“The best time to plant a tree was 20 years ago.
The second best time is now.”

- Chinese Proverb

AFC Funds Performance Summary

Asian frontier markets had a soft month, but AFC funds continued to significantly outperform their respective benchmarks. We conducted our quarterly AFC webinar on 28^th October 2022 with several interesting questions posted by the audience. If you missed our webinar, you can catch the recording or view the webinar presentation below.

2 charts from the webinar stand out – the P/E ratio of the AFC Asia Frontier Fund is now even below pandemic lows and frontier markets are now trading at multiples last seen during the 2008/09 global financial crisis. 

With such discounted valuations and the possibility that global interest rates and inflation could peak out in the next few months, this is a good time to look at allocating to Asian frontier markets with a 12 to 18 month view. Not only are valuations of the companies we hold trading at a big discounts to historical multiples, but the companies’ fundamentals are extremely strong. Given this backdrop, we believe a positive trigger in the form of peaking inflation and interest rates can lead to a sustainable run of positive returns for Asian frontier markets.

AFC Asia Frontier Fund P/E ratio is well below its peak

Frontier market valuations are at levels last seen in the 2008/09 global financial crisis

Discounted valuations but bottom-up fundamentals of AFC Asia Frontier Fund portfolio remain solid

Below are the manager comments relating to each of our four funds for the month of October 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 Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned −0.8% in October with a NAV of USD 713.81, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 3.4% during the month. The fund is up 3.0% year to date versus the index which is up 1.5%. Since inception, the fund has lost 28.6% while the RSISUSD index is down 44.6%.

The AFC Iraq Fund continues to display its diversification benefits especially in this period of global macroeconomic uncertainty as its performance so far this year is well ahead of all global benchmarks.

The performance of the AFC Iraq Fund signifies the diversification benefits of Asian frontier markets (year-to-date returns in USD)

The market, which over the last two months discounted and looked through the violence and political impasse, took a breather after its resolution with the formation of the new government on 27th October – 12 months after the October 2021 parliamentary elections. The decline took the index back towards the lower end of its two-year up-trending channel (chart below), which still supports the market’s positive technical picture. The macroeconomic fundamentals discussed here five months ago support our view that the market’s two-year uptrend will likely remain in force. However, its upward slope might moderate, or even go sideways, as the liquidity injection – a consequence of the passage of the supplementary budget – works its way through the economy and eventually into the equity market. 

The new government’s formation was masterminded by the Coordination Framework (the apparent losers of these elections) – made possible by the resignations a few months earlier of the Sadrist Movement’s parliamentarians (the apparent winners of these elections). As such, the government’s need to gain public support and legitimacy implies that it will likely adopt populist policies through an expansionary budget for 2023 that would take advantage of high oil prices – a point that was discussed in “2021 Review and Outlook for 2022” in that any government formed will seek legitimacy through populist policies. Ultimately the new budget will sustain and re-enforce the current consumer-led economic rebound into more sustainable economic growth, which in turn should lead to continued growth in corporate profits.

The significance of such expansionary budgets to the economy, and the transformative impact of the higher oil price environment on Iraq, were discussed here on 28^th October 2022 during AFC’s third “Asian Frontier Markets Update” webinar.

RSISX USD Index versus Average Daily Turnover

The Bank of Baghdad and the Predictability of Earnings

AFC Iraq Fund’s investment thesis for the banks was reviewed in “Banks & the Iraq Investment Thesis” which is based on the opportunity for the group to grow earnings multiple times from current levels as the country moves towards a full adoption of banking and away from the dominance of cash as both a store of value and a means of economic exchange. Moreover, over time, as banks’ earnings grow substantially, this should lead to meaningful increases in their valuations.

The 2014-2017 financial and economic crises brought about by the ISIS conflict and the fall in oil prices ended the multi-year economic expansion, and the pains of the crises exposed both the structural weaknesses of the banking sector as a whole as well as those of the individual banks. Management of each of these banks pursued different strategies to address these structural weaknesses, and the subsequent growth trajectory that is reflected in the progression of their earnings. At opposing ends of each of these strategies are those pursued by two of the AFC Iraq Fund’s top five holdings, Bank of Baghdad (BBOB), and the National Bank of Iraq (BNOI). BNOI was reviewed here in “The Opportunity in Retail Banking”, while the current newsletter reviews BBOB.

