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Asia Frontier Capital (AFC) - February 2022 Update

“ I don’t believe too much in luck. I believe in circumstances. I believe in work.


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I don’t believe too much in luck.

I believe in circumstances.

I believe in work."

- Carlos Slim, Mexican business magnate, investor, and philanthropist


 (USD)February 2022Year to DateSince
AFC Asia Frontier Fund USD A1,497.88-2.3%-5.3%+49.8%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D762.48+2.4%+10.0%-23.8%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,985.07+1.3%-1.2%+98.5%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,531.93+1.9%-0.6%+253.2%
Ho Chi Minh City VN Index (in USD) +0.8%+0.2%+172.8%
  1. The NAV given is for the main share series for the relevant master fund. Investors' holdings may be in a different share class or series or  currency and have a different NAV. See the factsheets and/or your statement for full details.
  2. 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.

Despite the breakout of war in Ukraine, most AFC funds reported positive performance which only signifies the diversification benefits of being invested in Asian frontier markets.



BarclayHedge Awards

(Source: Bloomberg, based on monthly data)


With uncertainty expected to remain high due to the unfolding events, valuations for Asian frontier markets are not stretched and were already trading at a big discount to larger emerging markets before the Russia-Ukraine conflict. Additionally, Asian frontier stock markets are dominated by domestic investors unlike many larger emerging markets which could face higher foreign outflows.



BarclayHedge Awards

(Source: AFC Research, Bloomberg)


This is a good time to look at Asian frontier markets with a 3–5-year view, as the structural trends like the manufacturing shift into Asian frontier countries, attractive demographics, and economic growth from a low base should help overcome some of the near-term uncertainties related to the ongoing conflict in Ukraine. You can read more on our views on the long-term structural trends we see in our country universe through the AFC Asia Frontier Fund 2021 Review and 2022 Outlook report. (link)

I am very happy to report that 3 of our 4 funds received performance awards from the prestigious Investors Choice Awards for their performance in 2021 in the sector ‘Long Only Equity Fund – under $100m’. The awards went to:

  • AFC Asia Frontier Fund: +18.1%
  • AFC Uzbekistan Fund: +49.8%
  • AFC Vietnam Fund: +55.6%

In addition, the AFC Vietnam Fund also received the Long Term Performance award, also within the category ‘Long Only Equity Fund – Under $100m’.



BarclayHedge Awards



In addition to this, after having received awards for performance from BarclayHedge for 5 consecutive months, the winning streak continued with additional awards for the AFC Uzbekistan Fund from BarclayHedge. These awards once again show the validity of the investment thesis of AFC Funds and underline that they are well suited as a diversification tool for many equity investors.



BarclayHedge Awards



Below please find the manager comments relating to each of our four funds for the month of February 2022.

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 Iraq Fund Performance


The AFC Iraq Fund Class D shares returned +2.4% in February with a NAV of USD 762.48, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 4.5% during the month. The fund was up 10.0% year to date versus 8.8% for the index. Since inception, the fund lost 23.8% while the RSISUSD index is down 40.6%.

Average daily turnover on the Iraq Stock Exchange (ISX) declined for the second month in a row and is currently at the lower end of the levels that prevailed over the last twelve months. On a positive note, the Rabee Securities RSISX USD Index has reclaimed the upper-end of the uptrend that it established over the last two years (chart below) – a promising development that is in contrast to that of many markets worldwide.



Iraq's COVID-19 Statistics

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 28th February 2022)


Among the index's constituents, lower-priced Gulf Commercial Bank (BGUC) was up 20.0% for the month, far ahead of the other nine constituents. The next best performing constituent was Bank of Baghdad (BBOB) up 4.7%, followed by Baghdad Soft Drinks (IBSD) up 4.4%, Asiacell (TASC) up 3.3%, the National Bank of Iraq (BNOI) up 2.6%, and Al-Mansour Bank (BMNS) up 2.0%, while the Commercial Bank of Iraq (BCOI) was flat. Decliners were led by Al-Mansour Pharmaceutical Industries (IMAP) which was down 6.5%, followed by National Chemical and Plastics Industries (INCP) down 2.0%, and Kharkh Tour Amusement City (SKTA) which was down 0.3%.

