“In investing, what is comfortable is rarely profitable”

- Robert Arnott, American entrepreneur, investor, and editor

AFC Funds Performance Summary

AFC Funds had a mixed month overall but market sentiment appears to be improving as interest rates and inflation in our universe as well as globally seem to be reaching a peak. The possibility of a gradual reopening in China will also be very positive for many of our markets like Cambodia, Maldives, Sri Lanka, and Vietnam as they have historically received a large number of Chinese tourists.

In any case, our recent on-the-ground visits to Sri Lanka and Vietnam suggest that international tourism is seeing a rebound in both countries with or without Chinese tourists. You can read more on our upcoming travel reports to Sri Lanka and Vietnam which will be released in the coming weeks.

The entire AFC Team wishes all our investors and newsletter readers happy holidays and a peaceful and profitable New Year!

Below are the manager's comments relating to each of our four funds for the month of November 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..

AFC in the Press

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..

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned +1.9% in November 2022 with a NAV of USD 1,738.83, bringing the return since inception (29^th March 2019) to +73.9%, while the year-to-date return stands at −13.5% as of the end of November 2022. On an annualised basis, the fund has returned +16.2% p.a. with a Sharpe ratio of 1.03.

November saw a continuation of the increased trading activity, which began to pick up last month at the Tashkent Stock Exchange. Surprisingly, this occurred on the back of minimal news flow, which is a likely indication that we are seeing more foreign investors in the market, as local investors typically have a short-term trading mindset around news flow.

AFC Uzbekistan Fund valuations as of 30^th November 2022:

Uzbekistan Economic Forum attracts new foreign interest

Between 3^rd and 4^th November 2022, roughly 1,500 professionals from the local finance industry, government, and foreign investors descended on Samarkand for the second annual Uzbekistan Economic Forum. While at the forum, 62 agreements totalling $3.8 bn were signed. The biggest takeaway for us was that, while still very modest, more foreign investors are circling than in 2021. While we don’t expect many of these investors to start allocating capital to the country today, it is a first step toward getting acquainted with the country, as many of them said that Uzbekistan exceeded their expectations and was not like they had expected (Thomas and Scott had the same opinion when first visiting in May 2018). We, of course, expect that as Uzbekistan continues on its upward trajectory, the proportion of participants at this forum who are actual investors and not representatives of international financial institutions or service providers in search of fees will increase over the coming years.

A current account surplus?!

Under the Karimov government, Uzbekistan was notorious for its perpetual trade deficit, which was not officially captured by government statistics due to the country’s once-roaring black-market economy for imports and lack of transparent data. The current administration has largely brought these issues under control which means statistics in the Mirziyoyev era are much more reliable and transparent, whereby it is publicly stated that the country has a trade deficit. In time, however, as the country flexes its export might, we see the deficit shrinking and turning into an eventual sustaining surplus. 

While not there yet, in the first nine months of 2022, Uzbekistan clocked a current account surplus of USD 346.6 million as remittances surged 240% to $10.7 billion. This unusually high level of remittance flows - the result of capital fleeing Russia - is unlikely to be sustainable. Still, it is likely to continue and, in due course, should be offset by other capital inflows to Uzbekistan, namely foreign direct investments. 

The current account deficit has historically been a leading cause of the country’s perpetual currency weakness. However, this year’s current account surplus as well as the government’s gold sales, some of which are directed toward foreign exchange interventions to support the Uzbek som (though less so this year as the country has been modest with its gold sales due to the depressed price) has helped the som remain relatively stable, depreciating only 3.5%. This compares favourably to the depreciation of 3.5% in 2021, 10% in 2020, and 14% in 2019, and more so when considering how strong the US dollar has been relative to almost all other currencies globally.

At the end of November 2022, the fund was invested in 26 names and held 14.9% cash. The portfolio was allocated to Uzbekistan (85.07%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (36.7%) and financials (29.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.75x, the estimated weighted harmonic average P/B ratio was 0.98x, and the estimated weighted average portfolio dividend yield was 4.33%.

AFC Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned +1.3% in November with a NAV of USD 2,719.20, bringing the year-to-date return to −23.5% and return since inception to +171.9%. The fund underperformed this month its benchmark, the Ho Chi Minh City VN Index, which gained 2.5% in November 2022 and has lost 35.3% year to date in USD terms. The fund’s annualized return since inception stands at +11.8% p.a. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.91%, a Sharpe ratio of 0.73, and a low correlation of the fund versus the MSCI World Index USD of 0.49, all based on monthly observations since inception.

