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Asia Frontier Capital (AFC) - June 2022 Update

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Do not go where the path may lead,
go instead where there is no path and leave a trail.

- Ralph Waldo Emerson - American essayist, lecturer, philosopher, abolitionist, and poet



AFC Funds Performance Summary

Year to DateSince
AFC Asia Frontier Fund USD A1,297.62-4.5%-17.9%+29.8%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D732.24+6.7%+5.7%-26.8%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,792.41-4.4%-10.8%+79.2%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,194.83-3.7%-10.1%+219.5%
Ho Chi Minh City VN Index (in USD) -7.7%-21.6%+113.4%
  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.

A hawkish U.S. Fed, rising inflation, and concerns about a recession in the U.S. kept global stock markets nervous this month. Despite all major indices posting losses, the AFC Iraq Fund returned +6.7% in June as Iraq benefits from higher crude oil prices. Our other AFC funds outperformed the MSCI World Index which continues to reflect the lower correlation of Asian frontier markets in this volatile period. 

However, we believe global stock market volatility will remain with us for the next few months until there is some sort of indication that inflation in the U.S. is peaking out and/or the U.S. Fed makes less hawkish comments on its interest rate outlook as we get closer to ending the year. 

Though we are in a period of global economic and stock market uncertainty, valuations of Asian frontier markets have only become more attractive since the start of the year. The chart below shows the discount of the MSCI Frontier Markets Asia P/E ratio to the S&P 500 P/E ratio, and this is the highest it has been since June 2015.


The P/E ratio of the MSCI Frontier Asia Index trades at its biggest discount to the S&P500 since June 2015

The P/E ratio of the MSCI Frontier Asia Index trades at its biggest discount to the S&P500 since June 2015

(Source: Bloomberg)


Asian Frontier Markets Update Webinar – Thursday, 28th July 2022

You can learn more about our outlook for Asian frontier markets as we host our quarterly Asian Frontier Markets Update (link) to be held on Thursday, 28th July 2022. Timings are 9:00am NY time, 2:00pm UK time, 3:00pm Swiss time and 9:00pm HK/SG time.

The discussion will be about the AFC Asia Frontier Fund, the AFC Iraq Fund, the AFC Uzbekistan Fund, and the AFC Vietnam Fund. The speakers for the webinar will be as follows:

  • Peter de Vries, Marketing Director
  • 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 will include a 15-minute Q&A session after the fund managers' discussions.

The webinar will discuss the following key questions:

  • How are Asian frontier countries adapting to the ongoing Russia-Ukraine conflict and its impact on commodity prices?
  • How are Asian frontier economies reacting to a hawkish Fed and how are they faring with inflation?
  • Which long-term structural trends are still playing out despite the current global macro-economic environment?
  • Which countries continue to be the long-term winners in Asian frontier markets?
  • Is the current market turmoil a good opportunity to invest in Asian frontier markets?
  • Outlook for AFC Asia Frontier Fund / AFC Iraq Fund / AFC Uzbekistan Fund / AFC Vietnam Fund





Below please find the manager comments relating to each of our four funds for the month of June 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 in the Press

 02-07-2022 Ruchir Desai discusses Sri Lanka’s economic situation on Al Jazeera – Counting the Cost 
 01-06-2022 Obris: Uzbekistan – A bright star among frontier markets 

Upcoming AFC Travel

Thomas Hugger, Ruchir Desai, and Peter de Vries are based in Hong Kong, while Andreas Vogelsanger is based in Bangkok, Vicente Nguyen in Ho Chi Minh City, Scott Osheroff in Tashkent, and Ahmed Tabaqchali in London and Iraq. If you have an interest in meeting with our team at their homeports or during their travels, please contact Peter de Vries at This email address is being protected from spambots. You need JavaScript enabled to view it..



Amman, Jordan 9th 19th July Ahmed Tabaqchali
Baghdad, Iraq 20th July 12th August Ahmed Tabaqchali
Netherlands 9th - 15th August Peter de Vries
London, UK 13th August 15th September Ahmed Tabaqchali
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AFC Iraq Fund - Manager Comment


AFC Iraq Fund Performance



The AFC Iraq Fund Class D shares returned +6.7% in June with a NAV of USD 732.24, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 3.3% during the month. The fund was up 5.7% year to date versus the index which was up 5.1%. Since inception, the fund has lost 26.8% while the RSISUSD index is down 42.7%.

