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Asia Frontier Capital (AFC) - May 2022 Update

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Consistency is far more important than
rare moments of greatness.

- Scott Ginsberg - American author and public speaker


Year to DateSince
AFC Asia Frontier Fund USD A1,358.34-6.1%-14.1%+35.8%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D686.09-7.1%-1.0%-31.4%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,873.96-7.4%-6.7%+87.4%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,318.76-5.9%-6.6%+231.9%
Ho Chi Minh City VN Index (in USD) -6.3%-15.1%+131.3%
  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.

It was a volatile month for global markets as investors started to factor in higher interest rates and higher inflation. These two macro factors are impacting almost every country including the Asian frontier universe. However, as we have written in the past, countries with strong macroeconomic fundamentals, will be able to weather this volatile period in a relatively better fashion than weaker nations.

Given this, we continue to believe that Bangladesh, Kazakhstan, Uzbekistan, and Vietnam will be able to manage this current period of macro uncertainty. This is not to say that these countries will not grapple with global macro headwinds, but they should be able to manage as they have low levels of debt and it is quite evident that higher debt levels have been the primary cause of economic crisis for some countries as global interest rates and inflation began to increase in the last few months.

On a bottom-up basis, our funds are invested in quality companies with sound fundamentals. There might be some weakness now in stock prices, but we believe these companies will adapt and overcome the current economic headwinds while growing their earnings in the long run.

The bottom line is this: we are invested through the cycle so that we can capture the long-term structural growth story of Asian frontier markets.

You can read more about the 2022 and longer-term outlook for Asian frontier markets in our AFC Asia Frontier Fund 2022 Outlook Report which we published in December 2021.



AFC Uzbekistan Fund – Three year anniversary

(Source: International Monetary Fund)


This month we were recognized by Preqin, where our AFC Iraq Fund’s E Share Class featured on their Honour Roll for Q1 2022 for Hedge Funds in Asia Pacific, in the categories: “Net returns of top performing Asia-Pacific-based hedge funds in 2022 YTD” and “Net returns of top performing Greater-China-based equity strategies hedge funds in 2022 YTD”. These industry recognitions show the validity of the investment thesis for the AFC Iraq Fund.



AFC Iraq Fund Performance



AFC Iraq Fund Performance





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London, UK 23rd & 24th June Thomas Hugger
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AFC Vietnam Fund - Manager Comment


AFC Vietnam Fund Performance



The AFC Vietnam Fund returned −5.9% in May with a NAV of USD 3,318.76, bringing the year-to-date return to −6.6% and return since inception to +231.9%. This represents an annualized return of +15.3% p.a. since inception. The Ho Chi Minh City VN Index lost 6.3% in May 2022 and has lost 15.1% year to date in USD terms. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.10%, a Sharpe ratio of 1.03, and a low correlation of the fund versus the MSCI World Index USD of 0.53, all based on monthly observations since inception.

Despite the sharp fall in May, it may actually be an interesting buying opportunity to either increase one’s Vietnam exposure or to enter a new investment in Vietnam. The VN-Index reached a 12-month low in the middle of the month but has since bounced back a little. The reasons for the current market correction continue to be margin calls from overleveraged domestic retail investors, tightening credit conditions for asset speculations, and a few high-level arrests of stock market and real estate manipulators and involved government officials.


VN-Index versus AFC Vietnam Fund since Jan 2020 (pre COVID-19) to May 2022

Vietnamese Exports

(Source: Bloomberg, AFC Research)


The reason why we think that the current correction could offer an interesting buying opportunity is mainly that the fundamental growth story for Vietnam’s economy remains intact, with the GDP growth forecast for this year at around +6% and strong Q1/2022 earnings growth of listed companies of 31%. In addition, the current stock market valuation with the VN-Index’s forward 2022 P/E of 12.3x looks very attractive and is much lower than its 5-year historical P/E of 16.5x.

