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Asia Frontier Capital (AFC) - January 2022 Update

“ The stock market is a device for transferring wealth from the impatient to the patient " - Warren Buffet


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The stock market is a device for transferring wealth from the impatient to the patient"

- Warren Buffet


AFC Asia Frontier Fund USD A1,532.72-3.1%+53.3%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D744.26+7.4%-25.6%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,959.44-2.5%+95.9%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,465.25-2.5%+246.5%
Ho Chi Minh City VN Index (in USD) -0.6%+170.8%
  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.

The entire AFC Team wishes our investors and newsletter readers a Happy Lunar New Year and a healthy and prosperous Year of the Tiger!



BarclayHedge Awards



The AFC Uzbekistan Fund was ranked #1 by BarclayHedge for its full year 2021 performance of +49.8% in the sectors “Emerging Markets – Eastern Europe/CIS” and “Emerging Markets Equity – Eastern Europe/CIS”.


Have you already seen the video presentation covering this fund? If not, you can see it by clicking the image below:


I am very happy to report that after having received awards for monthly performance from BarclayHedge for 4 months in a row, not only did the AFC Uzbekistan Fund receive awards again, but the AFC Vietnam Fund also won awards. This time it won the Top-10 award in the sector “Emerging Markets – Asia” and “Emerging Markets Equity – Asia” for its 2021 performance. Combined these awards show the validity of the investment thesis of AFC Funds and that they are well suited as a diversification tool for many equity investors.


BarclayHedge Awards

BarclayHedge Awards




BarclayHedge Awards



Asian frontier markets hold up in a volatile month

Global markets began the year on a volatile note as rising geopolitical tensions regarding Ukraine and concerns over more aggressive policy tightening from the U.S. Fed led to investor uneasiness. Despite the stock market correction in the U.S., Europe, and China, the benefits of Asian frontier markets’ lower correlation to global events played out very well as the AFC Iraq Fund returned a solid +7.4% which was also significantly ahead of its benchmark.

Asian frontier markets held up well this month in light of the global stock market volatility. The way the year has begun for global stock markets is not a surprise to us, as we had mentioned interest rates and inflation as key themes investors might focus on in 2022 in the AFC Asia Frontier Fund Review and Outlook report which you can read here: (Link).

We reiterate that many Asian frontier markets are well positioned from a macro-economic perspective to face an evolving economic environment, while most stock markets in our universe are now dominated by local and not foreign investors anymore which makes the argument of foreign capital outflows in an environment of rising global interest rates a weak one.


BarclayHedge Awards

(Source: Bloomberg)




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AFC Iraq Fund Performance


The AFC Iraq Fund Class D shares returned +7.4% in January with a NAV of USD 744.26, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 4.1% during the month. The fund is up 22.5% in 2021 versus 21.4% for the index. Since inception, the fund lost 25.6% while the RSISUSD index is down 43.2%.

The fund has recovered 74% of November 2021’s sharp correction induced by concentrated foreign selling in some of its top holdings – underscoring the opportunity gap as the fund regains its NAV towards October 2021 levels and resumes its uptrend.

Foreign selling continued into January, but its volume and urgency moderated significantly, while local investors continued to take advantage of the opportunity presented by this selling, and comfortably absorbed all that was offered for sale. The standout performer for the month, among the index as well as among the fund’s top five stocks, was the National Bank of Iraq (BNOI) which was up 26.0%, on the back of a 17.1% gain in December, in the process recovering about two thirds of the 41.7% decline in November 2021 as its limited liquidity magnified the then concentrated foreign selling. Most other main index constituents were moderately up with AsiaCell Telecommunications (TASC) up 4.4%, the Bank of Baghdad (BBOB) up 2.9%, and Baghdad Soft Drinks (IBSD) up 0.7%.

Banking sector’s role in the Iraq Investment Thesis

Banks, as a group, constitute a significant component of the Iraq Stock Exchange (ISX) with a combined market cap of USD 1.9 bln, accounting for 25% of the ISX’s total market cap. However, the ISX’s market cap is distorted by a 59% weighting made up of two telecom stocks, TASC and the holding company for Zain-Iraq “Al Khatim Telecom” (TZNI) – both of which are majority-owned by regional telecom companies. Correcting for this abnormality, 57% of the Rabee Securities RSISX USD Index market cap is made up of banks, which are the Bank of Baghdad (BBOB) at 25%, the National Bank of Iraq (BNOI) at 14%, the Commercial Bank of Iraq (BCOI) at 7%, Al Mansour Bank (BMNS) at 6%, and Gulf Commercial Bank (BGUC) at 4%. All figures are for the main market, rounded, and as of the end of January 2022.