Excluding BGUC, these modest stock price performances for the month haven’t yet reflected the increased bounty brought by high oil prices taking Iraq’s oil sales to an all-time high for a fifth consecutive month (chart below). The country’s high leverage to oil prices and hence to oil sales will have significant positives for both the economy, and the equity market down the line – as a result of the centrality of the government’s oil fuelled spending to the economy.



Brent Crude Chart

(Source: Ministry of Oil, AFC Research, data as of 28th February 2022)


There is a great deal of fear built into oil’s current prices, and as such they are unlikely to be sustainable for too long, yet the changed geopolitical landscape as a consequence of the invasion of Ukraine will have significant consequences for the supply and demand of oil. On the demand side, the limited disruptions brought by the Omicron variant on economic activity worldwide since its emergence has solidified market expectations that oil demand in 2022 will return to pre-COVID-19 levels seen in 2019 – there is no reason to expect meaningful change to these expectations following the Ukraine invasion.

However, the same market expectations that supply will itself, like demand, return to its pre-COVID-19 levels will likely be re-examined in light of the pressures that the OPEC+ group will be under in the new changed world order. Prior to the events leading to the current crisis, OPEC+’s plan was to fully unwind by September 2022 the production cuts agreed to in April 2020. However, over the last few months, the plan was facing difficulties as some members of OPEC+ were experiencing difficulties in returning to pre-COVID-19 production levels. This situation will likely worsen given the wide scope of sanctions levied upon Russia, which will negatively affect its oil production and the production of many of the “+” members of OPEC+ that are closely aligned to Russia. Consequently, supply will likely be meaningfully tighter than anticipated earlier despite many countries releasing oil held within their strategic reserves, the return of full U.S. shale oil production, and possible production increases by Saudi Arabia. Moreover, the changed geopolitical landscape means the return of high-risk premiums to oil prices for a considerable period into the future.



Brent Crude Chart

(Source: US Energy Information Agency, data as of 8th February 2022)


Oil price expectations – a consequence of the changed dynamics of oil’s supply and demand – and what they mean for the Iraqi economy, are meaningfully higher than those articulated in the AFC Iraq Fund’s outlook for 2022, which argued at the time 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 still allow for the accumulation of budget surpluses. Moreover, they will also lead to multi-year positive balances in the country’s current account which in turn will translate into meaningful increases in Iraq’s foreign exchange reserves.”

Iraq’s equity market outlook and attractive risk-reward profile, in the unfolding new world order, is in sharp contrast to that of many markets worldwide. Firstly, the Iraqi equity market is in the process of emerging from a multi-year bear market that saw the Rabee Securities RSISX USD Index at the end of 2020 down by 68% from its 2014 all-time high – unlike many markets worldwide that have had multi-year bull markets. Secondly, its 8.8% performance year-to-date is in contrast to the sell-offs experienced by other markets in response to the changed world order dynamics. Finally, the index’s 8.8% increase year-to-date comes on the back of a +21.4% return in 2021, but by the end of the month the index was still 58% below the 2014 high – underscoring the potential catch-up upside for the equity market and its attractive risk-reward profile versus other global markets (chart below).


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

Brent Crude Chart

(Source: Bloomberg, data as of 3rd March 2022)


In conclusion, we firmly believe that the AFC Iraq Fund is well-positioned to capture and benefit from the revival of the broader macro-economic backdrop of the country on the back of continued momentum in crude oil prices. 

At the end of February 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of −1.6%. 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 (99.2%), Norway (1.9%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (67.9%) and consumer staples (14.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.01x, the estimated weighted harmonic average P/B ratio was 0.98x, and the estimated weighted average portfolio dividend yield was 3.89%.