We further believe that current rate hikes by central banks in Europe and the U.S. won’t have a significant negative impact on Vietnam’s growth forecast, given that real interest rates are positive in Vietnam (nominal interest rates have always been kept higher than inflation rates), unlike in Europe and the U.S. As we mentioned in our previous reports, the conflict in Ukraine has so far had a very small impact on Vietnam’s economy and this will probably remain the case going forward. There are currently many discussions about a possible recession in the U.S. and Europe and it is difficult to forecast the possible impact on Vietnam’s economy, should this recession fear become true and hence impact consumption negatively. But with the current tension between China and the U.S. and the Chinese “Zero-COVID” policy, for example, Vietnam will most likely be one of the beneficiaries, given that only a small production shift from China to Vietnam has a huge positive impact on Vietnam’s economy. Even now, when looking at Vietnam’s export statistics for the first 4 months of 2022, exports to the U.S. have increased by 20.9% yoy, and to Europe by 21.1% yoy! Food exports such as catfish, shrimps, and rice in particular, but also textile exports to Europe have increased significantly.


Export growth by market

Russia and Ukraine contribution to the Vietnamese export revenue in 2021

(Source: GSO, AFC Research)


Indo-Pacific Economic Framework for Prosperity (IPEF)

Vietnam benefits from all the various FTA’s (free trade agreements) which are in place with Europe, ASEAN, CPTPP, etc. Several days ago, when President Biden visited Japan, he launched the Indo-Pacific Economic Framework for Prosperity (IPEF) with a dozen initial partners: Australia, Brunei, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. This is another important milestone for Vietnam, given that these 13 counties together represent 40% of global GDP.

Hanoi - Southeast Asian Games

The most important ASEAN sports event, SEA Games 31, was held in Vietnam from the 12th -23rd May 2022. Vietnam’s athletes showed a remarkable performance, winning 205 gold medals, including in men’s football, which was the highlight of the event!



Oil Imports and Exports

(Source: seagames2021)


This event plays an important role, not only in sport, but also for the economy. SEA Games 31 was the first major sports event at a time when many countries around the world finally started to loosen up COVID-19 restrictions and the event therefore created a much-needed boost to the tourism industry. Before the start of the SEA Games 31, Vietnam relaxed its COVID-19 policy even further and ATK tests were no longer required to enter the country. It was therefore no surprise that more than 170,000 international visitors travelled to Vietnam to visit the largest ASEAN sports tournament. Stadiums were full and most visitors didn’t wear a face mask, and it almost felt like COVID-19 never existed.


A full audience stadium during SEA Games 31

Vietnam Inflation

(Source: vnexpress)


Vietnamese Prime Minister visits USA

Prime Minister Pham Minh Chinh visited the U.S. from 11th-17th May in order to attend the ASEAN-U.S. summit and the United Nations, at the invitation of U.S. President Joe Biden.

This is the first foreign tour of Prime Minister Pham Minh Chinh since the outbreak of the COVID-19 pandemic in March 2020. His visit was aimed to foster bilateral ties with the U.S. in a more practical and effective manner. Both sides committed to accelerating cooperation in dealing with traditional challenges such as freedom of aviation and navigation in seas and oceans, as well as non-traditional issues like pandemics, supply chain stabilisation and climate change. During his visit he met with many top executives of companies such as Apple, Google, and Microsoft to discuss how to further strengthen economic, trade and investment ties. The Vietnamese delegation also visited the NYSE (New York Stock Exchange) and the Vietnam’s State Securities Commission. The NYSE have inked a cooperation agreement to facilitate Vietnam’s forthcoming market upgrade and provide a mechanism for investors to engage in both stock markets.