The AFC Iraq Fund over-weights the banking sector with a 65% weighting, holding many of the same stocks as the index, but with different weightings for each stock reflecting different expectations for each bank’s earnings trajectory and leverage to economic recovery – each holding’s attractiveness and leverage to this growth will be featured in future newsletters throughout this year. 

The investment thesis for banks is based on the opportunity for the group to grow earnings multiple times from current levels as the country moves towards a full adoption of banking and away from the dominance of cash as both a store of value and a means of economic exchange – cash accounted for about 85% of all transactions in 2020. The key element in the economy’s adoption of banking is the growth in bank lending leading to an expansion in the money circulating in the economy (i.e., broad money), and consequently to an expansion in non-oil GDP. Over time, as banks’ earnings grow substantially, this should lead to meaningful increases in their valuations.

The extent of the opportunity for Iraqi banks to grow their earnings can be appreciated by considering the level of development of banking in Iraq in a regional context by looking at the ratio of broad money to GDP (chart below). The logic being the extent of the development of a banking system in an economy is associated with the level of increase in broad money, as a consequence of the role that banks play in the creation of money through the provision of credit. Moreover, an increase in broad money can be correlated with an increase in economic activity, which is partly or wholly funded by credit, and ultimately with an increase in goods and services produced in the economy, i.e., the country’s output or Gross Domestic Product (GDP).



Iraq's COVID-19 Statistics

(Source: World Bank. Arab World data as of 2017, Iraq data as of 2019. Trend lines are dotted)


Iraq’s banking development was smothered by almost four decades of conflict, starting with the Iraq-Iran war, the brutal sanctions following the invasion of Kuwait, the US invasion in 2003, the ensuing civil war, and ending with the ISIS conflict. However, even though it significantly lags its peers’ banking development, since 2003 it has been developing along the same path of natural economic development, but with a significant time lag. It follows that Iraq’s banking sector’s assets should experience substantial growth over the next few years as it catches up with that of its peers in the region. With that, the sector’s valuations should follow.

Iraq’s banking sector from a short-term perspective

Following the severe economic disruptions brought by COVID-19, the economy experienced substantial liquidity injections from mid-2020 throughout 2021 from a combination of: (1) government borrowing in 2020, via indirect monetary financing; (2) the Central Bank of Iraq (CBI)’s adoption of an accommodative monetary policy to support borrowers and the economy in countering the negative effects of COVID-19; and (3) sustained oil price increases from October 2020 onwards, which allowed the government to raise spending significantly. These injections stimulated economic activity and accelerated private sector deposit and loan growth – already in effect since early 2018 (chart below). Interestingly, deposit growth outpaced loan growth as seen from the declining loan-deposit ratio indicating that current deposits can sustain further growth in loans.



Brent Crude Chart

(Source: Central Bank of Iraq, AFC Research, data as of October 2021)


These two metrics, deposit and loan book growth, are key drivers for sustained increases in banks’ earnings, and hence their valuations. Drilling down to the company level within the commercial banking sector shows different performance in terms of these two metrics over the period, i.e., 2018-2021, among the quintet of banks – BBOB, BCOI, BGUC, BMNS, and BNOI – under review (charts below).



Brent Crude Chart



Brent Crude Chart

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research. Note: Year-end data for 2010-2020; latest reported quarterly data for 2021)


The picture, in terms of the size and direction of both the deposit base and the loan book of each of these five banks, reflects the different strategies pursued by each bank during the heyday of growth before the onset of the 2014-2017 crises. The growth rate and size of each bank's loan book relative to its deposit base up to the crisis, and the associated loan risk-profiles, led to different non-performing loans (NPL's) behaviour during the crises. The pains of the crises exposed both the structural weaknesses of the banking sector as a whole as well as those of the individual banks. Management of each of these banks pursued different strategies to address these structural weaknesses, and the subsequent growth trajectory that is reflected in the progression of their earnings. 

At opposing ends of each of these strategies are those pursued by the Bank of Baghdad (BBOB) and the National Bank of Iraq (BNOI) as can be seen from the performance in deposit bases and loan books of the two banks from the end of 2018 to September 2021 (chart above).