The VN Index continued its correction in November, and by mid-month, the Vietnam Index lost almost 15%. This decline was still mainly driven by forced sellers due to margin calls, but it does look like we saw the worst of this “washout” in the second half of November when the market started to recover and closed the month positive at +2.1%. However the small and mid-cap indices closed down around -4% to -5%!

Market Developments

The nerves of investors in the Vietnamese stock market were tested again in November with its continued decline in the first half of the month. On 16^th November, the VN Index hit a yearly low of 873.67, losing a staggering 50.4% in USD terms since the beginning of the year, despite healthy earnings growth of Vietnamese companies in 2022 of around 17% and a phenomenal GDP growth forecast for 2022 of around 8% and for 2023 of around 6%! This massive correction in the Vietnamese stock market was mainly due to disciplinary actions of the Vietnamese government, arresting high-level stock and real estate manipulators and stopping real estate developers who were financing their business expansion by illegally issuing corporate bonds and selling them to local retail investors. This all happened at a time when geopolitical tensions were on the rise, increasing uncertainties for global financial investors. These government actions have also created uncertainty followed by panic among local retail stock investors, who typically are highly leveraged. The sharp correction in the Vietnamese stock market started to trigger more and more margin calls, with an ever-increasing number of local retail investors turning into forced sellers. On top of that, with a frozen corporate bond market, many real estate companies ran into liquidity issues. Many of the outstanding corporate bonds issued by real estate developers were collateralised with their own stocks, and with a falling market, this collateral also had to be sold, creating additional selling pressure.

We believe that these government actions created much pain in the short term but are very important and beneficial for the long-term development of the Vietnamese stock market. The Vietnamese authorities have, of course, also realised the turmoil which followed their disciplinary measures and have hence issued a list of actions to restore confidence in the financial markets. It very much looks like the forced selling is done, and hence the VN Index was able to recover in the second half of November. If the Vietnamese stock market, as we expect, is now coming back to normality, there is a good chance that the currently depressed valuations will finally catch up with regional peers, and hence we should see higher index levels soon. Also, when observing a longer-dated chart, the VN Index is now trading at its technical support level.

VN Index – May 2000 to Nov. 2022

Foreigners took advantage of the margin call-induced forced selling and bought Vietnamese shares aggressively for the first time this year.

One of the larger real estate companies whose share price declined a lot over the past couple of months is Novaland (NVL). Many rumours circulated about how NVL’s severe liquidity issues were due to the frozen corporate bond market. This led local retail investors to dump their shares which triggered a liquidation of NVL shares, which were used as collateral for some of their outstanding corporate bonds. All this created enormous selling pressure on NVL’s stock price, and in November alone more than 70% of its market cap was wiped out, from USD 5.5 bn to USD 1.7 bn!

Novaland (NVL)

Only in the last couple of days of the month has NVL’s stock price started to stabilise, given the State Bank of Vietnam’s effort to increase liquidity in the banking system in order to ease the liquidity crunch some of the real estate companies are currently facing.

Examples like NVL created a lot of panic among local retail investors, and the mood in social media, local newspapers and financial blogs quickly became overly pessimistic about the stock market and the economic outlook of Vietnam. It is understandable that retail investors, in particular, are incredibly scared in such an environment of falling stock prices. There are, of course, a few sectors, such as real estate, construction and construction materials which might face difficult times with increasing interest rates, but the reality is that the broad economy is on track and is firing on all cylinders. This becomes very visible when visiting commercial centres in Vietnam with many shoppers, or the busy restaurants, pubs, and crowded and vibrant streets in various cities across the country with busy food stands.

Vincom Commercial Center

A restaurant in HCMC

The Vietnamese Government is very determined to keep its economic growth story on track, and hence the Government is keen to keep its government debt in relation to GDP at a low level of around 40%. But it also tries to keep inflation under control which currently stands at 3%, and it manages and monitors its currency and interest rates very carefully. The aim is to reach GDP growth of around 5.5% to 6% in 2023, which is slightly below recent forecasts by Fitch Solutions with 6.5% and World Bank with 6.7%.

Vietnam is one of the fastest-growing economies in the world, with expected GDP growth of around 8% for 2022 and around 6% for 2023. But the recent fall in the stock market brought down valuations to incredibly attractive levels with a forward 2023 P/E of 8.1x, which compares to the Philippines with 11.5x, Malaysia with 12.5x, Thailand with 14.8x and Indonesia with 15.2x. In our view, this creates a great buying opportunity for long-term value investors!

P/E 2023 by market (x)

It is also interesting to note that emerging markets compared to the S&P 500 are now trading at a 34-year low! That makes you wonder if all bad news for emerging markets has already been priced in at this stage and that the next 10 years to come might look brighter again?