PM Pham Minh Chinh and US President Joe Biden

VN Index correlation

(Source: chinhphu)


Li Ka-Shing to invest USD 80 bn in Vietnam's infrastructure

Li Ka-Shing, the Hong Kong tycoon, announced that he will be investing USD 80 bn into Vietnam’s infrastructure. Li Ka-Shing, nicknamed “Superman”, has gained a reputation as one of the most influential businessmen in Asia. His choice to invest in Vietnam after retreating from Europe seems to show that Vietnam's economic development potential is huge.

A recent report by the Vietnamese media "The Saigon Times" seems to further corroborate this conjecture. Recently, Cheung Kong Group and Japan's ORIX Group, through their local partner Van Thinh Phat, held a meeting with Phan Van Mai, Mayor of the People's Government of Ho Chi Minh City, Vietnam to discuss investing in Ho Chi Minh City.



Total Cost Manufacturing Worker

(Source: Saigon Times)


Li Ka-Shing already started investing in Vietnam a long time ago. CK Hutchinson, one of the companies of billionaire Li Ka-Shing, is the second-largest shareholder of Vietnamobile, a local telecommunications company in Vietnam. He also owns SITV, a port in Vietnam in Ba Ria Vung Tau province and several real estate assets across the country.

The world's longest glass-bottom bridge just opened in Vietnam

A glass-bottomed walkway in Vietnam opened in April and has been declared the world's longest bridge of its kind by Guinness World Records. Located in the rural highland region of Son La province in north-western Vietnam, the Bach Long bridge connects visitors to a popular mountain resort and offers impressive panoramic views of lush mountain rainforest.



Insurance Premium as portion of GDP

(Source: yahoo)


The Vietnamese economy continued to show solid growth in May 2022 with impressive numbers for industrial production, exports and retail sales. In the first 5 months, industrial production increased by 8.3% yoy which was supported by retail sales which increased by 9.7% yoy, and strong export growth of 16.3% yoy.

At the end of May 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.0%) – an insurance company, PVI Holdings (6.4%) – also an insurance company, Tuong An Vegetable Oil JSC (5.1%) – an edible oil producer, Everpia Vietnam JSC (4.7%) – a bedding manufacturer, and Power Engineering Consulting JSC No. 2 (4.6%) – a consulting firm.

The portfolio was invested in 49 names and held 3.3% in cash. The sectors with the largest allocation of assets were consumer (45.2%) and financials (20.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 11.02x, the estimated weighted harmonic average P/B ratio was 1.50x, and the estimated weighted average portfolio dividend yield was 4.40%.

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AFC Asia Frontier Fund - Manager Comment

AFC Asia Frontier Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares returned −6.1% in May 2022 with a NAV of USD 1,358.34. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−7.5%), and the MSCI Frontier Markets Net Total Return USD Index (−6.4%) but underperformed the MSCI World Net Total Return USD Index (+0.1%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +35.8% versus the benchmark, which is down by 3.6% during the same period. The fund’s annualized performance since inception is +3.1%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.7% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.55, all based on monthly observations since inception.

It was a tough month for Asian frontier markets as continued concerns over rising interest rates globally and higher food inflation impacted investor sentiment. The negative contributors to performance were Mongolia, Bangladesh, Pakistan, Uzbekistan, and Iraq. The positive contributors for the month were Jordan, Georgia, and Vietnam. 

Some of our markets, however, did see a recovery towards the end of the month as valuations remain very attractive. A case in point is Vietnam, which was down by -14.3% at one point during the month but witnessed a strong recovery to close the month down -5.4%. 

The AFC Asia Frontier Fund’s Vietnam holdings have performed exceptionally well this month and also so far in 2022. The fund’s Vietnam holdings gained +0.8% in May versus a decline of -5.4% for the VN-Index. For the year, the fund’s positions in Vietnam have gained +7.8% versus the VN-Index’s decline of -13.7%.

This outperformance by the fund’s Vietnam positions is because of focussing on quality blue chip companies which are well leveraged to Vietnam’s long term economic prospects.