Both banks increased their deposit bases to a level that is significantly higher than their peers. During the period, overall private sector deposits grew by 49%, while BBOB’s deposit base grew by 43% and BNOI’s deposit base grew by 340%. While BNOI’s stellar growth in the period benefited from a low base in 2018, it maintained a high growth rate in 2021 which is expected to show a year-over-year growth of over 100% – that is mainly made up of organic growth in addition to contributions from the acquisition of the Iraqi branch network of Lebanon's Bank Audi.

However, both banks differ markedly in the strategies pursued regarding their loan books. During the period, overall loans to the private sector grew by 42%, while BBOB’s loan book declined by 19%, and BNOI’s loan book increased by 780%. Similarly, to its deposit base, BNOI’s impressive growth in the period benefited from a low base in 2018, yet it maintained a high growth rate in 2021 which is expected to show a year-over-year growth meaningfully over 100% – in the process matching the combined loan books of the other four banks. Similarly, to its deposit growth in 2021, loan book growth was mostly made up of organic growth in addition to contributions from Bank Audi’s branches in Iraq.

Both banks are among the top five holdings of the fund, as both, irrespective of the different strategies pursued, are expected to show strong earnings growth but at different growth rates and hence generate different stock price performances – as will be discussed in future newsletters that will separately feature each bank.

In conclusion, we firmly believe that the AFC Iraq Fund is well-positioned to capture and benefit from the expected earnings growth of its key holdings, such as BBOB and BNOI, and 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 January 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of −1.8%. 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 (98.9%), Norway (2.4%), and the UK (0.5%). The sectors with the largest allocation of assets were financials (67.6%) and consumer staples (13.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.86x, the estimated weighted harmonic average P/B ratio was 0.95x, and the estimated weighted average portfolio dividend yield was 4.00%.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund (Non-US) Class F shares returned −2.5% in January with a NAV of USD 1,959.44, bringing the return since inception (29th March 2019) to +95.9%, while the 2021 return was +49.8%. On an annualized basis, the fund returned +26.7% p.a. with a Sharpe ratio of 1.77.

January was another month of quiet trading in the stock market and the likely cause of a downward bias in blue-chip names as sellers are taking profits into light volume after massive runups accumulated over the past two years. However, reforms are accelerating and gaining momentum as the proverbial puzzle pieces continue to fall into place, spearheaded by the Ministry of Finance and with contributing support via financial assistance toward capacity building from the Asian Development Bank (ADB) and European Bank for Reconstruction and Development (EBRD).

AFC Uzbekistan Fund valuations as of 31st January 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.74x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 5.42%


Capital markets update

While the broad sentiment in the stock market can best be described as neutral over the past few months, we presume the moderate weakness in the market is due to sellers taking profits after significant run-ups in the market, albeit they are doing so in a light volume environment which has weighed on prices. Pullbacks are simply part of the ebbs and flows of a secular bull market and we have been able to take advantage of the current correction in some of our favourite listed names by adding additional exposure at prices, in some cases, more than 20% off their highs only a few months ago. This correction has enabled us to absorb the new supply of shares at good prices and in anticipation of the next leg higher, while earnings multiples compress, making them even cheaper. To provide some figures on just how far some of our holdings have rallied since inception of the AFC Uzbekistan Fund on 29th March 2019, the share price of the Uzbek Commodity Exchange (TSE: URTS) is up 1,340%, Biokimyo (TSE: BIOK) +400%, Uzmetkombinat (TSE: UZMK) +416%, Qizilqum Cement (TSE: QZSM) +178%, Quvasoy Cement (TSE: KSCM) +154%, and Toshkent Vino (OTC listed) +137%, excluding dividends, which were in several cases yielding an additional 15% to 20% return.

Beyond muted activity in the stock market, under the “hood”, the engine of reform is purring strongly via the presidential decree to develop Uzbekistan’s capital markets, with 2022 set to be an exciting year with many progressive developments. January certainly didn’t disappoint as the year started off with a “bang!” in the form of a presidential resolution announced on 17th January 2022 outlining significant positives on both privatisations and tax news related to the capital markets. Some of the more prominent highlights of the resolution include:

  • 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 stockbrokers 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.

These developments are long overdue and frankly I would be skeptical of them ever happening if it was not for the outstanding team including Deputy Prime Minister and Minister of Economic Development and Poverty Reduction, Jamshid Kuchkarov, Minister of Finance, Timur Ishmetov, Deputy Minister of Finance, Odilbek Isakov, and Director of the Capital Market Development Department, Sarvar Akhmedov, all of whom clearly understand what needs to be executed on to bring Uzbekistan’s capital markets into the 21st Century so-to-speak.