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AFC Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund returned +1.9% in February with a NAV of USD 3,531.93, bringing the return since inception to +253.2%. This represents an annualized return of +16.7% p.a. since inception. The Ho Chi Minh City VN Index gained 0.8% in February 2022 in USD terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.77%, a Sharpe ratio of 1.15, and a low correlation of the fund versus the MSCI World Index USD of 0.52, all based on monthly observations since inception.

Vietnam was able to decouple from other markets since a further rebound in economic activity led to local buying demand. Other good news includes the complete opening up for international tourism as soon as mid-March which will likely further boost the economy, while little impact from the current crisis in Ukraine is to be expected.

Market Developments

February´s “boring” performance shows the relative immunity to volatility compared to what we have seen in many other parts of the world. The first trading month after the Tet holidays was highlighted by strong performance in banks and energy and weaker prices in listed Vingroup companies. Market breadth (the advance/decline ratio) even improved for the first time in months which is the result of refreshed optimism by Vietnamese investors after life returned to almost normal after the abolition of most COVID-19 restrictions, despite rising COVID-19-cases. The Vietnamese stock market is mainly driven by domestic investors and is less influenced by international politics, which is something we certainly like a lot in the current environment. Vietnam’s stability in both the short-term and on a one-year basis shows the comparison with developed markets such as the US, Europe, and Japan.


1-year Vietnam VHINDEX versus S&P500, Euro Stoxx 50, FT China

VN30-Index September 2020-November 2021

(Source: Bloomberg)


The economic recovery is moving ahead as expected, with manufacturing activity and retail sales improving from the lockdown-related lows of last year. The only remaining problem sector is tourism.


Purchasing Managers Index


(Source: Trading Economics)


Retail Sales Index


(Source: Trading Economics)


The Western world’s current economic pressure on Russia to stop the military threat against Ukraine failed, and it is becoming increasingly clear that the world´s problems are not going away. Vietnam, despite being a communist country, has leaned economically toward the West in recent years, and it is historically not known as one of China’s best friends and has always tried to stay (wisely!) politically out of most lines of fire over the past few decades. Vietnam has aimed to stay on good terms with countries of all sides which is probably one of the many reasons for its economic success. The decade-long globalisation trend might have seen its peak with COVID-19 related bottlenecks in production and shipping, but this new crisis could be a net-positive for Vietnam’s trade, as the West needs economically and politically reliable alternatives to China, now more than ever. The apparent bigger risk for the domestic economy in the short term could be a slower recovery in international tourism than broadly hoped for, if widening political conflicts reduce people’s desire to travel far away from home for a holiday - precisely at a time when the country is pushing aggressively for an opening of international tourism. 

Regardless, the impact for Vietnam from the Ukraine/Russian crisis should be very limited as neither trade nor tourism with either country is highly important, although like other tourist destinations in Asia and Europe, Russian tourists have been increasingly sought after in Vietnam over the past 10 years.


Top 10 inbound source markets in 2018 (arrivals)

4th wave fully hit Vietnam in April

(Source: Vietnam National Administration of Tourism)


These numbers were of course before COVID-19, so the actual tourist income over the past two years is negligible, and a weak Russian ruble and deteriorating purchasing power of the middle class has already reduced international tourism years prior to COVID-19.

With other countries in the region currently opening up quite aggressively, Vietnam reacted in recent weeks very swiftly by changing its pseudo-opening policy where only limited tour-packages could be booked, attracting just a few thousand tourists. Complete details are still to follow, but proposals are that from 15th March 2022 onwards, international tourists will only need to present a PCR test before arrival, with an additional test to be done within 24 hours after arrival in Vietnam. After a negative test, there should be no restrictions for movements around the country.

Within days of these announcements, several airlines opened up international routes to Asian, Australian, European and American destinations, including newcomer Bamboo Airlines, owned by Vietnamese FLC Group which is now flying to Bangkok, Frankfurt, London, Melbourne, Seoul, Singapore, Taipei and Tokyo, on new Boeing 787-9 Dreamliner airplanes.


