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 (29th 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 30th November 2022:
|Estimated weighted harmonic average trailing P/E (only companies with profit):
Estimated weighted harmonic average P/B:
|Estimated weighted portfolio dividend yield:
Uzbekistan Economic Forum attracts new foreign interest
Between 3rd and 4th 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%.