In addition to the aforementioned items, UzAvto Motors (the largest automobile producer in Uzbekistan), UzAvto Motors Powertrain, O'zbekgeofizika (the state-owned geological company), O'ztemiryulkonteiner (a state-owned dry port and container terminal operator) and Dori-Darmon (the largest pharmacy chain in Uzbekistan) have all been approved for IPO.

A further four companies were approved for secondary market offerings including Uzbekistan Post, (the national post office), Universal Sugurta (an insurance company), and Alskom (the third-largest private insurer in Uzbekistan).

Unrelated to the presidential decree, but nonetheless very positive news, on 1st January 2022 Navoi Mining and Metallurgical Kombinat (NMMC) was officially split into three companies, following the presidential decree from 6th March 2020. NMMC has been split into a uranium business which will remain state-owned, a gold business which is slated for IPO locally and will be followed by an eventual dual listing, and a third arm to manage “social infrastructure”. NMMC also reported operating results for FY 2021 with profits of UZS 11.3 trln (USD 1.045 bln), an increase of 12.7% over 2020. Meanwhile, Almalyk Mining and Metallurgical Kombinat (Uzbekistan’s largest copper mine scheduled for IPO this year) also reported profits of UZS 5.32 trln (USD 492 mln), an increase of 36% over 2020.

Kazakhstan unrest

To touch on some important regional news, it is no surprise that chaos and negativity are what usually is broadcast by the mainstream media as that is what attracts eyeballs and subsequently sells advertising space. What made major international headlines last month were the protests in Kazakhstan which started as a result of the lifting of subsidies on liquified petroleum gas (LPG), though the common narrative post-events is that the protests quickly devolved into a power struggle between acting President Kassym-Jomart Tokayev and former President Nursultan Nazarbayev, culminating in several thousand Russian, Belarussian, Kyrgyz, and Armenian troops arriving in Kazakhstan to provide stability after President Tokayev wrangled control of the Kazakh security council from Nazarbayev and called for assistance. Contrary to the belief of many in the West, these troops did not stay, but departed several days after arriving in the country. President Tokayev has since retained control and is presently in the process of purging Nazarbayev loyalists from the government with a promise of better wealth distribution to the population. We will see what ultimately happens as the situation in Kazakhstan is still murky, but it is important to state that it is a domestic issue and poses no threat to either Uzbekistan or the greater region.

Uzbekistan goes dark on 25th January 2022

What appeared to not make it as far in the international media was a blackout affecting nearly 40 mln citizens of Kazakhstan, Kyrgyzstan, and Uzbekistan when in the mid-morning of 25th January 2022 power outages struck all three countries. Varying reports blamed Kazakhstan’s southern grid for experiencing a power surge that forced them to cut transmission to neighbouring countries, while one media outlet blamed an Uzbek thermal powerplant in the Syrdarya region, which borders Kazakhstan. Regardless of the root cause, the power outage led most of Uzbekistan and Kyrgyzstan to go dark for the majority of the day (our colleague Scott Osheroff got his power back around 21:30 and waited thereafter three days for heating and hot water). This led airports to cease operations, city taps to run dry as water pumps stopped, and central heating systems to stop functioning as natural gas supply dwindled due to compressors being unable to pressurize the lines. The Central Asian power grid, shown in the chart below, connects the Central Asian states and Russia and is a legacy of the Soviet Union.


The Central Asian power grid

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

(Source: Tashkent Stock Exchange, AFC Research)


Conveniently enough, as Scott penned this update, he received notification of an article in a local periodical stating that in order to prevent such outages from happening again, President Mirziyoyev has proposed building a single ring network within Uzbekistan with a capacity of 200-500 kilovolts to connect regions of the country currently reliant on imported electricity.

While it is certainly impressive that the majority of an entire country can go dark for the better part of a day, what was equally impressive was the demeanour with which Uzbeks went about their daily lives. If an entire country in other parts of the world, whose names I will refrain from mentioning, was to simultaneously lose electricity, water, and heat it’s not a reach to envision mass looting and chaos. However, in Tashkent, cafes were open, the price of candles and bottled water were not inflated by shopkeepers, and while every major road intersection had traffic police, people both drove slower and were more conscientious toward other drivers as well as pedestrians. This was all reassuring and is a testament to the character of Uzbekistan’s citizens, that life can go on pretty much as normal even in a period that would otherwise be chaos. It’s worth adding that in the early days of COVID-19, while people around the world were panic buying everything from toilet paper to water and food, in Uzbekistan there was but one day of panic buying, on 15th March 2020, the day before a 5-week lockdown; otherwise, grocery store shelves have been fully stocked ever since, a testament to just how well the country can function and perhaps a promising foreshadowing of the future Uzbekistan.