The fund’s Vietnam holdings have gained +7.8% this year v/s the VN-Index decline of -13.7% - key holdings have outperformed

Iraq's COVID-19 Statistics

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


As mentioned in last month’s manager comment, the impact on Central Asia from the Russia-Ukraine conflict is not as negative as initially feared when the conflict began. TBC Bank (TBC) in Georgia, which the fund holds, declared excellent results with net profits for 1Q22 growing by 46% but more importantly the bank’s management team increased their 2022 GDP forecast for Georgia to +5.5% from their earlier estimate of +0-2% when the conflict began. 

A combination of increasing long term visitors from Russia benefiting the tourism sector, stable remittance flows, and strong domestic consumption are key reasons for the upgrade to total GDP growth. Furthermore, TBC’s digital bank in Uzbekistan, TBC UZ, continues to gain traction with strong user growth. 

This renewed optimism in Georgia is also reflected in TBC’s share price which gained +17.3% this month making it the second-best performing stock for the fund. Since its bottom in March 2022, the stock has gained +78% but it is still trading at a P/E ratio of only 3.4x while it generates a return on equity of 24.3%. This is the value on offer in our universe in these times of global uncertainty.


TBC Bank stock price has gained 78% since its bottom in March 2022


(Source: Bloomberg)


This trend of a lower than expected economic impact on Central Asia is also reflected in the currencies of Georgia, Kazakhstan, and Uzbekistan as the chart below shows all currencies have rebounded from March 2022 lows to pre-conflict levels.


Georgian Lari and Kazakh Tenge have appreciated versus the USD this year


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


The fund’s investments in Jordan which were initiated in March 2022 continue to perform strongly with Arab Potash being the best performing stock for the fund in May with a gain of +22.6%. The stock has gained +52% since the fund first purchased it in mid-March 2022. 

Arab Potash is very well leveraged to the current dynamics in the international potash market since Belarusian and Russian supplies, which account for close to 40% of global potash production, are currently difficult to get on the market. With many governments globally focussing on food security, Arab Potash is set to benefit as countries look to maintain or improve agricultural yields in order to feed their populations despite the higher input (potash/fertilizer) prices.


Arab Potash and Jordan Phosphate Mines have done well for the fund since initial purchase

BNOI Advert

(Source: Bloomberg, % change in prices between 13th March 2022 – 31st May 2022)


The momentum for Bangladesh’s exports remains very impressive as the country benefits not only from lower wages but also more importantly from supply chain shifts which are having a positive impact on the country’s garment sector. Export growth in March and April was above 50% which shows the momentum Bangladeshi exports have at the moment.



BNOI Advert

(Source: Bangladesh Export Promotion Bureau)


The best performing indexes in the AAFF universe in May were Sri Lanka (+6.3%) and Jordan (+2.7%). The poorest performing markets were Kazakhstan (-12.3%) and Mongolia (-9.9%). The top-performing portfolio stocks this month were a Jordanian potash miner (+22.6%), a Georgian bank (+17.3%), a Mongolian materials company (+15.0%), a Vietnamese oil & gas drilling services provider (+12.8%) and a Maldivian resort operator listed in Sri Lanka (+11.1%).

In May 2022, the fund bought a Vietnamese bank and exited a Cambodian gaming operator and a Vietnamese oil & gas drilling services provider. During the month the funded added to and reduced existing positions in Mongolia.

At the end of May 2022, the portfolio was invested in 78 companies, 2 funds and held 3.4% in cash. The two biggest stock positions were a convenience store operator (4.1%) and a bakery chain (4.0%), both in Mongolia. The countries with the largest asset allocation were Mongolia (23.5%), Vietnam (13.3%), and Iraq (11.5%). The sectors with the largest allocation of assets were consumer goods (28.2%) and materials (14.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.31x, the estimated weighted harmonic average P/B ratio was 1.15x, and the estimated weighted average portfolio dividend yield was 2.66%.