BBOB’s size as one of the largest private sector-owned commercial banks – in terms of deposits, assets, and branches across the country – made it one of the most leveraged banks to the expansion of credit during the economic boom years up to 2014. As such, the 2014-2017 crisis stressed its balance sheet to the limit following its heady expansion during the boom years. The bank’s strategy to address its structural weaknesses and vulnerabilities, and then to grow, was put in place by its new management team in mid-2016.

This strategy was based on repairing the bank’s balance sheet through holding back on loan issuance, adapting a conservative stance to its risky assets by taking appropriate provisions, holding high quality liquid assets, and concentrating on servicing its blue-chip customer list. This strategy in action from 2017 to the third quarter of 2022 (Q3/2022) can be seen firstly from the 43% decline in BBOB’s loan book (green column in chart below); and secondly from the 588% growth of BBOB’s holdings of the Government of Iraq’s (GoI) bonds (domestic bonds in Iraqi Dinar (IQD) and Eurobonds in USD) and Central Bank of Iraq’s (CBI) T-bills (i.e., financial assets in the maroon column in chart below). Cash remained high through the period with a 9% growth rate (grey column in chart below). Crucially, BBOB grew its customer deposits by 65% during the period as it maintained, and meaningfully grew its customer base (pink column in chart below).

Bank of Baghdad: Selected Assets & Liabilities

BBOB’s recovery and subsequent growth strategy changed the nature of its revenue streams to: (1) highly predictable interest income from holdings in GoI bonds and CBI T-bills (maroon column in chart below), and from cash (pink column in chart below); (2) predictable client servicing fee income from commissions and foreign exchange (green and grey columns in chart below); and (3) finally declining interest income from loans (blue column in chart below).

Bank of Baghdad: Selected Revenue Streams

The success of BBOB’s recovery and subsequent growth strategy was masked by the need to take provisions (maroon column in chart below) to repair the balance sheet which, until recently, held back pre-tax earnings (green column in chart below) versus pre-tax and provisions earnings (grey column in chart below).

Bank of Baghdad: Profits and Provisions

The current consumer-led economic rebound, likely to be accelerated by the introduction of the new government’s expansionary 2023 budget as written above, should accelerate the growth in BBOB’s earnings through the growth in its fee income – commissions and foreign exchange that are correlated with economic growth. Moreover, the economic recovery could have positive effects on the nature of its non-performing assets and thus bring forward the end of provision taking – which have likely peaked this year and initially expected to be over by 2023-2024.

Encouraged by the significant growth in earnings over the last two years, BBOB in mid-October announced the resumption of dividend payments, yielding at the time 3.6%. Should earnings continue to grow, as hoped for in 2022 and 2023, then a further dividend announcement is likely to be made next year and dividends might grow in-line with earnings growth.

This review is not a detailed company analysis discussing all aspects of the bank, instead it is meant to highlight the Bank of Baghdad’s (BBOB) strategy for recovery from the pains of the 2014-2017 crisis, and for subsequent growth; it is not meant to be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold shares in BBOB. Full details on the Bank of Baghdad, are available on the Iraq Stock Exchange (ISX)'s web site, and research reports are available from Rabee Securities.

Bank of Baghdad’s tireless CEO Basil Al Dhahi

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 October 2022, the AFC Iraq Fund was invested in 14 names and had a cash level of 0.4%. 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 (96.8%), Norway (2.4%), and the UK (0.4%). 

The sectors with the largest allocation of assets were financials (64.2%) and consumer staples (14.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.79x, the estimated weighted harmonic average P/B ratio was 0.88x, and the estimated weighted average portfolio dividend yield was 4.86%. The fund portfolio carbon footprint is 0.38 tons per USD 1 mn invested.

AFC Asia Frontier Fund - Manager Comment

The AFC Asia Frontier Fund (AAFF) USD A-shares returned −1.0% in October 2022 with a NAV of USD 1,221.34. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−12.4%) and the MSCI Frontier Markets Net Total Return USD Index (−4.3%) and underperformed the MSCI World Net Total Return USD Index (+7.2%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30^th March 2012 now stands at +22.1% versus the benchmark, which is down by −29.3% 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.

The diversified and less correlated nature of the AFC Asia Frontier Fund’s portfolio allowed it to outperform its benchmark once again by a significant margin in October. The major negative on fund performance this month was Vietnam which cost the fund 1.2% - without this performance would have been positive.