At the end of January 2022, the fund was invested in 28 names and held 9.6% in cash. The portfolio is allocated to Uzbekistan (90.37%) and Kyrgyzstan (0.03%). The sectors with the largest allocation of assets were materials (47.5%) and financials (26.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.74x, the estimated weighted harmonic average P/B ratio was 1.30x, and the estimated weighted average portfolio dividend yield was 5.42%.

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AFC Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund returned −2.5% in January with a NAV of USD 3,465.25, bringing the return since inception to +246.5%. This represents an annualized return of +16.6% p.a. since inception. The Ho Chi Minh City VN Index gained −0.6% in January 2022 in USD terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 13.84%, a Sharpe ratio of 1.14, and a low correlation of the fund versus the MSCI World Index USD of 0.52, all based on monthly observations since inception.

Like most other markets around the world, Vietnam experienced a correction in January. Falling share prices were registered in all sectors, but the hardest hit stocks were previously high-flying smaller companies, especially in the real estate sector. The expected Fed tightening certainly did not help, but it was local market events which led to profit taking from local investors. The index lost -1.3% in January, before the one-week Tet-holiday which starts on 31st January. Mid- and small-caps which peaked out on 10th January, subsequently corrected -16.7% and -22.6% to end the month down -9.3% and -14.8% respectively.

Market Developments

January saw a strong reversal in speculative stocks, especially in small caps, after signs of a general market correction had shown up in December 2021. Real estate stocks continued to rise against the rest of the market in early January but when these stocks suddenly experienced a reversal, they dragged down the rest of the market with them. Vietnamese investors who recently favoured the speculative real estate sector ignored all signs of fundamental overvaluation as many of the so-called F0 (new, unexperienced investors) simply followed the herd which is driven by social media punters nowadays.


Vietnam Small Cap Index lost almost 20% intra-month

VN30-Index September 2020-November 2021

(Source: Bloomberg)


With this sharp correction, a lot of hot air was removed from the market and it was not completely unexpected before the most important holiday week of Tet (Vietnamese New Year).

Stock market activity is still strong with average volume at more than USD 1.2 bln, while foreign trading is now more balanced overall, although with very limited impact. On the other hand, a growing but still widely ignored game changer in Vietnam is the derivative market. Established in 2017, volume continuously grew over the past few years to around USD 1bln at present, similar to the cash market. The main players in the derivative market are individual investors and trading activity is concentrated mainly in short maturity futures on the VN30 Index. This leads to an increasingly important role of the futures market and increases the risks of short-term volatility, but also enables market participants to hedge their bets in falling markets.

Once the current market correction is over, we expect investors to focus again on fundamentals, especially with the current release of Q4- and year end results. How cheap the market is compared to others in the region is shown below.


2022 forward P/E ratios


(Source: Bloomberg, AFC Research)


Emerging Markets in Southeast Asia are becoming increasingly undervalued compared to the rest of the world. Unlike during other late bull market cycles in the west, when historically Emerging Markets became more expensive after money managers drove Emerging Markets up dramatically, this cycle looks exactly the opposite. Not only do they look cheaper, but they also offer higher re-opening potential (COVID-19), as general life there is just starting to normalize.


Emerging Market ETF is trading at the same level as 10 years ago

4th wave fully hit Vietnam in April

(Source: Bloomberg)


Economic stimulus package

On 11th January 2022, the Vietnamese National Assembly approved a giant economic stimulus package of USD 15.2 bln, equivalent to 4.1% of GDP.

Several key points of the fiscal support measures are as follows: 

  • A VAT cut of 2% as of February 2022 from 10% to 8% will be applied on goods & services
  • An additional budget for investment and development in 2022 and 2023 of maximum USD7.7 bln, in the following sectors:
    • Healthcare (USD 835 mln to build, upgrade, and modernize the healthcare system and medical centers, among others)
    • Social security, labor and employment (USD 355 mln)
    • Enterprise and household business recovery (USD 1.8 bln for an interest rate cut of 2%/year for selected entities)
    • Infrastructure development (USD 5 bln) — mainly focusing on transportation infrastructure (HCMC Airport, North-South Highway, HCMC and Hanoi Metro)
  • Other fiscal support measures include housing rental support for workers (USD 290 mln) and increasing government-backed bonds issued by the Vietnam Social Policy Bank by up to VND38.4 tln (USD1.7 bln) for a lending program to selected priority entities