Exports from Vietnam to the EU and U.S. will most likely face some headwinds in 2023, given the risk that both the EU and the U.S. will probably enter into a recession next year. But at the same time, Vietnam will probably benefit from the current geopolitical tensions between the U.S. and China, China and Taiwan, and China’s zero COVID-19 policy, with an accelerated manufacturing shift from China to Vietnam. The relatively new FTA between the European Union and Vietnam, which was signed on 30^th June 2019, is also expected to have a positive and growing impact on trade between the two parties. 

If we look at exports in the first ten months of 2022 from Vietnam to the EU, they showed impressive growth of 14% YoY, regardless of record-high inflation in Europe. Vietnam’s export staples to the EU included machinery, equipment and spare parts, footwear, computers, electronics, apparel, toys, sports equipment, seafood, and coffee, among others. When one looks at export numbers from the first ten months of 2022 from Vietnam to the US, they grew by 21.8% YoY and reached almost the same level as the full-year export number of 2021. 

It is difficult to forecast how long a possible recession in the U.S. and Europe will last before consumption will pick up again, but according to Fitch, the U.S. economy is expected to enter into a recession - albeit relatively mild by historical standards.

Exports from Vietnam to EU and USA

The tourism sector in Vietnam went through a very tough time in 2020 and 2021 with the absence of international tourists due to COVID-19 lockdowns. However, domestic tourism picked up strongly in 2022, but the number of international tourists is still very low. Pre-COVID-19, China was the main contributor to Vietnam’s tourist sector, with an estimated revenue of USD 8bn (32% of total revenues) and 5.8 million tourists in 2019.

Vietnamese tourism by market in 2019 (mn visitors)

As we have all seen in the news recently, China is still holding on to its zero COVID-19 policy and hence it is difficult to forecast when Vietnam will again see rising tourist arrivals from China. But there was one piece of news which made us slightly optimistic that the situation might change soon, with the announcement by China Southern Airlines on 14^th November 2022 that it will cancel pre-flight quarantine requirements for passengers on flights from Vietnam to China. Even though China has not yet removed all requirements, it might be the first sign that the situation is slowly changing. The impact on a potential easing of China’s zero COVID-19 policy would of course have a massive positive impact on Vietnam’s tourist sector, and we are therefore monitoring the situation carefully.

International tourist arrivals to Vietnam (mn)

We are very optimistic about Vietnam’s economic outlook, but we also think that there are a few sectors which will face many difficulties in 2023, such as real estate and other related sectors, including construction and construction materials. A tightening monetary policy will lower property demand in the short term, regardless of a bright long-term economic outlook. Therefore we have no exposure in the AFC Vietnam Fund to these sectors. We are still overweight the insurance sector, given that insurance companies are cash rich and are a main beneficiary of rising interest rates. Besides the insurance sector, we also have exposure in the tourism sector, given that we expect a strong recovery in 2022 and 2023. One of our holdings in this sector is Dam Sen Water Park (DSN), which recently reported an impressive profit for the first nine months of 2022 of VND 99.1bn (+582% YoY), which surpassed even pre-pandemic profit numbers!

Net profit of DSN in first 9M (VND bn)

At the end of November 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.1%) – an insurance company, PVI Holdings (7.1%) – also an insurance company, BIDV Insurance Corporation (5.9%) – an insurance agency, Lam Dong Minerals and Building Materials JSC (5.8%) – a building material supplier, and Everpia Vietnam JSC (5.2%) – a bedding manufacturer.

The portfolio was invested in 48 names and held 5.1% in cash. The sectors with the largest allocation of assets were consumer (38.1%) and financials (29.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.59x, the estimated weighted harmonic average P/B ratio was 1.10x, and the estimated weighted average portfolio dividend yield was 5.52%. The fund portfolio carbon footprint is 20.59 tons per USD 1 mn invested.

AFC Asia Frontier Fund - Manager Comment

The AFC Asia Frontier Fund (AAFF) USD A-shares returned −0.3% in November 2022 with a NAV of USD 1,218.15. The fund underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+4.4%), the MSCI Frontier Markets Net Total Return USD Index (+5.2%) and the MSCI World Net Total Return USD Index (+7.0%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30^th March 2012 now stands at +21.8% versus the benchmark, which is down by −26.2% during the same period. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.7% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.53, all based on monthly observations since inception.

It was a quiet month for Asian frontier markets with gainers and losers both balancing out fund performance in November. There were no major developments in our key markets and during the month, we travelled both to Vietnam and Sri Lanka. 