The last two months of profit-taking continued into the first week of June, at which point it was halted by the passage of the supplementary budget bill on 8th June 2022, which in turn stabilised the market. The market’s technical picture continues to be bullish, as the RSISX USD Index’s two-month decline has only taken it to within the middle of its two-year up-trending channel (chart below) – an uptrend that ended a brutal multi-year bear market. While there is the potential for the index to resume its decline, the macroeconomic fundamentals discussed two months ago support our thesis that the two-year uptrend should continue even if the upward slope moderates somewhat. This picture contrasts favourably with the majority of global markets, which underscores Iraq’s attractive risk-reward profile and diversification benefits versus these markets, especially considering that Iraq’s economy, unlike most economies worldwide, is a significant beneficiary of the current high oil price environment.




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


Passage of the Supplementary Budget Bill

The delays in government formation, following the parliamentary elections on 10th October 2021, meant that the current caretaker government, lacking the authority to propose a budget, was restricted to spending 1/12th of the 2021 budget on a monthly basis in 2022. While the 1/12th spending rule allowed the government to continue funding its current expenditures (salaries, pensions, social security and the provisioning of goods and services), and some of the investment spending that was initiated in 2021; it nevertheless prevented it from fulfilling its continuing investment spending requirements. Crucially the 1/12th rule prevented the government from using the bounty of higher oil prices in alleviating the harmful effects of the sharply increasing food prices on the population. The supplementary budget, in combination with the 1/12th spending rule for 2021, would be in effect in lieu of a 2022 budget. As such, the total effective budget for 2022 would be about USD 92 bn, an increase of 23% above that for 2021; and made up of the 1/12th rule spending allocation of about USD 75 bn for 2022, and the supplementary budget’s spending allocation of about USD 17 bn.

The supplementary budget bill, officially called the “Emergency Food Security Support” bill, has its origins in demands by parliament for extra spending measures in response to public anger over the increased cost of living, and to public pressure for the government to translate the sharply rising oil revenues into public expenditures. However, the bill’s passage was almost imperilled by the Federal Supreme Court (FSC) ruling, in mid-May 2022, that the government lacked the authority to present a supplementary budget to parliament, essentially ruling that in proposing a supplementary budget in parliament, it was attempting to circumvent its lack of authority to present a full budget. Parliament’s dilemma was that although it was able to propose legislation, such legislation should not have any financial implications, which prevented it from proposing its version of the supplementary budget. However, the political class’ ingenious solution was arguing that if a proposed legislation was not objected to by the government, then it could propose legislation with financial implications – which it did by legislating its own version of the supplementary budget, which was welcomed by the government.  

The government has the wherewithal to fund the supplementary budget and still build a substantial budget surplus that it, or a future government, can utilise to continue pursuing expansionary budgets. Iraq’s oil export sales are estimated to be at USD 117 bn for 2022, if Brent crude prices were to average USD 100 per barrel (/bbl) for the year. Contrasting oil export sales with estimated spending for 2022 of USD 92 bn provides an idea of the expected budget surplus after accounting for the government’s non-oil revenues as well. In the current high oil price environment, there is an upside to Iraq’s oil export sales estimates, which can be appreciated by considering that every USD 1 increase in the average price for Brent in 2022 translates to about USD 1 bn in oil export sales. Thus, given that the year-to-date average for Brent crude is about USD 106/bbl, and that Brent future contracts imply an average of USD 111/bbl for the balance of the year, then Brent crude would average USD 109/bbl in 2022, leading to about a USD 9 bn upside to Iraq’s oil export revenue estimates (chart below).