Bamboo Airlines flying now to Bangkok, Frankfurt, London, Melbourne, Seoul, Singapore, Taipei and Tokyo

National Assembly Meeting

(Source: Boeing)


In 2019, tourism represented roughly 9% of Vietnam´s GDP. The collapse in tourism revenues since then clearly shows the additional potential for the economy once the borders are opened and tourism recovers. Even if it takes years for a full recovery, it is easy to see how tourism will help Vietnam to grow an additional 2-3% for a few years to come if the pandemic comes to an end.


Tourism revenue (VND trln)

National Assembly Meeting

(Source: Vietnam Tourism Department)


The impressive vaccination campaign made it easier for the government to decide to completely open up the country again. 75 mln people are now fully vaccinated, with 38.6 mln people already having received their booster.


Long line at Ba Den Mountain Cable Station during TET-holiday

Vinamilk (VNM) share price

(Source: cafef)


There are a few attractive investment opportunities in the tourism sector and one of them is Tay Ninh Cable Car Tour (TCT) which is expected to benefit strongly from the recovery. The first quarter in the year is the main business season of TCT and contributes around 70% of total profits for the year. With a strong recovery in the number of tourists, together with the almost doubling of ticket prices (from VND 130,000 to VND 250,000 per ticket!), we expect a strong earnings recovery for TCT in 2022. Even though the stock price performed well recently, the company still looks undervalued in our view. Based on pre-pandemic profits of 2019, which we expect to be reached with the recovery in tourism, the P/E would be only 7.5 times.


Tay Ninh Cable Car Tour Co (TCT) stock price mid-2016 - now

Vinamilk (VNM) share price

(Source: Bloomberg)


Besides TCT, we also think that another tourism company, Dam Sen Water Park (DSN) will have a strong earnings recovery during the summer, which is the key business season for this company. In terms of COVID-19, Ho Chi Minh City is considered to be one of the safest cities in Vietnam right now with a 99.9% vaccination rate (>18 years old) and Dam Sen Water Park is expected to benefit from this nicely, given that they are the largest water park in Ho Chi Minh City with around 2.5 to 3 mln visitors every year before COVID-19. The company trades at around 6.1 times 2019 earnings (pre-pandemic). We regard the current level as attractive and expect that the stock price will recover strongly during the summer when visitors start to return.


Dam Sen Water Park Corp (DSN) stock price

Vinamilk (VNM) share price

(Source: Bloomberg)


TCT and DSN survived the pandemic well because they are both cash rich with strong balance sheets which helped them to maintain their business operations despite low capacity. DSN has VND177 bln in cash, which is around 30% of its market cap of VND580 bln. Meanwhile, TCT has a cash balance of VND277 bln, around 50% of its market cap of VND547 bln. One of our investment criteria is to look out for companies with a strong balance sheet that provides them the financial strength to overcome difficulties and survive during hard economic times. We therefore expect that these 2 companies will recover very strongly and quickly as soon as tourism rebounds, but of course other tourism-related companies should also benefit, such as aviation, F&B, hotels suppliers, etc. 

At the end of February 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.7%) – an insurance company, Tuong An Vegetable Oil JSC (6.2%) – an edible oil producer, PVI Holdings (6.0%) – also an insurance company, Idico Urban and House Development JSC (4.6%) – an energy, construction, and real estate business, and Power Engineering Consulting JSC No. 2 (4.4%) – a consulting firm.

The portfolio was invested in 49 names and held 3.9% in cash. The sectors with the largest allocation of assets were consumer (45.6%) and financials (20.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.90x, the estimated weighted harmonic average P/B ratio was 1.74x, and the estimated weighted average portfolio dividend yield was 3.79%.

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AFC Uzbekistan Fund - Manager Comment

AFC Asia Frontier Fund Performance


The AFC Uzbekistan Fund Class F shares returned +1.3% in February with a NAV of USD 1,985.07, bringing the return since inception (29th March 2019) to +98.5%, while the year-to-date return stands at −1.2%. On an annualized basis, the fund returned +26.5% p.a. with a Sharpe ratio of 1.77.