Vietnam’s stock market continues to face headwinds from the anti-corruption crackdown on the corporate bond sector which in turn is having a negative impact on the real estate sector as well as the banking industry. The real estate sector is having a liquidity crisis as it has been the biggest issuer of corporate bonds in the last few years but now it is facing difficulties to raise new capital via corporate bonds due to tougher regulations while availing bank loans has also become difficult. 

Some real estate companies could experience a cash squeeze while banks who have exposure to the real estate sector via loans or corporate bonds have seen their stock prices take a big hit in the last two months. One bank also saw a bank run as it was supposedly exposed to a major real estate developer whose founder was arrested last month.

Though the corporate bond market in Vietnam has grown significantly in the last few years it is still smaller than regional peers in terms of GDP. The current overhang on the corporate bond sector may not lead to systemic issues but it will have a negative impact on the real estate sector and some of the banks.

Vietnam corporate bond market has seen high growth but still smaller than regional peers (as % of GDP)

The AFC Asia Frontier Fund does not own any real estate development companies in Vietnam, and it only has exposure to Vietcom Bank (VCB), which is well positioned in the current environment with very low exposure to real estate developers and corporate bonds while managing a prudent loan book with among the lowest NPL ratios in the industry.

Vietcom Bank which the fund holds has very little exposure to corporate bonds (as % of total credit exposure)

Vietcom Bank’s stock price has outperformed peers who have a higher exposure to corporate bonds/real estate developers

In addition to the negative overhang from the real estate sector, investor sentiment has also been impacted by the 200 basis point increase in benchmark interest rates by the State Bank of Vietnam within a span of one month. With the State Bank of Vietnam being among the last central banks globally to raise interest rates, and with inflation picking up along with a weaker currency, it is likely that the State Bank of Vietnam will raise interest rates again by the end of 2022 or early 2023. 

This will be another headwind for the real estate sector and hence we have stayed away from real estate names in Vietnam in the last few years – there are fundamentally cleaner and stronger names to play the Vietnam growth story.

Benchmark interest rates could be increased further in Vietnam to manage the currency and inflation

The VN-Index is now valued attractively but the market is dominated by local investors and for their sentiment to turn positive it would take either a peaking out of interest rates and/or an easing in the anti-corruption crackdown. Furthermore, the market may also be trying to factor in earnings downgrades which have not yet happened since economic growth will see a slowdown in 2023.

Longer term, the Vietnam story remains intact and with a 3–5-year view these are attractive valuations given that the Vietnam story is by far the most solid in all of ASEAN.

Though short-term headwinds remain in Vietnam – the current drawdown provides a good long-term opportunity with the VN-Index P/E ratio at pandemic lows

In Kazakhstan, the fund’s fintech holding Kaspi once again upgraded its 2022 net profit guidance on the back of another strong quarter. This is the third time this year that Kaspi has upgraded its net profit guidance which reflects very strong execution in an uncertain economic environment. Net profits are now expected to increase by more than 30% in 2022 from their earlier estimate of 27-30% at the end of 2Q22 and 20-30% growth at the end of 1Q22. With strong earnings growth expected not only in 2022 but also in the coming few years, Kaspi’s valuation at a P/E of 8.4x based on 2023 earnings is undervalued in our view. Kaspi remains a top pick in our universe and is now the second biggest stock position in the fund. 

Bangladesh announced that it has reached a Staff Level Agreement with the International Monetary Fund (IMF) for a 42-month loan program totalling USD 4.5 bn with the first disbursal expected in February 2023. This IMF program will help Bangladesh stabilise its macroeconomic position in this period of global macro headwinds and also push the government to carry out fiscal and monetary reforms.

The relatively faster process of coming to a Staff Level Agreement with the IMF also reflects Bangladesh's stronger macro position compared to Pakistan and Sri Lanka whose discussions with the IMF face delays or disagreements. Bangladesh has moved quicker in seeking support unlike its peers.

One of the few key reforms that the IMF has demanded from the Bangladesh Central Bank is the removal of the interest rate cap on loans. Media stories suggest this interest rate cap will be removed soon and as of writing the Central Bank has relaxed the interest rate cap rule for certain consumer loans. Further easing of interest rate caps will be positive for the banking sector as its profitability has been squeezed in the last few years due to this illogical rule. 