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AFC Iraq Fund Performance


The AFC Iraq Fund Class D shares returned −7.1% in May with a NAV of USD 686.09, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 6.0% during the month. The fund was down 1.0% year to date versus the index which was up 1.7%. Since inception, the fund has lost 31.4% while the RSISUSD index was down 44.5%.

Last month’s bout of profit taking continued this month; however, the market’s technical picture continues to be bullish. The RSISX USD Index’s two-month declines have 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 decline further, the macroeconomic fundamentals discussed last month support our thesis that the two-year uptrend should continue even if the upward slope moderates somewhat. This picture contrasts favourably with other markets, which underscores its 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.



Belarus and Russia account

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


Almost all of the index's constituents were down with the exception of the Bank of Baghdad (BBOB), which was flat for the month. The worst performing constituent for the second month in a row was the National Bank of Iraq (BNOI), down 19.2% for the month, followed by Baghdad Soft Drinks (IBSD) and National Chemical and Plastics Industries (INCP) both down 7.8%, Al-Mansour Pharmaceutical Industries (IMAP) down 6.8%, Al Mansour Bank (BMNS) down 6.0%, the Commercial Bank of Iraq (BCOI) down 3.6%, Al-Kindi of Veterinary Vaccines and Drugs (IKLV) down 2.6%, Kharkh Tour Amusement City (SKTA) down 2.2%, and Asiacell (TASC) down 1.8%.

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, while 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 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.

Sandstorms and a stroll down Al-Mutanabbi Street

Since mid-April 2022, Iraq has experienced nine sandstorms, versus the usual three in any given year, with the ninth on 23rd May 2022 so severe that the government declared the day a public holiday ahead of the storm’s arrival and required airports to be shut. The storm, when it arrived, engulfed the country in sand, turned Baghdad’s sky orange, and catapulted the city to Mars (picture below).


Early morning in Baghdad during the last storm in May

Phospate Production

(Photo by Ahmed Tabaqchali)


While the storm disrupted economic activity, life in Baghdad soon returned to normal and the sand was washed away, as experienced a few days later on a Friday stroll down Al-Mutanabbi Street – Baghdad’s intellectual, literary, and cultural heart; named after the legendary Abbāsid-era poet Al-Mutanabbi (915-965 A.D.). The street is jam-packed with traditional booksellers displaying all kinds of books both in outdoor stalls and in bookstores – an embodiment of the old Arab saying, “Egyptians write, Lebanese publish, Iraqis read.”

When temperatures rise in the summer, the street comes to life in the evenings, but Fridays have always been special irrespective of the season. As the first day of the weekend, many of the roads approaching the street are closed to traffic and the street is best approached from the Tigris River side either by boats next to the Al Shuhada’a (Martyrs) Bridge or by walking over the bridge itself.

On this particular Friday, the route to Al Shuhada’a Bridge passed through Haifa Street – originally cut as a stylish residential street in 1981 out of one of Baghdad’s historical areas, as the city went through a massive transformation in the early days of the Iraq-Iran war. The regime embarked on a “Guns and Butter” policy to insulate the city’s population from the ravages of the war. Haifa Street changed from a sought-out location to the much-feared Death Street in the years following the U.S. invasion in 2003, when it was effectively controlled by insurgents during the worst of the sectarian civil war in 2006-2007. Aspects of that bloody era were dramatized in the 2019 movie “Haifa Street”. Today, the street is restored to its former self and is one of many examples of the post-conflict transformations of the country that lie at the heart of the Iraq investment thesis as outlined by the AFC Iraq Fund.


Haifa Street, on the way towards, Al Shuhada’a Bridge

Global potash and phosphate prices

(Photo by Ahmed Tabaqchali)


Al-Mutanabbi can be thought of as an intellectual, literary, and cultural complex composed of the street itself, the Baghdadi Cultural Centre, and Al-Qishla compound.