Money Oil Export Sales

(Source: Ministry of Oil, AFC Research estimates, projections are based on assumptions of average Iraqi oil price at a USD 3.5/bbl discount to Brent crude as given by future contracts in, and the unwinding of the OPEC+ deal by September 2022. Data as of 30th June 2022)


The passage of the supplementary budget bill in June means that the whole of the USD 17 bn of increased spending would be concentrated in the second half of the year, which in the process would inject sizable liquidity into the economy in a relatively short period. This in turn should lead to a re-acceleration in the year-over-year growth in the amount of money circulating in the economy (broad money). The timing of the supplementary budget’s passing came just as broad money growth is estimated to have slowed down significantly in May 2022, as the effects of the prior stimuli were exhausted after multiple months of sharp year over year increases. All of which underscore the centrality of government spending in the economy, acting as a super-efficient mechanism for transferring oil revenues into economic activities.



Money Circulating

(Source: Central Bank of Iraq, AFC Research. Actual data as of the end of April 2022, AFC Research estimates for May 2022 based on actual data for the monetary base for May 2022)


Political Stalemate or Manoeuvring

The passage of the supplementary budget bill would prolong the current impasse over government formation into the near future, contributing to the political uncertainty following the surprising results of the October 2021 parliamentary elections.

Increasing the political uncertainty in the second week of June, the Sadrist Movement - the largest parliamentary bloc and the apparent winner of the 2021 elections – resigned its seats in parliament in protest over the 10-month impasse over government formation. This was seen as an opportunity for the apparent loser in the election – the Fateh Alliance – to control parliament and ultimately government formation, however emerging internal conflicts within the alliance seem to be preventing this. Nevertheless, these developments, as dramatic as they might appear to be on the surface, could be part of the continued political manoeuvring of a very tortuous government formation process. This line of reasoning is rooted in the curious timing of the resignations immediately following the passage of the supplementary budget bill, which was championed by the resigning Sadrist Movement; and its passage in parliament was assured due to the large parliamentary block it commanded before its resignation with its partners.

It seems that the continuation of the status-quo, despite the continued political uncertainty, would be a preferred solution for all political parties, as it would preserve the country’s ethno-sectarian parties’ share of the state’s resources achieved in the 2018 elections.


The market’s benign response to the unexpected political developments during the month, and its continued positive reaction to the passage of the supplementary budget bill, supports the argument made above. Moreover, the market’s action is similar to that following the late adoption of the 2021 budget in April 2021 – which at the time led to a continuation of its rally as discussed here in April. 

While the political uncertainty could continue to dampen foreign interest in Iraq's equity market until the government’s formation a few months later, we continue to believe that Iraq’s value proposition is compelling as its economy is a huge beneficiary of the high crude oil price environment. And its equity market is in the very early stages of emerging from a multi-year bear market, and as such its risk-reward profile is very attractive against most global markets. Moreover, we believe that the AFC Iraq Fund’s holdings will enable it to continue to outperform its benchmark, as they are very well-positioned to capture and benefit from the revival of the broader macro-economic backdrop of the country on the back of the higher crude oil prices. 

At the end of June 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of +10.0%. 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 (87.3%), Norway (2.2%), and the UK (0.5%).

The sectors with the largest allocation of assets were financials (59.1%) and consumer staples (13.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.58x, the estimated weighted harmonic average P/B ratio was 0.98x, and the estimated weighted average portfolio dividend yield was 2.68%.




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AFC Vietnam Fund - Manager Comment

AFC Vietnam Fund Performance


The AFC Vietnam Fund returned −3.7% in June with a NAV of USD 3,194.83, bringing the year-to-date return to −10.1% and return since inception to +219.5%. The fund significantly outperformed the benchmark, the Ho Chi Minh City VN Index which lost 7.7% in June 2022 and has lost 21.6% year to date in USD terms. The funds’ annualized return since inception stands at +14.6% p.a. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.14%, a Sharpe ratio of 0.98, and a low correlation of the fund versus the MSCI World Index USD of 0.54, all based on monthly observations since inception.

Market Developments

The VN-Index started to recover in the middle of May, but in June it again tested the 12-month low and seems to have formed a bottom for now.


VN-Index from April 2021 to June 2022

VN-Index from April 2021 to June 2022

(Source: Bloomberg)


The reason for June’s correction has mainly to do with the nervousness of investors about the faster than expected Fed funds rate increase in June of 75 basis points. The U.S. is facing its highest inflation in more than 40 years, and the Federal Reserve has once again turned up the heat, taking its most aggressive stance since 1994 in an attempt to curb inflation.