Economic Stimulus Package


(Source: Vietnamese National Assembly)


Obviously, this economic stimulus package is vital for the Vietnamese economy in 2022-2023. According to the package, construction and consumption are expected to be the key beneficiaries. With this support, the Vietnamese National Assembly also set a much higher target for economic growth in 2022 of 6.0% - 6.5%, compared to 2.58% in 2021. Also, in its latest economic forecast, the Asian Development Bank (ADB) forecasts Vietnam’s GDP to rebound to 6.5% in 2022 assuming there will be no major future COVID-19 outbreak. Tim Evans, CEO of HSBC Vietnam, believes that growth may even reach 6.8% this year, driven by strong FDI. 


Vietnamese GDP growth forecasts in 2022

National Assembly Meeting

(Source: AFC Research)


Real estate sector

In 2021 we saw a strong inflationary trend worldwide when commodity prices surged, such as energy, steel, urea, and cooking oil, among many others. This trend helped stocks in these sectors in Vietnam to outperform the market. Steel prices increased aggressively in the first half of 2021 which helped many steel companies expand their margins and increase their profits dramatically, which led to strong performance in share prices. The price for urea tripled and pushed share prices of urea producers to all-time highs. Similar gains were experienced in other sectors such as energy, cooking oil, and sea shipping.


Petrovietnam Transportation (PVT)

National Assembly Meeting

(Source: Bloomberg)


In particular, new individual investors (so-called F0 investors) entered the stock market in big numbers and amplified gains in those sectors, as their investment decisions are mainly driven by social media “insider” tips (which they usually are not as we all know), and inexperienced lemming behaviour. One of the sectors which gained a lot of attention in the last 2 months was real estate. This sector has a magic attraction for everybody from first-time homeowners to experienced real estate developers – and of course to all kinds of speculators in physical properties and real estate stocks. Real estate prices rose sharply all over the country, from cities to the countryside. In the media the number of articles about land prices and “land fever” increased sharply, which is a good indicator of a hot market. At that time, individual investors, particularly F0 investors, rushed to buy property stocks and pushed them up aggressively in belief that if land prices doubled or tripled, share prices of real estate stocks should increase much more than that, similar to other commodity stocks. This belief was confirmed and supported strongly after the historical land auction of 4 plots of land in Thu Thiem, District 2, Ho Chi Minh City on 10th December 2021. Of the 4 land plots that were successfully auctioned, the first 3 plots reached a price of VND 470 mln to VND 1 bln (USD 21,000 to USD 44,000) per square meter. Tan Hoang Minh Group, a real estate company, also joined this auction and bought the last lot of 10,650 square meters for an incredible VND 2.4bln (USD 105,000) per square meter, 8.3 times higher than the starting level and clearly a record price on the peninsula.


Thu Thiem Peninsula, District 2, Ho Chi Minh City

Vinamilk (VNM) share price

(Source: Vietnam Investment Review)


In the aftermath of this auction, real estate stock prices continued to climb to exorbitant levels, valuing many of these stocks at 100-200 times earnings. They also pushed up the index itself while the remaining market hardly moved. Then suddenly, Do Anh Dung, the chairman of Tan Hoang Minh Group decided to cancel the deal (a plot of 10,650 square meters), saying in a statement that he was concerned about the negative consequences for the real estate market, accepting to forfeit his deposit of VND 588 bln (USD 25.5 mln) as a consequence. But rather than “to save the real estate market”, it had quite the opposite effect and market participants were shocked. Roughly at the same time, an unrelated event happened, and it was revealed that Mr. Trinh Van Quyet, the chairman of FLC, a real estate developer, sold 74.8 mln shares (10.5% of the company) without notifying the SSC (State Securities Commission) in time, triggering a selloff in the market. Most real estate stocks hit the floor on several consecutive days. For example, FLC lost 58% from the peak of VND 24,100, but the stock is currently still trading at a PER of 45x.


FLC Corp.

Vinamilk (VNM) share price

(Source: Bloomberg)


This had a broader impact on the overall market, given that investors with margin calls were hardly able to sell their holdings in stocks such as FLC, which went “limit down” for days with almost no volume, although previously they were always among the most liquid stocks on the exchange with tens of millions of shares traded daily. After this announcement, the liquidity of FLC mostly disappeared with very few buyers for a couple of days - the hot money suddenly became cold. As a consequence, in need of liquidity, other stocks were sold and selling spread to the whole market, dragging down the main index by 7% within a few days, and the small cap index lost a staggering 18% in the same period.