The view of Al-Qishla compound with the Clock Tower on the left, the riverside head of the street opposite the stairway from the river crossing. The Baghdadi Cultural Centre while not in photo is on the right of the street

Vietnam Performers

(Photo by Ahmed Tabaqchali)


Early in the day on Friday when temperatures ranged between 25-41 degrees centigrade, the street was teaming with people of all ages and walks of life.


Al-Mutanabbi Street, near the Tigris end

Vietnam GDP Growth

(Photo by Ahmed Tabaqchali)


AFC’s August 2019 Iraq travel report reviewed Al-Mutanabbi and its famous Shabandar Cafe writing “ … the Café personifies the street and Iraq’s revival - in 2010 a car bomb almost destroyed the café, killing thirty people including the owner’s four sons and grandson. However, Mohammad al-Khashali reopened the café soon after and insisted on maintaining its open-minded culture as a home to Iraqi writers and intellectuals from all faiths for generations, even during the darkest years of sectarian warfare”.

The Baghdadi Cultural Centre, across the street from the Shabandar Café, was restored to life in 2011 as a cultural centre in a move that seemed to defy the bombing of the café earlier in 2010. Initially known as Daftar–Khana (House of Records) during the Ottoman rule, the centre was transformed into its present form as Al-Rashdiya Military School in 1869. Since then, the school graduated many of Iraq’s top officers who played leading roles in the country’s modern history. 

The school was converted to a hospital during WWI, after which it became the headquarters of the civil courts in 1919 following the British occupation of Iraq. It eventually included the headquarters of the criminal courts after the establishment of the Kingdom of Iraq in 1921. It continued in this role until 1978, after which it became a historic site. In the mid-to late 1990’s it transformed into a religious centre during the Return to Faith campaign as the regime pursued an Islamist agenda. It was neglected and left to decay in the years following the U.S. invasion in 2003 until its restoration in 2011.


The courtyard of the Baghdadi Cultural Centre

Interest rates in Pakistan

(Photo by Ahmed Tabaqchali)


Al Mutanabbi’s spirit comes to life in Al-Qishla compound with poets, artists and intellectuals picking spots to express themselves surrounded by interested crowds ¬– very much like the well-known Speakers Corner in London’s Hyde Park. The compound was the site of Al Mowafaqia School from the early thirteenth century; the Ottomans began construction of its main building in 1861 to serve as an administrative centre, and barracks – with the Turkish word Qishlaq for barracks giving rise to the compound’s current name. A few years, later the building was expanded, and a tower was added using bricks reclaimed from the demolition of the eastern section of Baghdad’s historic city wall – in an all-too-familiar pattern of destroying the old to build the new throughout the city’s history. In 1927, a clock was added to the tower as a gift from the U.K.’s King George V to Iraq’s King Faisal I, whose coronation in 1921 took place in the compound’s courtyard. 


A view from the second floor of Al-Qishla’s main building showing the courtyard and the clock tower

Interest rates in Pakistan

(Photo by Ahmed Tabaqchali)


A young poet reciting in Al-Qishla’s courtyard, with all too familiar site of reconstruction activity across the Tigris

Interest rates in Pakistan

(Photo by Ahmed Tabaqchali)


The tour of the street finished by departing from the street’s other end at Al-Rasheed Street – first opened to the public under the last days of the Ottomans in 1916. The street acquired its current name in 1936 in homage to Baghdad’s golden age under the rule of Hārūn al-Rashīd (786-809 A.D.) – the fifth caliph of the Abbāsid dynasty. True to its namesake, the street as Baghdad’s art district was at the heart of the country’s evolution encompassing all aspects of life from art, culture, architecture, politics, and commerce – but its story deserves its own report.