As we mentioned in our previous report, the compelling macroeconomic picture and long-term uptrend for Vietnam remains attractive.

Low Debt Level

Vietnam fares very well when compared to other countries in terms of public debt levels. According to the IMF, Vietnam’s government debt-to-GDP ratio was 40.2% at the end of last year, well below the government’s cap of 60%.


Government Debt to GDP 2021

Government Debt to GDP 2021

(Source: IMF)


In the 6-year period between 2016 and 2021, Vietnam’s public debt has decreased significantly. This sound fiscal policy – together with prudent monetary policy – makes Vietnam fit for the post-COVID-19 crisis era. This paves the way for the country’s powerful repositioning.


Vietnam Government debt to GDP

Vietnam Government debt to GDP

(Source: IMF)


Inflation is under control

Inflation might be the concern that global investors pay the most attention to. Inflation certainly rose dramatically over the past few months in Europe and the US, however in Vietnam it is still well under control. CPI reached 2.4% in June 2022, still far below the government ceiling of 4% this year.


CPI basket

CPI basket

(Source: General Statistics Office Vietnam)


Food and foodstuffs play the most important part in the CPI basket with a weighting of 33.6%, meanwhile oil and petroleum contribute only 4% in the basket. Vietnam has a large and important agricultural sector, producing rice, seafood, meat, and other foodstuffs and is self-sustainable in terms of domestic food demand. Vietnam is also able to export a lot of agricultural products and is the second largest rice exporter in the world. Food prices in Vietnam only increased by 0.89% YoY in the first half of 2022. At the same time, fuel (oil and petroleum) - with a 3.6% weighting in the CPI basket - already increased by 57% YoY which is the main reason why it pushed inflation up by 2.1% in the last 12 months. However, other Asian countries such as China, Malaysia, or Indonesia also seem to be withstanding the rising inflation trend.


Inflation in February and May by country (%)

Inflation in Feb and May by country (%)

(Source: The Economist)


Vietnam is a net importer of oil, even though it explores for its own oil in the South China Sea. Asia Development Bank (ADB) and HSBC both have a 2022 inflation forecast for Vietnam inflation of 3.5% in 2022, given its low weighting of oil and petroleum in the CPI basket. The price of rice is the most important item in the CPI basket, and hence rising prices would create a lot of pressure on inflation, but fortunately the situation is well under control and Vietnam produces enough rice for domestic consumption and is actually an exporter of rice. Vietnam produces enough fertilizers (urea) for domestic consumption, which also helps to contain rising rice prices. We therefore believe that inflation will be well under control and manageable in Vietnam.

Irrational reaction creates wonderful opportunities

The daily trading volume in Vietnam is driven by local retail investors who are responsible for around 90% of the trading volume. In the last two years, there were more than 3.3 mln new brokerage accounts opened, now totalling almost 5 mln in all. This equates to around 5% of Vietnam’s population and it is widely expected that Vietnam will follow the path of other ”Asian Tigers” over the years to come, such as Taiwan, which has a penetration rate of over 90%. 

The problem, however, is that most individual investors do not have enough knowledge about fundamental valuations and dynamics of stock markets. They often trade stocks based on rumours and trends without looking at company valuations or economic data. This behaviour was the main reason why the market declined over the past 3 months, in a period where Vietnam published impressive economic numbers, such as much stronger Q2 GDP growth numbers of 7.7% than Q1 GDP Growth of 5%. Also, export numbers increased by about 21% yoy in the first 6 months of 2022. Vietnam’s listed companies showed impressive earnings growth of around 31% in Q2 of 2022 and are now trading at a very attractive valuation with a 2022 forward PE of 11.7x!