Though we will release a travel report for both countries in the coming weeks, a quick snapshot of our on-the-ground visit to Vietnam seems to suggest that despite the overhang on the stock market from the corporate bond crisis, the broader real economy appears to be doing fine as almost all retail points that we visited like restaurants and malls were bustling with energy. There is also a very strong rebound in international tourism that seems to be underway with hotels in Ho Chi Minh City and Hanoi operating at a high capacity – the hotel lobbies were all full! 

Exports from Vietnam are already witnessing a slowdown and economic growth in 2023 will not be as high as in 2022 because of the high base effect. Despite this, our on the ground visit tells us that Vietnam enjoys long-term economic momentum and near-term headwinds in our view do not change the structural growth story of the country.

In Colombo as well, things appear to be much more normal than what the media has been reporting. The situation a few months ago was obviously not ideal, but now getting around the city or the country is not an issue with fuel supplies being restored. In Sri Lanka too, there are signs of an impending rebound in international tourism as other tourist locations outside of Colombo that we visited were dotted with international tourists. 

The Sri Lankan stock market at this stage appears to have bottomed out, with valuations at all-time lows for the benchmark index while inflation and interest rates have peaked out. Furthermore, on a bottom-up basis, the fundamentals of blue-chip companies outside of the banking sector are perfectly fine. The negotiations with creditors and the International Monetary Fund (IMF) continue, and a breakthrough can be expected in the first quarter of 2023 after which the economy should further stabilise.

Sri Lanka trades at an all-time low valuation – the worst appears to be in the price (P/E ratio)

The best-performing indexes in the AAFF universe in November were Pakistan (+2.6%) and Jordan (+2.1%). The poorest performing markets were Mongolia (−2.4%) and Iraq (−2.4%). The top-performing portfolio stocks this month were a Mongolian concrete producer (+31.1%), a Vietnamese mall operator (+24.2%), a Pakistani automotive battery producer (+21.4%), a Vietnamese transportation company (+20.4%) and a Georgian bank (+16.0%).

In November, the fund increased its weight in a Georgian bank and bought and sold existing positions in Mongolia.

At the end of November 2022, the portfolio was invested in 75 companies, 2 funds and held 6.7% in cash. The two biggest stock positions were a fintech company in Kazakhstan (4.4%) and a beverage producer in Mongolia (3.7%). The countries with the largest asset allocation were Mongolia (14.9%), Iraq (13.7%), and Vietnam (11.7%). The sectors with the largest allocation of assets were consumer goods (22.9%) and materials (12.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.63x, the estimated weighted harmonic average P/B ratio was 0.93x, and the estimated weighted average portfolio dividend yield was 3.14%. The fund portfolio carbon footprint is 0.72 tons per USD 1 mn invested.

AFC Iraq Fund - Manager Comment

The AFC Iraq Fund (Non-US) Class D shares returned −4.5% in November with a NAV of USD 681.56, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 4.3% during the month. The fund is down 1.6% year to date versus the index which is down 2.9%. Since inception, the fund has lost 31.8% while the RSISUSD index is down 47.0%.

The market’s decline for the month was magnified by a 2.04% decline in the parallel market’s price of the Iraqi Dinar (IQD) versus the USD, which accounted for about half of the index’s (and the fund’s) decline. Apart from that, the actual decline in the index was mostly a function of a directionless and low turnover, market action taking the index to the low end of its two and half year up-trending channel (chart below), which still supports the market’s positive technical picture. The macroeconomic fundamentals discussed here six months ago support our view that this uptrend will likely remain in force; however, its upward slope might moderate or even go sideways, as this month’s action suggests.

RSISX USD Index versus Average Daily Turnover

Most of the index's constituents were down, with the exception of Al Mansour Bank (BMNS), which was up 12.5%, Kharkh Tour Amusement City (SKTA) up 7.4%, while the Bank of Baghdad (BBOB) was flat. The decliners were led by Al-Mansour Pharmaceutical Industries (IMAP) down 9.0%, Al-Kindi of Veterinary Vaccines and Drugs (IKLV) down 8.0%, Baghdad Soft Drinks (IBSD) down 5.3%, AsiaCell (TASC) down 4.5%, Iraqi for Seed Production (AISP) down 4.3%, National Bank of Iraq (BNOI) down 2.8%, and the Commercial Bank of Iraq (BCOI) down 2.0%.

Supermarkets and Stability

One of the most promising recent developments in the economy is increased capital investments, by businesses and individuals, brought about by the relative stability of the last five years since the end of the ISIS conflict. While these years have been punctured by a number of shocks such as countrywide demonstrations in late 2019, the assassination of Iran’s top general in Baghdad followed by emergence of COVID-19 and the crash in oil prices in 2020, undecisive elections in 2021 followed by a year of a political impasse, and most recently political conflict and violence in the summer of 2022; nevertheless, these shocks pale in comparison to those of the prior decades of conflict that Iraq has experienced. Crucially, these shocks were short-lived, and did not lead to self-reinforcing cycles of violence and conflict along the lines of the past.