February saw some excellent preliminary earnings news from the fund’s largest holding, Uzmetkombinat, which propelled the share price 38.8% higher during the month. Otherwise, it was business as usual in Uzbekistan, with Ukraine having a minimal potential negative effect on the country, which we discuss further below.

AFC Uzbekistan Fund valuations as of 28th February 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.70x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 5.40%


Russia invades Ukraine – implications for Uzbekistan

As Russia launched a full-scale invasion of Ukraine during the month, we have received a few questions on any potential collateral damage that could be done to Uzbekistan and its economy. For the time being, the three biggest risks to Uzbekistan are the depreciation of the Russian ruble, sanctioning of Russian banks which do business in Uzbekistan, and the potential for remittance inflows from overseas Uzbeks working in Russia to slow for a period of time.

Russia is Uzbekistan’s largest trading partner and the Uzbek som typically devalues when the Ruble does (as does the Kazakh tenge). The most recent example of this happening was during the height of Covid hysteria in March 2020 when spot oil prices went negative. However, so far, the UZS has been stable, most likely due to intervention by the Central Bank of Uzbekistan, not related to the Ukraine situation but rather due to the government’s continued focus on maintaining price stability in a bid to decrease inflation and keep it below 10%. We always watch the FX situation closely and will continue monitoring the situation as usual.

In our view, the bigger risk is Russian banks doing big business in Uzbekistan. With VTB Bank, Sberbank, and Sovcombank being sanctioned by the U.S. Treasury, some of the Uzbek state-owned enterprises that have borrowed from these, and other Russian banks, may seek to repay these loans and pursue re-financing elsewhere in order to avoid any issues that U.S. sanctions on these financial institutions could bring. In relation to the banks, as there are several million Uzbek citizens living abroad, many of whom are migratory labour remitting portions of their salaries back to Uzbekistan, for those living in Russia it could become more of a challenge to remit earnings back home. However, this would likely only be a temporary issue as other banks can be used, and Uzbeks are resourceful to say the least so we don’t see a potential drop in remittances as being long-lasting.

Aside from these three risks, we don’t see any significant change in Uzbekistan’s growth prospects as the economy continues to hum along, as does the economic liberalisation.

Capital markets update

As the annual general meeting (AGM) season quickly approaches, early news is coming out that some of our portfolio companies indeed had a superb 2021. One outstanding example of the value that exists among the fund’s holdings is Uzbekistan’s largest steel producer, Uzmetkombinat (TSE: UZMK). Preliminary results show that UZMK saw net income grow by 594% in 2021 to UZS 1.53 trln, up from UZS 220.2 bln in 2020.

As the global economy has entered what we believe is a new era post-COVID, transitioning from globalisation to de-globalisation and ensuing regionalisation, and as we are in the early innings of what is shaping up to be a prolonged global energy crisis, big steel producers like China are likely to continue curtailing excess production which was once destined for export in order to save precious energy resources. Such policies (which one could positively spin as “ESG” but are really a result of energy shortages) are liable to keep steel prices elevated for an extended period. This makes UZMK an ideal investment as it is a defacto monopoly in Uzbekistan, and once the company completes its capacity expansion in the middle of the decade it can pursue regional market share as well.

UZMK will hold its AGM on 15th March 2022, where the main item on the agenda will be the distribution of net income. Typically, state-owned companies distribute 75% of net income, but assuming UZMK distributes only 50% this would equate to UZS 19,766 per share and thus a dividend yield of 21.9% as of 31st January 2022. This attractive potential yield caused UZMK’s share price to rally 38.8% during February and as of month end a 50% distribution of profits would translate to a yield of 15.8%, still highly attractive in an economy where inflation is under 10%!