LPB from March 2019 to June 2022

LPB from March 2019 to June 2022

(Source: Bloomberg)


Lien Viet Post Bank (LPB) was one of our largest positions in June 2021 before we decided to exit it at around VND 29,000. The bank’s profit increased aggressively in 2020 and 2021 which pushed the stock price from around VND 7,000 to a peak of VND 29,750. We were holding this position since 2017 and took profit in June 2021 in order to switch into the insurance sector. In the first quarter of 2022, the net profit of LPB grew at 62% from VND 876bn to VND 1,420bn but the stock price didn’t reflect the bank’s strong business performance and LPB’s share price declined by around 59% from the peak to VND13,050 at the end of June 2022. LPB, at its current valuation, is now one of the cheapest banks in the market with a P/E of 6.3x and P/B of 1.0. This demonstrates quite well some of the irrational behaviour of domestic retail investors, which create great buying opportunities for fundamental long-term investors. We don’t know when the stock market will rebound or how retail investors will react on new market developments, but we are convinced that the Vietnamese economy’s impressive numbers and the listed Vietnamese companies with very strong earnings growth in 2022 will continue to flourish for a considerable time in the future.


LPB net profit (VND bn)

LPB net profit (VND bn)

(Source: LPB, HOSE, AFC Research)


Q2 2022 GDP growth hits highest level in more than a decade

Vietnam’s GDP growth was 7.72% in Q2 2022 — the highest Q2 growth during 2011 - 2022 — lifting GDP growth in H1 2022 to a three-year high of 6.42% YoY (vs 5.74% in H1 2021 and 2.04% YoY in H1 2020)


Vietnam’s economy - strong improvement (%, YoY)

Vietnam’s economy - strong improvement (%, YoY)

(Source: LPB, HOSE, AFC Research)


At the end of June 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.8%) – an insurance company, PVI Holdings (6.1%) – also an insurance company, Tuong An Vegetable Oil JSC (5.1%) – an edible oil producer, Lam Dong Minerals and Building Materials JSC (4.7%) – a building material supplier, and Everpia Vietnam JSC (4.4%) – a bedding manufacturer.

The portfolio was invested in 49 names and held 5.3% in cash. The sectors with the largest allocation of assets were consumer (45.1%) and financials (19.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.55x, the estimated weighted harmonic average P/B ratio was 1.43x, and the estimated weighted average portfolio dividend yield was 4.64%.




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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned −4.4% in June 2022 with a NAV of USD 1,792.41, bringing the return since inception (29th March 2019) to +79.2%, while the year-to-date return stands at −10.8% at the end of May 2022. On an annualized basis, the fund returned +19.6% p.a. with a Sharpe ratio of 1.25.

June saw the start of what is referred to locally as the “chilla”, a forty-day period of extreme summer heat where the mercury hovers above 40 degrees Celsius. With it came news of the fund’s largest holding, Uzmetkombinat (TSE:UZMK) announcing a possible rights issue to fund its capacity expansion, and some significant block trades in the fund’s second-largest holding, Qizilqum Cement (TSE: QZSM) which is likely a new foreign fund entering the Uzbek stock market. The expected rights issue in UZMK however weighed down the stock during the month and was the main contributor to the negative performance.

AFC Uzbekistan Fund valuations as of 30th June 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.16x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 5.50%


Market update

Ever since the fiasco around the distribution of bonus shares of Uzmetkombinat (TSE: UZMK) was settled and the price subsequently adjusted, there have been a large number of sellers, even though the fundamentals of the company have not changed and remain strong in the face of strong domestic steel demand and continued high global steel prices. However, we had been hearing rumours of a potential capital raise to help the company fund its ongoing EUR 650 mn capital investment program to increase its steel production capacity from 1mn to 2.5 mn tons per year. 

In order to not saddle the company with debt as it is planning to undergo a further partial privatisation of up to 5% later this year or early next, a potential rights issue would help diversify the source of capital needed for its capacity expansion. This therefore weighed on the share price as any rights issue would occur at a discount to market. This led to weakness in the share price, causing UZMK’s share price to end June at UZS 9,989 (−23.2% versus the end of May 2022) and thus is the main contributor to the fund’s negative performance in June. 