However, these extreme movements were mostly seen in a few small and mid-cap stocks, while larger real estate companies were not that volatile. For example, the share price of VRE, Vincom Retail, did not change much at all over the last 12 months and the market cap is still around USD 3.4 bln.


Vincom Retail (VRE)

Vinamilk (VNM) share price

(Source: Bloomberg)


VRE, the largest commercial real estate lessor is expected to have a great year with the country opening up again. During the pandemic, most commercial centers were closed under the regulation of authorities. This led to a strong fall in revenues with an uncertain outlook.


Net profit of VRE (VND bln)

Vinamilk (VNM) share price

(Source: VRE, AFC Research)


However, with the very high vaccination rate in Vietnam of 80% for the whole country and 99% in big cities such as Ho Chi Minh City and Hanoi, the country is expected to operate normally again very soon. The government also loosened travel restrictions which provided an important boost to the air travel industry and hotels. Only 3 months ago, a negative COVID-19 test was required before you were able to fly; now proof of being fully vaccinated is sufficient.


Tan Son Nhat Airport on 19th January 2022

Vinamilk (VNM) share price

(Source: AFC Research)


Due to the Lunar New Year festivities (“Tet” in Vietnam), February will be a short trading month, given that the first trading day was on 7th February 2022. Despite an ongoing normalization in many parts of Vietnam, we expect a further “back to normal” development after Tet, when many workers will return for work to factories in industrial hubs in the North and South.

At the end of January 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (9.0%) – an insurance company, Tuong An Vegetable Oil JSC (6.0%) – an edible oil producer, PVI Holdings (5.9%) – also an insurance company, Idico Urban and House Development JSC (4.8%) – an energy, construction, and real estate business, and Power Engineering Consulting JSC No. 2 (4.7%) – a consulting firm.

The portfolio was invested in 49 names and held 2.3% in cash. The sectors with the largest allocation of assets were consumer (44.6%) and financials (21.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.59x, the estimated weighted harmonic average P/B ratio was 1.71x, and the estimated weighted average portfolio dividend yield was 4.02%.

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AFC Asia Frontier Fund - Manager Comment

AFC Asia Frontier Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares declined by −3.1% in January 2022 with a NAV of USD 1,532.72. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−3.2%), the MSCI Frontier Markets Net Total Return USD Index (−3.5%) and the MSCI World Net Total Return USD Index (−5.3%). For the whole of 2021, the fund gained 18.1%, outperforming its benchmark which increased by 4.5%. The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +53.3% versus the benchmark, which is up by 18.9% during the same period. The fund’s annualized performance since inception is +4.4%. 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 0.54, all based on monthly observations since inception.

Continuing Russia-Ukraine tensions and fears of the U.S. Fed raising interest rates at a faster pace than expected led to a rocky start to the year for global markets. This volatile start to the year is not surprising to us as we had mentioned that interest rates and inflation were two key themes that investors would focus on in 2022 in the AFC Asia Frontier Fund Review and Outlook report. 

Most Asian frontier markets held up well this month and the ones that did not were more due to domestic rather than global factors. Performance during the month was negatively impacted by Kazakhstan, Bangladesh, and Mongolia, while positive contributors to the fund’s performance were Iraq, Sri Lanka, and Vietnam.




(Source: Bloomberg)


The unrest in Kazakhstan and more specifically in Almaty was a bit of a surprise as these events unfolded in only a few days rather than building up over months, which usually is the case when a country’s macro-economic environment is not stable. This does not seem to be the case with Kazakhstan as it is in a very strong economic position and more-so over the past year given that commodity prices have been high.




(Source: International Monetary Fund)


Post-pandemic industrial production has been very strong with December 2021 growth coming in at 8.9%, led by both the mining and the manufacturing sectors. Overall, macro indicators are pointing in the right direction while the country has returned to stability and normalcy after little more than a week of social unrest mainly concentrated in Almaty.


Kazakhstan has seen strong post pandemic economic growth (industrial production growth in %)


(Source: Bloomberg)


Since we have seen worse before in some of our other Asian frontier markets, we believe when a crisis or major negative news hits a frontier market, it is usually necessary to remove the short term “noise” and focus on the long term fundamentals. We did just that in the case of the events in Kazakhstan and added more weighting to two out of our three existing Kazakh positions.