Also on the agenda is the potential for the distribution of accumulated retained earnings in order to increase charter capital. Assuming no dividend distributions are paid and retained earnings go toward increasing charter capital, this would equate to the issuance of nine new shares for every share held. While we would prefer dividends, the company would certainly appreciate the cash to stay in the company as they have large funding requirements coming up as UZMK undergoes a capital expenditure program which will see a doubling of production to 2.5 mln tons of steel per year by 2026.

On 31st December 2021 it was announced that an 86.9% stake in the fund’s largest holding, Qizilqum Cement (TSE: QZSM) would be privatized. Uzbek securities legislation states that when more than 50% of the equity of a company changes hands, the buyer is obligated to announce a general offer. In the case of QZSM, the deal was registered on 4th February 2022 and the day’s closing price was UZS 5,197. Therefore, the new owner must announce a tender offer to purchase shares held by minority investors at a price of UZS 5,197. However, during the month some shareholders decided to sell their shares under this guaranteed offer price and we scooped up many shares as low as UZS 4,200 per share, making the fund effectively risk-free money. The inefficiency and lack of liquidity in the stock market of course can be a double-edged sword, but we well understand the state of the market and are happy to exploit such inefficiencies, for as the market develops there will be fewer such opportunities.

At the end of February 2022, the fund was invested in 28 names and held 8.6% in cash. The portfolio was allocated to Uzbekistan (91.35%) and Kyrgyzstan (0.03%). The sectors with the largest allocation of assets were materials (50.9%) and financials (24.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.70x, the estimated weighted harmonic average P/B ratio was 1.30x, and the estimated weighted average portfolio dividend yield was 5.40%.

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AFC Uzbekistan Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares returned −2.3% in February 2022 with a NAV of USD 1,497.88. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−3.0%), the MSCI Frontier Markets Net Total Return USD Index (−4.4%), and the MSCI World Net Total Return USD Index (−2.5%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +49.8% versus the benchmark, which is up by 15.3% during the same period. The fund’s annualized performance since inception is +4.2%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.5% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.55, all based on monthly observations since inception.

Fund performance was in healthy positive territory until the Russia-Ukraine war broke out on 24th February which led to a global stock market sell off. The sell-off in our three London listed Kazakh GDRs, Halyk Bank, Kaspi and Kazatomprom impacted performance the most as peripheral countries to Russia corrected due to their economic and/or cultural links to Russia and Ukraine. This includes Georgia, where we hold one position also listed in London, TBC Bank. The correction in our Kazakh and Georgia holdings impacted performance by around -1.8% and our current exposure to Kazakhstan and Georgia is 5% and 1% respectively.

Despite the current uncertainty caused by the conflict, we would like to point out that the fund’s holdings across our universe are skewed towards large cap and blue-chip companies which have sound fundamentals, the ability to manage a tougher external environment due to the strength of their balance sheets, and have strong pricing power due to their well-established brands. This is in-line with what we wrote in our 2021 Review and 2022 Outlook report (link).


AAFF portfolio holdings are skewed towards large cap and blue-chip companies with sound fundamentals

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

(Source: AFC Research)


However, the larger than expected scale of conflict in Ukraine will most likely lead to a significantly weaker economy in Russia and Ukraine which will have near term ramifications for the region, including Central Asia. The fund’s exposure to Central Asia is via Georgia, Kazakhstan, and Uzbekistan. For Georgia, Russia and Ukraine together account for 19% of its remittances, 25% of tourism receipts and 22% of exports.

For Kazakhstan, the economic exposure is not as high as Georgia since Kazakhstan is a net-remitter to Russia and Ukraine while both countries account for 12.5% of Kazakhstan’s exports. However, the impact on Kazakhstan is more nuanced as the Russian ruble (RUB) and Kazakh tenge (KZT) are closely linked. The significant weakness in the RUB has led to a 16.5% depreciation of the KZT since 24th February 2022 which pre-empted the National Bank of Kazakhstan to raise benchmark interest rates by 325 basis points to protect the currency.