As we will be participating in any rights issue, long-term, UZMK increasing its equity and limiting its debt-to-equity ratio, which remains at a very conservative 0.46x, is a good thing for a few reasons. We have seen other state-owned enterprises slated for privatisation saddled with debt prior to being sold, making them unattractive due to a significant rise in debt service which in some cases takes companies from being once profitable to loss-making. Furthermore, as the global financial markets have been thrown into a degree of turmoil in recent months with first the Fed and now the ECB talking about containing inflation, borrowing costs are rising. Uzbek companies are unlikely to receive favourable financing terms in the Eurobond market as we are in a world of capital constraints, while local borrowing would be done at rates above 20% which is highly unattractive.

Toshkentvino moves to vertically integrate

Toshkentvino, one of the largest consumer goods conglomerates in Uzbekistan, and one of the AFC Uzbekistan Fund’s core holdings, currently trading on the over-the-counter stock market, announced in June that it had acquired one of four ethyl-alcohol producers in the country. Publicly listed Bektemir-spirit eksperimental zavodi sells roughly 80% of its ethyl alcohol production to Toshkentvino and as the government was selling a 51% stake in the company for USD 4.7 mn, the acquisition should help the company better manage its input costs and increase its margins.

A new foreign investor in Uzbekistan’s stock market?

Having been active in the Uzbek stock market since the summer of 2018, we have a strong grasp of market movements as well as its participants, while the ecosystem is still small. Having been aware of several funds looking to enter the Uzbek stock market for well over a year, on 29th and 30th June there were two block trades for roughly 2.5 mln shares in the AFC Uzbekistan Fund’s second largest holding, Qizilqum Cement (TSE: QZSM), valued at approximately USD 700,000 which we believe was sold to a foreign fund as their first position of size in the market.

Given that QZSM is one of the most liquid and undervalued blue-chip companies on the Tashkent Stock Exchange, this is a rational first acquisition for a new market entrant, just as it was for the AFC Uzbekistan Fund. We would not be surprised to see this investor begin building positions in other blue-chip names, some of the same companies which comprise the top holdings of the AFC Uzbekistan Fund, as one of our capital allocation theses has been to build core positions in blue-chip companies that are leaders in their respective industries and which will be the first choice for new investors gaining exposure to Uzbek equities. 

This is a long time coming (and has been delayed due to COVID-19), and as the capital markets continue to mature from their still nascent stage, we expect several more such funds to begin deploying capital into the market, which will further enhance liquidity and bring forward both state-owned company and private sector IPO’s.

At the end of June 2022, the fund was invested in 28 names and held 7.4% in cash. The portfolio was allocated to Uzbekistan (92.53%) and Kyrgyzstan (0.05%). The sectors with the largest allocation of assets were materials (44.7%) and financials (29.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.16x, the estimated weighted harmonic average P/B ratio was 1.09x, and the estimated weighted average portfolio dividend yield was 5.50%.




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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 −4.5% in June 2022 with a NAV of USD 1,297.62. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−7.6%), the MSCI Frontier Markets Net Total Return USD Index (−5.3%) and the MSCI World Net Total Return USD Index (−8.7%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +29.8% versus the benchmark, which is down by −10.8% during the same period. The fund’s annualized performance since inception is +2.6%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.8% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.56, all based on monthly observations since inception.

The hawkishness of the U.S. Fed and concerns about a recession in the U.S. kept global markets on edge and this nervousness continues to impact all equity asset classes including Asian frontier markets. The major negative contributors to performance this month were Mongolia, Bangladesh, Pakistan, Uzbekistan, and Kazakhstan. Iraq contributed positively to performance.

However, as we have mentioned in our previous manager comments, the AFC Asia Frontier Fund tends to correct less than global markets whenever there is a large risk-off move and June was no different with the MSCI World Index declining by −8.7% against the fund’s return of −4.5%.



AFC Asia Frontier returns

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


Though there are concerns about a recession in the U.S. in the near future, economic growth in a majority of Asian frontier countries remains strong. Vietnam’s economic growth is standing out with 2Q22 GDP growth coming in way ahead of estimates at 7.7% as the country’s economy witnesses a robust recovery from last year’s COVID-19-led lockdowns. Growth in the second quarter was very well rounded with exports, manufacturing and domestic consumption all contributing to the momentum. 

With Vietnam’s second-quarter GDP growth coming in ahead of estimates, it is more likely that full-year GDP growth will come in at 6.5% or higher compared to earlier estimates of around 6%, since the second half should see much stronger growth due to last year’s low base when the country suffered from economic lockdowns and social distancing measures.