Besides this, further reforms as mandated by the IMF will only improve Bangladesh’s economic policymaking, of which a lot is left to be desired in order for the country to meet its potential. If Bangladesh empowers itself to take bolder and market-oriented decisions, it can easily achieve GDP growth rates of higher than the current 6-7%. 

The best performing indexes in the AAFF universe in October were Mongolia (+2.9%) and Kazakhstan (+1.6%). The poorest performing markets were Sri Lanka (−13.4%) and Vietnam (−9.2%). The top-performing portfolio stocks this month were a Mongolian industrial company (+32.0%), a soft drink producer listed in Turkey but operating in various Asian frontier countries (+27.8%), a Mongolian concrete producer (+25.4%), a Mongolian coal miner (+15.1%) and a Mongolian cashmere producer (+14.3%).

In October, the fund bought and sold existing positions in Mongolia. 

At the end of October 2022, the portfolio was invested in 75 companies, 2 funds and held 7.0% in cash. The two biggest stock positions were a convenience store operator in Mongolia (4.0%) and a fintech company in Kazakhstan (3.8%). The countries with the largest asset allocation were Mongolia (15.4%), Iraq (14.3%), and Uzbekistan (11.3%). The sectors with the largest allocation of assets were consumer goods (22.9%) and materials (12.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.39x, the estimated weighted harmonic average P/B ratio was 0.89x, and the estimated weighted average portfolio dividend yield was 3.09%. The fund portfolio carbon footprint is 0.70 tons per USD 1 mn invested.

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned −1.4% in October 2022 with a NAV of USD 1,705.93, bringing the return since inception (29^th March 2019) to +70.6%, while the year-to-date return stands at −15.1% as of the end of October 2022. On an annualized basis, the fund has returned +16.0% p.a. with a Sharpe ratio of 1.01.

October saw new market entrants circling the Tashkent Stock Exchange who began to deploy capital, bidding up some of the fund’s holdings. Over the coming months, this should translate into a new round of liquidity in the market, supporting existing stock prices and potentially continuing the re-rating the market experienced in 2021. During the month, general market activity was quiet which allowed the AFC Uzbekistan Fund to continue acquiring shares at attractive prices.

AFC Uzbekistan Fund valuations as of 31^st October 2022:

Uzbekistan remains in a phase of strong and accelerating growth

For the nine months of 2022, GDP growth in Uzbekistan reached 5.8%. This was supported by growth in exports of 36%. Furthermore, there is increasing tourism and relocation of Russians, Ukrainians, and Belarussians to Uzbekistan for a variety of reasons including relocation of companies, mainly in the services sector, but also industrial companies seeking either relocation or expansion into Central Asia, where Uzbekistan is expected to be the companies’ operational and manufacturing headquarters. 

We have said since 2018 that Uzbekistan reminds us of a double-landlocked Vietnam of sorts from a manufacturing angle. It appears that with COVID-19 well behind us, this trend can now accelerate. It is of course also helped by the war in Ukraine. On the back of this high growth, the IMF increased its 2022 GDP estimate from 3.4% to 5.2% and to 4.7% for 2023, while forecasting inflation of 11.2% for 2022 and 10.8% in 2023.

During the month, the Central Bank of Uzbekistan approved its conceptual monetary policy framework for the period 2023 to 2025. Estimates for GDP growth are 4.5% to 5% in 2023, 5% to 6% in 2024 and 6% to 6.5% in 2025. Meanwhile, the long-term inflation target of 5% which the government hoped to achieve next year has been pushed to the second half of 2024. Furthermore, the budget deficit is expected to decrease from 3% in 2023 to 2% in 2024 and 2025. 

While the government’s projections on the above are encouraging, we are skeptical of the inflation figure as we believe that due to significant underinvestment across the commodities complex and the accelerated de-globalisation that that we are seeing, an inflation target of 5% will at the very least be a challenge (current inflation is 12.2%), but it will still be better than the runaway inflation being experienced across the developing world and in countries that don’t have control over their necessary supply of food and energy. Thus, Uzbekistan remains in a very attractive position economically on a relative basis going forward.

Tashkent Stock Exchange about to continue its re-rating?

Trading on the Tashkent Stock Exchange over the past year has been relatively subdued compared to 2021 when the AFC Uzbekistan Fund was up 46.2%. This could be due to investors having taken profits after the big 2021 run-up in equity prices or due to the war in Ukraine (which was a catalyst for several local retail investors we know to sell their entire portfolios). Nonetheless, current equity prices remain highly attractive, especially those levered to economic growth, specifically companies in the materials, industrial, consumer goods, and financial services sectors.