The arch marking Al-Mutanabbi entrance from Al-Rasheed Street

Interest rates in Pakistan

(Photo by Ahmed Tabaqchali)


Walking in Al Rasheed Street towards Al-Mutanabbi, whose entrance is in the middle-left

Interest rates in Pakistan

(Photo by Ahmed Tabaqchali)


At the end of May 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of −0.2%. The fund invests in both local and foreign listed companies that have the majority of their business activities in Iraq. The markets with the largest asset allocation were Iraq (96.4%), Norway (3.2%), and the UK (0.6%). 

The sectors with the largest allocation of assets were financials (64.5%) and consumer staples (14.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.10x, the estimated weighted harmonic average P/B ratio was 0.86x, and the estimated weighted average portfolio dividend yield was 2.71%.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned −7.4% in May 2022 with a NAV of USD 1,873.96, bringing the return since inception (29th March 2019) to +87.4%, while the year-to-date return stands at −6.7% at the end of May 2022. On an annualized basis, the fund returned +21.9% p.a. with a Sharpe ratio of 1.42.

May was a quiet month in Uzbekistan for us, while the broader economy continues to hum, benefitting greatly from inbound Russian tourists and rising remittances among continued general investment in the country. With muted activity in the stock market, share prices drifted lower, especially the fund’s largest holding, Uzmetkombinat (TSE: UZMK) which corrected 26% after rallying 53.9% between 28th February and 30th April.

AFC Uzbekistan Fund valuations as of 31st May 2022:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.52x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 5.17%


Market pullback is a buying opportunity

When we started investing in Uzbekistan, we were quick to acquire as many cheap shares in what we regard as Uzbekistan’s “blue-chip” companies as possible, for it’s not every day you get to own companies growing at triple-digit growth rates, trading at low single-digit P/E’s and at large discounts to book value. Establishing these core positions at attractive prices has allowed the AFC Uzbekistan Fund to perform well and should enable further performance as new capital flows enter the stock market over the coming years from local and foreign investors which we expect will see the continued re-rating in the stock market.

Over the past few months, many investors have asked us if Uzbekistan’s capital markets have succumbed to the strong selling being seen across global markets due to a confluence of rising interest rates, overspeculation by retail investors now selling, and de-leveraging. Our response has been a consistent “no” since there are no “hot” capital flows in Uzbekistan to be repatriated abroad. The market consists of mainly long-term capital, and thus the volatility we have experienced over the years in the stock market is more closely tied to earnings and corporate actions than general speculative sentiment. 

Uzbekistan’s uncorrelated nature with global stock markets makes it unique and this will of course change as we believe we are in the early days of the secular bull market in Uzbek stocks which will evolve along with capital flows which should provide a tailwind for fund performance as our existing equity holdings re-rate. As we remain patient for this to occur, especially as the government’s privatisation programme will be a significant catalyst only later this year, we expect continued moderate volatility in the market, but with a general upward bias in equity prices. This general uptrend is supported by no hot money inflows which could turn to outflows, an idyllic macro-economic backdrop, and Uzbekistan being a significant beneficiary from relocation of Russian and Belarussian technology companies and rising inbound tourism.

Back to May’s under performance, it can be almost entirely attributed to the 26% correction in Uzmetkombinat’s share price on no news. When UZMK began trading on 12th April 2022 after a multi-week trading halt, shares ended the month at UZS 17,490, or 53.9% higher from 28th February 2022. This was the result of the positive news around the resolution of the share price adjustment after accounting for the issue of bonus shares in lieu of a cash dividend. As the share price in our view moved too far too fast, we refrained from purchasing shares as trading resumed, as our participation would have only further exacerbated the sharp upward move. 

This phenomenon we have seen before when companies either do share splits or issue bonus shares, specifically in two of the fund’s other top holdings, Toshkent Vino Kombinat (OTC: TKVK) and the Uzbek Commodity Exchange (TSE: URTS), where their share prices rallied over 100% before undergoing needed and healthy retracements. 

