraq (CBI), as part of an ongoing process of encouraging the move towards the adoption of banking, and away from the informality that dominates economic activity, implemented in mid-November 2022 new requirements to those for its provisioning of U.S. Dollars (USD) for importers. These requirements would bring the country’s cross-border fund transfers in-line with global standards that require a high level of transparency; however, they represent a seismic shift to the country’s cash dominated economy, in which large informal sectors drive the bulk of economic activities. As such, the introduction of the new regulations had an immediate detrimental effect on the volumes of the CBI’s daily USD-Iraqi Dinar (IQD) transactions for cross border fund transfers.

The decreased volumes of the CBI’s USD-IQD transactions, versus the continued high demand for USD to satisfy the need for imports, led to increases in the market price of the exchange rate of the USD versus the IQD. Initially the increase for November 2022 was 2.9%, but as volumes in the CBI’s currency transactions continued to decline, the increases worsened with the onset of the holiday season, with an intra-day peak increase of around 6.0% just after Christmas. The CBI, in response, introduced a number of measures to calm the market, and to further the adoption of banking, such as lowering its commission for USD purchases from ten to five basis points for: (1) importers who use letters of credit (LCs) for imports of goods and services; and (2) for individuals who use bank cards for their USD purchases for travel needs instead of cash. Other welcome measures introduced by the CBI were terminating its reports to the customs and the tax authorities on all USD transfers for imports – in the past these reports, paradoxically, increased economic informality given the outdated systems and bureaucratic nightmares of the customs and tax authorities. The combination of the CBI’s measures eased the market’s panic and the market price of the USD versus the IQD ended the month with an increase of 2.4%.

These dynamics can be seen in the chart below. The first half represent volumes of the CBI’s daily USD-IQD transactions (bank transfers to facilitate the imports of goods and services as indicated by green bars, and to satisfy the need for physical USD for Iraqi's travelling abroad as indicated by the red bars).  While the second half represents the official exchange rate of the USD versus the IQD (grey line), the market price of the USD versus the IQD (red line), and the premium of the market price of the USD/IQD exchange rate versus the official rate (delta or green line).


Volumes in CBI’s USD-IQD Transactions Versus the USD/IQD Exchange Rates

Volumes in CBI’s USD-IQD Transactions



the USD/IQD Exchange Rates

(Source: Central Bank of Iraq (CBI), data as of 30th December 2022)


The panic in the market, spurred by populist rhetoric, was focused on the high absolute level of the market price of the USD/IQD exchange rate, which in turn was the main reason for the disruption to economic activity, and to the trading activity on the ISX. However, the real measure of the market price is not its absolute level but its premium over the official price of the USD/IQD exchange rate. This premium increased to about 8.4% at the height of the panic (intra-day, it was over 10.0%), which while high, is much lower than the 14.2% level it reached around the 23.0% devaluation of the IQD versus the USD in late December 2020 (chart above).

In the near term, the premium is likely to settle in a range higher than current levels, given the continued strong demand for imports, the high degrees of informality in economic activities, and the time needed for the market to adjust to the increased levels of transparency demanded in cross-border fund transfers. The economy in the past adjusted to much higher premiums than current levels, and the adjustments eventually led to lower premiums (chart below) – a repeat of such adjustments this time will bring with it the benefits of increased adoption of banking.


USD/IQD Monthly Exchange Rates

USD/IQD Monthly Exchange Rates

(Central Bank of Iraq (CBI), data as of 30th December 2022; note data are monthly averages of the daily exchange rates)


Irrespective of the negative effects of the currency, the 2022 performance of the AFC Iraq Fund, and the RSISX USD Index, are well ahead of global benchmarks, signifying 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.

At the end of December 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of 2.5%. 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 (94.7%), Norway (2.3%), and the UK (0.5%). 

The sectors with the largest allocation of assets were financials (65.7%) and consumer staples (12.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.51x, the estimated weighted harmonic average P/B ratio was 0.98x, and the estimated weighted average portfolio dividend yield was 4.67%. The fund portfolio carbon footprint is 0.32 tons per USD 1 mn invested.

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