Over the past month, we have been approached by several local and foreign investors (institutional and retail) looking to buy blocks of equity from us. This is from new money entering the market which is an encouraging sign and validation of our original thesis that being in the market first and hoovering up shares of good companies at rock bottom prices would pay dividends as new participants enter the market. With most companies having small free-floats, this plays well into the fund’s hands and during October the fund exited a metal fabrication company at a 45% premium to the market price. The company was a mid-sized position for the fund and one that we definitely liked, but the price offered was attractive enough for us to exit and re-deploy the proceeds into cheaper companies. We are optimistic that other such deals will happen in the future as the capital markets ecosystem continues to grow. 

At the end of October 2022, the fund was invested in 26 names and held 6.8% in cash. The portfolio was allocated to Uzbekistan (93.13%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (46.6%) and financials (29.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.05x, the estimated weighted harmonic average P/B ratio was 0.91x, and the estimated weighted average portfolio dividend yield was 3.24%.

AFC Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned −10.5% in October with a NAV of USD 2,683.00, bringing the year-to-date return to −24.5% and return since inception to +168.3%. The fund outperformed the benchmark, the Ho Chi Minh City VN Index, which lost 12.7% in October 2022 and has lost 36.9% 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 14.98%, a Sharpe ratio of 0.73, and a low correlation of the fund versus the MSCI World Index USD of 0.50, all based on monthly observations since inception.

In October, a Vietnamese property tycoon was arrested after an alleged multi-million (in USD) fraud and the State Bank of Vietnam raised key rates by another 100 basis points. This news rattled markets and the Vietnam Index declined sharply in October by −13.4% (in USD terms). Also, the Vietnamese Dong lost 4.1% against the USD in October, which of course had an additional negative impact on the NAV of our AFC Vietnam Fund, which closed the month −10.7% lower at an NAV of USD 2,678, according to internal estimates.

Market Developments

Until the beginning of April this year, the VN Index outperformed most markets and was even slightly up, despite the outbreak of the Ukraine conflict. But after that the tide started to turn and the Vietnamese stock market also declined, despite solid macro-economic numbers and strong 2022 earnings growth forecasts for Vietnamese equities of over 20%. The reasons for the sharp correction are mostly “home grown” issues, such as corruption investigations and arrests related to the real estate and stock markets. 

2022 Global stock markets comparison in USD

All these factors plus concerns about increased geopolitical tensions created a lot of fear among domestic retail investors, who are still the dominant force on the stock market. This fear or uncertainty has eventually driven Vietnam’s equity market valuation to a decade low level, with a forward 2023 P/E of 8.3x, the lowest we have seen since 2012 for the VN Index!

Interesting enough, when we launched our AFC Vietnam Fund, back in December 2013, the valuations were very similar to today, with a P/E ratio of around 7.5x, P/B ratio of around 1.2x and a dividend yield of around 5.6%. Also, in March 2020, when the WHO declared the COVID-19 outbreak as a pandemic, global investors became very nervous about the economic outlook. What followed was a sharp selloff across global stock markets, especially in Vietnam where we saw very attractive valuations, but only for a very short time, until the market started to recover strongly and rallied over 68% in the 12 months following the outbreak! We also saw a very similar pattern during the global financial crisis back in October 2008, where the VN Index rallied over 53% over the next 12 months. These would have been a perfect opportunity for new investors to finally gain exposure to Vietnam or for existing investors to take advantage of these very attractive valuations in order to increase their existing exposure, but we are fully aware that this is always easy to say with hindsight.

The relationship between the stock market and the economy

So far this year there are compelling macro-economic numbers for Vietnam such as its 2022 GDP growth forecast of around 8%. Vietnam is projected to become the fastest growing economy in Asia this year, amid a regional downturn led overwhelmingly by China’s sharp economic deceleration, according to the World Bank. In its latest report published at the end of September 2022, the World Bank estimates that besides Vietnam in Southeast Asia only the Philippines (6.5 percent), Malaysia (6.4 percent), and Indonesia (5.1 percent) are forecasted to exceed 5 percent growth this year.