Vietnam 2Q22 GDP growth of 7.7% came in well ahead of estimates

Vietnam 2Q22 GDP growth of 7.7% came in well ahead of estimates

(Source: Bloomberg)


The fund’s Vietnamese holdings continue to significantly outperform the VN-Index with a gain of +6.8% so far in 2022 versus the VN-Index’s decline of 20.1%. The best performing stock for the fund in Vietnam is Phu Nhuan Jewellery (PNJ) which has gained +33.6% in 2022 and outperformed the benchmark by 53.7%. 

PNJ is the most dominant jewellery retailer in Vietnam and has seen a swift post-pandemic recovery this year with its net sales and net profit both growing by 47% in the first five months of the year as it takes advantage of its strong brand image to take market share from its competitors in both the organised and unorganised jewellery market in Vietnam.


Phu Nhuan Jewellery is the best performing stock for the fund in Vietnam so far in 2022 – a big outperformance against the VN-Index

Phu Nhuan Jewellery is the best performing stock for the fund in Vietnam so far in 2022 – a big outperformance against the VN-Index

(Source: Bloomberg, % change in prices between 31st December 2021 – 30th June 2022)


Georgia too has seen very strong GDP growth so far in 2022 despite initial worries of being negatively impacted by the war in Ukraine. GDP growth between January-May 2022 averaged 11.2% which is well ahead of expectations when the conflict in Ukraine began in February 2022. Though growth has been balanced across sectors, the tourism industry continues to see a large recovery compared to pre-pandemic levels and this is mainly due to longer stay arrivals from Belarus, Russia, and Ukraine.



Georgia Tourism

(Source: Galt & Taggart)


Asian frontier countries also continue to fund infrastructure development projects despite the economic headwinds of higher interest rates and higher commodity prices. In June, at a cost of USD 3.9 bn and fully funded by the Government of Bangladesh, the country inaugurated its largest bridge infrastructure project to date with the launch of the 6.15 km Padma Bridge which has both road and rail sections.

This bridge will connect the capital Dhaka with the southwest of the country, significantly reducing travel times, and more importantly, adding an estimated 1.2% annually to overall GDP. To put the impact of this bridge in perspective, before its opening, passengers and cargo would spend hours making the journey from Dhaka to the southwest of the country and vice-versa by both road and ferry to cross the river to the other side. With the opening of the bridge, productivity should see a big improvement while adding to economic output.

In addition to favourable demographics and supply chain shifts, infrastructure development is one of the key reasons why we remain extremely positive on the long-term outlook for Asian frontier countries and the recent opening of the Padma Bridge in Bangladesh shows the potential for such infrastructure investments to have a positive impact on long term economic growth.


The Padma Bridge in Bangladesh is a game changer for the country’s economy

Padma Bridge



The best performing indexes in the AAFF universe in June were Iraq (+3.3%) and Kazakhstan (+0.5%). The poorest performing markets were Sri Lanka (−9.4%) and Vietnam (−7.4%). The top-performing portfolio stocks this month were a Mongolian media company (+24.9%), a Vietnamese jewellery retailer (+11.8%), a Sri Lankan carbon producer (+8.4%), a Kazakh bank (+5.8%) and a Pakistani automotive battery producer (+4.8%).

In June, the fund exited a Vietnamese brewery and added to existing positions in Mongolia and Papua New Guinea while reducing exposure to some existing positions in Mongolia and Vietnam.

At the end of June 2022, the portfolio was invested in 76 companies, 2 funds and held 2.9% in cash. The two biggest stock positions were a convenience store operator (4.5%) and a bakery chain (4.1%), both in Mongolia. The countries with the largest asset allocation were Mongolia (23.1%), Iraq (13.3%), and Vietnam (12.2%). The sectors with the largest allocation of assets were consumer goods (28.3%) and materials (13.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.04x, the estimated weighted harmonic average P/B ratio was 1.11x, and the estimated weighted average portfolio dividend yield was 2.80%.




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With kind regards,

Thomas Hugger
CEO & Fund Manager

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