We took advantage of the price weakness in Halyk Bank and Kaspi as their valuations now look extremely attractive at a 2022 P/E ratio of only 3.6x and 11.9x respectively while their fundamentals are solid. This was reflected in S&P Global Ratings reaffirming its rating on Halyk Bank and maintaining its “stable outlook” for the bank on 27th January 2022.

As to the policy ramifications of these events, Kazakhstan is in a strong enough economic position to loosen the purse strings in order to overcome or allay some of the potential social grievances which could possibly be a net positive for consumption related sectors like financial services, in turn benefitting Halyk Bank and Kaspi.



A CU convenience store in Ulaanbaatar, Mongolia

(Source: Bloomberg)


Beximco Pharmaceuticals, the fund’s largest position in Bangladesh, declared excellent results as its net profit for the December quarter grew by 51% led by its Astra Zeneca COVID-19 vaccine supplies to the Bangladesh government which the company is sourcing from its Indian partner. Despite the great results, its share price declined by -19% in January 2022 since the fund is invested in the London listed GDR which got impacted by the global “risk off” sentiment. The London listed GDR of Beximco Pharmaceuticals now trades at a discount of 42% to the local listing in Dhaka.

On a macro level, the economic momentum is firmly back for Bangladesh with 2021 GDP growth coming in much ahead of estimates at 6.9% (government estimate was 5.4%). Growing domestic consumption, increased infrastructure spending, and rising exports should continue to make Bangladesh a standout story in the region.



Vietnam Manufacturing

(Source: Bloomberg, International Monetary Fund)


The global Omicron wave has not dented tourist arrivals to the Maldives and Sri Lanka so far, with both countries showing very robust tourist arrivals in December 2021 and January 2022. The Maldives is now back to pre-pandemic levels of arrivals over the past few months, while Sri Lanka’s arrivals are close to 40% of pre-pandemic levels in the last two months with February arrivals looking very strong so far.

The fund’s leisure holding, John Keells Hotels, which is listed on the Colombo Stock Exchange but generates the majority of its revenues from the Maldives, reported a significant turnaround in the December quarter with its Maldives operations getting back in the black while its Sri Lankan operations reported a large decline in losses. The stock is up 74% since the fund purchased it in November 2020.



Vietnam Manufacturing

(Source: Maldives Ministry of Tourism)


Even though the VN-Index in Vietnam corrected by -1.3%, our Vietnamese holdings gained almost 1% on the back of the fund’s economic re-opening plays, Phu Nhuan Jewellery (PNJ), Sabeco (SAB), and Vincom Retail (VRE) reporting a very strong recovery in profitability in 4Q21.

On the macro front, Vietnam’s GDP growth in 4Q21 came in better than expected at +5.2% which reflects the robust recovery the country is making from the COVID-19-led economic hit it took in the summer of 2021. Sustained manufacturing activity led by exports as well as a recovery in domestic consumption and infrastructure spending should see Vietnam get back to 6%+ GDP growth levels in 2022.

The best performing indexes in the AAFF universe in January were Sri Lanka (+6.4%) and Iraq (+4.1%). The poorest performing markets were Mongolia (-6.4%) and Kazakhstan (-3.4%). The top-performing portfolio stocks this month were a Sri Lankan consumer and healthcare conglomerate (+39.2%), an Asian frontier soft drinks company listed in Turkey (+28.7%), a Vietnamese mall operator (+16.1%), a Mongolian tourism operator (+15.5%), and a Bangladeshi industrial and healthcare gas producer (+15.5%).

In January, the fund purchased an oil and gas drilling services provider in Vietnam and exited a telecom company and consumer/healthcare company in Sri Lanka, a Mongolian department store, a construction contractor, a pump manufacturer, and a tourism company in Vietnam. The fund also added to existing positions in Mongolia, Kazakhstan and Vietnam and reduced exposure to some positions in Mongolia and Sri Lanka.

At the end of January 2022, the portfolio was invested in 76 companies, 2 funds and held 5.0% in cash. The two biggest stock positions were a beverage producer in Mongolia (4.3%) and a pharmaceutical company in Bangladesh (4.2%). The countries with the largest asset allocation were Mongolia (22.5%), Bangladesh (11.2%), and Iraq (11.2%). The sectors with the largest allocation of assets were consumer goods (30.1%) and materials (10.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.76x, the estimated weighted harmonic average P/B ratio was 1.19x, and the estimated weighted average portfolio dividend yield was 3.02%.

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