This was the case with UZMK during May as its correction occurred on moderate volume and no news as some sellers were likely panicking with the company’s shares having ended May at UZS 12,999. The weakness however was welcomed by us as we have been very pleased with UZMK’s performance, and with the coming plan to privatise up to 5% of the company which will enhance liquidity and the company’s status as a “must-own blue-chip”, we took advantage of the correction and scooped up more cheap shares at attractive prices. Putting our bargain hunting into context, UZMK ended April trading at a P/E ratio of 5.52x and price-to-book value of 2.62x, while first-quarter earnings per share and book value per share grew by 50% and 70% respectively. UZMK ended May trading at a P/E ratio of 3.76x and price-to-book value of 1.74x which we can hardly complain about.
While we are pleased we were able to further grow our position in UZMK, were the stock to have remained flat for May and closed at UZS 17,490, we estimate the fund would have been up by approximately 1.3% for the month.

Uzbekistan – humming amid the war in Ukraine

As of late, we have been asked how Uzbekistan has been impacted from the war in Ukraine. Our response to this is one word – positively.

Uzbekistan was initially infected by the market panic when Russia attacked Ukraine, causing the Uzbek som to fall 6.6% versus the USD. However, as the situation stabilised and as Uzbekistan became a beneficiary of the war, discussed further below, the som staged a strong rally and is now down a mere 1.67% year-to-date, which is quite impressive amid the volatility in frontier and emerging market currencies, as well as in the Yen, Euro, and Swiss Franc for that matter!


The Uzbek Som has remained resilient year-to-date

Prices for Wheat, Corn and Soybeans

(Source: Bloomberg)


Boycott of Uzbek cotton ends

Meanwhile, the government was surprisingly effective at introducing a three-year multiple-entry business visa scheme for tech companies which relocated to the IT park in Tashkent. As we are aware by speaking with our contacts on the ground, mainly Russians in this regard and several of whom have participated in this scheme, several thousand Russian and Belarussian IT experts have relocated to Uzbekistan. The country has done a relatively good job of attracting this foreign talent fleeing the war and should position Uzbekistan to strengthen its gravity in the area of IT and emerge as a secondary technology hub after places like Tbilisi, Georgia. 

The relocation of these companies is benefitting the country in two significant ways. First, this educated labour is receiving above-average salaries which is driving demand for real estate, food and beverage, and entertainment which means more money circulating in the domestic economy and creating more jobs. Second, there is a lot of emerging tech talent among Uzbekistan’s population, which has historically sought to move abroad for better employment opportunities. The ability to cultivate Uzbek talent locally increases the probability that more of them will see significant entrepreneurial opportunities in the country and stay, helping stem the brain drain which has been ongoing throughout the greater region since the collapse of the Soviet Union.

Tourism and remittances are two other areas benefitting from the war. While numbers are certainly not at pre-pandemic levels, in May 2022, 20% of all outbound Russian air tickets purchased were for Uzbekistan, even outpacing Turkey, which was 11% of tickets purchased. Many of these tourists are coming for traditional tourism and were it not for the war, they probably never would have ventured to the country. However, we have also heard of package tours for Russians and Belarussians to come to the country and open bank accounts in order to get Visa and Master cards which they can use abroad (credit and debit cards issued by Russian and Belarussian banks don’t work abroad). This new capital has partially been responsible for remittances from January 2022 to April 2022, surging 27%, to USD 2.54 bln, and almost doubling in April alone to USD 1.07bn. 

This new source of remittance capital is helping Uzbekistan become a de facto second-tier financial centre and if the government decides to capitalise on these new inbound flows, could help grow Uzbekistan into a regional financial centre, something we expect to happen in the next decade or so, but which now could possibly happen much faster.

At the end of May 2022, the fund was invested in 28 names and held 7.8% in cash. The portfolio was allocated to Uzbekistan (92.14%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (48.6%) and financials (25.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.52x, the estimated weighted harmonic average P/B ratio was 1.16x, and the estimated weighted average portfolio dividend yield was 5.17%.

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