Besides the economic impact, Georgia, Kazakhstan, and Uzbekistan have been managing relations with the West and Moscow, with all three countries balancing their foreign policy interests.

Despite the near-term impact on neighbouring countries, valuations have now become extremely attractive in Georgia and Kazakhstan while the fundamentals and earnings growth of the companies we hold remain solid. In Georgia, TBC Bank now trades at a P/E ratio of only 2.8x and Halyk Bank in Kazakhstan now trades at a P/E ratio of only 2.5x and offers a dividend yield of 23%! Both banks are fundamentally as strong as they have ever been with RoE’s of 24.4% and 29.6% respectively. Furthermore, TBC Bank has almost doubled its earnings in the past five years while Halyk Bank has seen earnings grow by almost 3x since 2016 to more than USD 1 bln.

Kaspi, our Kazakh fintech holding, once again declared better than expected results with net profits for 2021 growing by 60% to almost USD 1 bln, while guiding to 20-30% earnings growth for 2022. With all key metrics being met or exceeded in 2021, execution remains very strong and focussed. After the recent correction in its stock price, Kaspi now trades at a P/E ratio of 6.0-6.5x, the lower end and upper end of its net profit guidance.

Even after discounting valuations for the near-term impact of the Russia-Ukraine conflict, current valuations of Kaspi are too pessimistic for a dominant tech play which actually generates net profits and cash flows and pays dividends, unlike many of its peers which are neither dominant nor generate net profits and keep losing more money. At its current price, Kaspi has a dividend yield of 11%, unheard of for any fintech play globally.

Furthermore, despite the events in early January in Kazakhstan, the company has not seen any major impact on its operations with its payment transaction value seeing YoY growth of 43% and 66% in January 2022 and February 2022 respectively.



Touring Uzmetkombinat’s factory

(Source: Kaspi)


The larger concern for the global economy is the resulting impact of the conflict on commodity prices, especially crude oil. Within our universe, Iraq, Kazakhstan, and Mongolia are the key beneficiaries of higher commodity prices. However, crude oil prices at or above USD 100/barrel are a negative for net crude oil importers like Pakistan and Sri Lanka given their weaker macro-economic position. We have a relatively lower weight to Pakistan and Sri Lanka at 8% and 4% respectively.



Touring Uzmetkombinat’s factory

(Source: AFC Research)


Despite the global macro noise, the fund’s holdings in Vietnam did very well and gained +6.4%, outperforming the VN-Index significantly which gained only +0.8%. Gains in Vietnam were led by both the economic reopening and oil & gas plays.



Touring Uzmetkombinat’s factory

(Source: SSI Securities)


Exports from Bangladesh continued their momentum with February 2022 export growth of 35% as the country reaps the benefits of ongoing supply chain diversification by global retailers.



Touring Uzmetkombinat’s factory

(Source: Bangladesh Export Promotion Bureau)


The best performing indexes in the AAFF universe in February were Cambodia (+23.3%) and Iraq (+3.7%). The poorest performing markets were Sri Lanka (-11.0%) and Mongolia (-6.1%). The top-performing portfolio stocks this month were a Mongolian media company (+43.8%), a Mongolian coking coal miner (+33.6%), a Vietnamese transportation company (+17.5%), a Cambodian casino operator (+16.1%) and a Vietnamese port operator (+15.6%).

In February, the fund both increased and reduced its exposure to a few positions in Mongolia.

At the end of February 2022, the portfolio was invested in 76 companies, 2 funds and held 7.1% in cash. The two biggest stock positions were a pharmaceutical company in Bangladesh (4.1%) and a beverage producer in Mongolia (4.0%). The countries with the largest asset allocation were Mongolia (22.5%), Vietnam (11.8%), and Iraq (11.5%). The sectors with the largest allocation of assets were consumer goods (29.0%) and materials (10.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.27x, the estimated weighted harmonic average P/B ratio was 1.14x, and the estimated weighted average portfolio dividend yield was 3.47%.

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