But what we also see this year is a weak Vietnamese stock market, bringing down valuations to a very appealing level. André Konstolany – a Hungarian-born economist and stock picker who became quite famous for beating the stock market, making huge profits during the Great Depression and later during Europe’s post–World War II reconstruction period - once said, “the relationship between the stock market and the economy is like a man (economy) walking his dog (stock market). The dog follows his master, and either runs ahead or behind of him – they eventually always meet, but the only problem is we don’t know how long the leash is.” Of course we do not know how long it will take for the market to recover to new all-time highs, but we do think for long term investors it makes a lot of sense to gain or increase exposure to Vietnam now. This is also why the management team of the AFC Vietnam Fund, Vicente Nguyen, Thomas Hugger, and Andreas Vogelsanger decided to take advantage of this, in our view, oversold situation and we all increased our personal investment in the AFC Vietnam Fund this month.

Vietnam’s Central Bank widens Dong trading band and hikes key rates by 100 basis points

On 17^th October, the State Bank of Vietnam (SBV) decided to increase the foreign exchange trading band from 3% to 5% to give commercial banks the flexibility to devalue the Vietnamese Dong. And only around one week later the SBV decided to raise key rates by another 100 basis points in order to stabilise the currency, but the VND nevertheless weakened by around 4.1% against the USD in October. These two decisions didn’t contribute positively to the already nervous and worried mood of local retail investors, but it looks like the SBV had no choice to let the VND weaken against the USD, in line with other regional currencies. In last month’s report we wrote about how little the VND lost against the USD in comparison to other currencies. We also heard that the SBV was previously intervening quite aggressively to support the VND, and hence the market estimates that Vietnam’s foreign reserves declined by about USD 20 billion from USD 110 billion to currently around 90 billion. We were asking ourselves why Vietnam was defending its currency so aggressively and not letting it weaken against the USD in line with most other currencies. A weaker VND would of course also keep Vietnam’s competitiveness in the export market attractive, given that its products would remain inexpensive. But it looks like the SBV has now changed its strategy and started to gradually depreciate the VND versus the USD. As of the end of October, the VND depreciated around 8.8% against the USD year-to-date, in comparison to INR 9.3%, PHP 13.7% and THB 14.5% over the same period.

Depreciation versus the USD as of 31^st October 2022, year-to-date

The latest arrest

Mrs. Truong My Lan, the chairwoman of Van Thinh Phat Holdings Group (VTP), one of Vietnam’s largest real estate developers, was arrested on suspicion of financial fraud as the country intensified its long anti-corruption drive. She was accused of illegally issuing corporate bonds to raise trillions of Dong (tens of millions in USD) from investors between 2018 and 2019. Some of these corporate bonds were apparently sold to retail investors at attractive terms, against the State Bank of Vietnam’s guidelines. But the Ministry of Public Security of Vietnam announced that further investigations are under way to clarify the frauds. It is most likely that VTP group will have to pay back retail investors holding their bonds, but given the group’s significant assets, this won’t create a problem for them.

Even though these recent corruption and fraud investigations with a series of high-profile corporate arrests, including top stockbrokers, property developers, and even regulators are hurtful for financial markets in the short run, we believe they are very important and positive for the future economic development of the country.

Q3/2022 company results

Many companies already released their Q3 results in October and some of them showed impressive growth, such as Lien Viet Post Bank (LPB), one of our bank stocks in the portfolio. LPB reported an impressive 61.4% growth in Q3/2022 net profit! LPB is now trading at an incredibly attractive valuation of a forward P/E of 3.5x and P/B 0.7x.

LPB net profit (VND bn)

But besides LPB, many other bank stocks are vastly undervalued. According to Viet Capital Securities, around two thirds of all listed bank stocks are currently trading at P/E ratios based on 2023 earnings of around 5x!

At the end of October 2022, the fund’s largest positions were: Agriculture Bank Insurance JSC (8.0%) – an insurance company, PVI Holdings (6.4%) – also an insurance company, Lam Dong Minerals and Building Materials JSC (5.4%) – a building material supplier, Minh Phu Seafood Corp (5.3%) – a seafood company and Everpia Vietnam JSC (5.1%) – a bedding manufacturer.

The portfolio was invested in 48 names and held 4.2% in cash. The sectors with the largest allocation of assets were consumer (42.3%) and financials (27.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.62x, the estimated weighted harmonic average P/B ratio was 1.17x, and the estimated weighted average portfolio dividend yield was 5.59%. The fund portfolio carbon footprint is 22.0 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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