As such, this relative stability provided a more stable and predictable macroeconomic framework for businesses and individuals to operate in, and to plan for capital investments on a scale not seen in the prior decades of conflict, that in turn should be sustained by the population’s pent-up demand for goods and services to catch up with the rest of the world. These developments were first seen in the immediate aftermath of the ISIS conflict through the revival of long-forgotten social activities, expressed in consumer retail consumption (restaurants, coffee shops, and malls) and construction as reported in AFC Iraq’s travel report in the summer of 2019 “Significant Social and Economic Transformation”.

Supermarkets are hardly a new development for Iraqis, having known them since the 1980’s, and having had access to all the products and goods that are available in supermarkets worldwide since the country opened up to the outside world post the 2003 invasion. However, the relative stability of the past five years has brought with it a revival in the developments of supermarkets, most notably in Baghdad, that have seen increasingly larger-format purpose-built supermarkets.  Two examples of this trend, among others in Baghdad, that have opened in the last two years are Waffir in Inner Kharada Street in Al-Jadria, and the Al Warda in Salman Faiq Street in Kharada. The newer supermarkets do not come only with an extensive product range –i.e. a wide assortment, choice of brands and products including a wide selection of health products, wider aisles, and large spaces, but also provide card (both credit and debit) payment options in addition to the dominant cash payment method – an option that is becoming increasingly available in the city as an acceptable payment method as the gradual adoption of banking takes hold. 

The development of supermarkets is likely to be boosted by the injection of foreign direct investments as can be seen by the announcement in mid-October that UAE-based Lulu Group International – with 239 supermarkets and hypermarkets in 23 countries with annual revenues of over USD 8 billion – is planning an IPO to consolidate its regional expansion, and moving into new markets including Iraq and North Africa. In 2020, the group received an investment of USD 1 billion from the Abu Dhabi sovereign wealth fund (ADQ) to help it expand in Egypt.

The supermarket-sector is not the only sector to benefit from the interest of regional capital, as can be seen from an announcement in late October that Saudi Arabia’s Public Investment Fund (PIF) would invest up to USD 24 billion in Bahrain, Iraq, Jordan, Oman, Sudan and Egypt in key sectors ranging from infrastructure and healthcare to finance and food. Egypt and Iraq are significantly larger markets than the other four and thus should attract proportionally larger investments.

Waffir within Jadria Boutique Mall in Al-Jadria

Inside Waffir within Jadria Boutique Mall in Al-Jadria

Al Warda in Salman Faiq Street in Kharada

Inside Al Warda in Salman Faiq Street in Kharada

Inside Al Warda in Salman Faiq Street in Kharada

The above photos contrast, with those below of the somewhat older stores that have narrower aisles, with almost all available spaces utilised to offer variety and choice – and as such the newer stores provide an enhanced customer experience. All photos taken by the author during recent shopping trips.

Inside the Green Apple in Jordan Street, Mansour-Baghdad

Inside Mr Milk in Jordan Street, Mansour-Baghdad

Inside Al Warda in Outer Kharada Street, Kharada-Baghdad

In the meantime, all of these supermarkets are seeing a significant increase in footfall over the last two years, likely matched by sales, as can be seen from the Google mobility data (below chart) which shows that economic activity, in particular activity in the grocery sector has recovered, 240% above the levels that prevailed pre-2020’s great lockdown.

Inside Al Warda in Outer Kharada Street, Kharada-Baghdad

The year-to-date performance of the AFC Iraq Fund, and the RSISX USD Index, are now well ahead of global benchmarks, signifying the diversification benefits of the fund and Asian frontier markets which have a low correlation with global markets, especially during this period of global market volatility and macroeconomic uncertainty.

At the end of November 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of 0.1%. 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 (96.9%), Norway (2.4%), and the UK (0.6%).

The sectors with the largest allocation of assets were financials (65.5%) and consumer staples (13.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.94x, the estimated weighted harmonic average P/B ratio was 0.89x, and the estimated weighted average portfolio dividend yield was 4.81%. The fund portfolio carbon footprint is 0.35 tons per USD 1 mn invested.

I hope you have enjoyed reading this newsletter. If you would like any further information, please get in touch with me or my colleagues at This email address is being protected from spambots. You need JavaScript enabled to view it.

With kind regards,

Thomas Hugger
CEO & Fund Manager

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