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Asia Frontier Capital (AFC) - February 2023 Update

AFC Iraq Fund Enjoys a Surprise Boost - Asia Frontier Capital (AFC) - February 2023 Update


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“A champion is afraid of losing. Everyone else is afraid of winning.”

– Billy Jean King - American Former World No. 1 Tennis Player


Year to DateSince
AFC Asia Frontier Fund USD A1,257.92+2.3%+2.9%+25.8%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D833.91+23.3%+22.6%-16.6%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,768.930.0%+1.9%+76.9%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C2,847.92-5.7%-1.3%+184.8%
Ho Chi Minh City VN Index (in USD) -9.1%+1.1%+78.7%
  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.



AFC Iraq Fund skyrockets +23.3% in February 2023

It was another strong month for most AFC Funds, with the AFC Iraq Fund reporting a large gain of +23.3% (the biggest monthly gain of any AFC Funds in the over 10-year history of Asia Frontier Capital), while the AFC Asia Frontier Fund also had a strong month in the context of volatile global markets with an increase of +2.3%. February’s performance of AFC Funds once again illustrates the diversification benefits that Asian frontier markets offer to investors, as all major global benchmarks posted significant negative returns in February 2023.

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London 19th March - 2nd May Ahmed Tabaqchali
Hong Kong 26th March - 5th April Andreas Vogelsanger
Zurich/Basel/Zug 3rd - 6th April Thomas Hugger
London 14th April Thomas Hugger
Geneva 24th April Thomas Hugger
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AFC Iraq Fund Performance



The AFC Iraq Fund Class D shares returned +23.3% in February 2023 with a NAV of USD 833.91, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 25.0% during the month. The fund is up 22.6% year to date versus 18.8% for the index. Since inception, the fund has lost 16.6% while the RSISUSD index is down 37.6%.

The performance of the fund and the index were positively affected by two crucial decisions taken by the Central Bank of Iraq (CBI). The first was a revaluation of the official exchange rate of the Iraqi Dinar (IQD) versus the US Dollar (USD) by 10.3% or from USD 1 = IQD 1,450 to USD 1 = IQD 1,300. The second was the implementation of its recent measures to widen access to the official rate and to remove bureaucratic barriers for the transfer of funds to/from Iraq, as discussed here a few months ago. The combination effectively means that most transfers to/from Iraq will be affected at the effective official rate of USD 1 = IQD 1,290/1,320 instead of the parallel market rate of 1 USD = IQD 1,552/1,562 at month end and will be the same rate to be used for the valuation of the index and the fund – which explains the strong monthly performance for both. 

In other words - adjusted for the CBI’s measures – if the currency had been flat at February’s close, then the AFC Iraq Fund would have declined an estimated 2.5% versus the RSISX USD Index’s decline of 2.1%. The market’s underlying 2.1% month-on-month decline, coupled with the 36.0% month-on-month decline in the average daily traded volume on the Iraq Stock Exchange (ISX), suggests that the market has largely shrugged off the effects of the IQD’s 10% revaluation against the USD and that it has started looking through and discounting the currency’s volatility as discussed last month.  

The RSISX USD Index’s performance is mirrored in those of its constituents, especially considering the strong performance of a number of constituents last month. In local currency terms, only the Bank of Baghdad (BBOB) was up 2.1%, Asiacell (TASC) was almost flat at -0.1%, and the rest were down. The decliners were led by Al-Mansour Hotels down 8.1%, Kharkh Tour Amusement City (SKTA) down 5.5%, Al Mansour Bank (BMNS) down 4.5%, Baghdad Soft Drinks (IBSD) down 4.2%, the National Bank of Iraq (BNOI) down 3.8%, the Commercial Bank of Iraq (BCOI) down 1.9%, Iraqi for Seed Production (AISP) down 1.8%, and Al-Mansour Pharmaceutical Industries (IMAP) down 1.4%.

The revaluation of the IQD versus the USD and the valuation of the index at the official exchange rate going forward has not fundamentally altered the technical picture of the market, as it is now halfway through its 34-month up-trending channel reversing most of the negative effects of the currency’s declines since mid-November 2022 (chart below) – which still supports the market’s positive technical picture as discussed here in the past few months. The macroeconomic fundamentals discussed here last year support our view that this uptrend will likely remain in force; however, its upward slope might moderate or even go sideways – as the effects of the CBI’s measures would not affect the coming months’ market action. The 2023 budget proposal was not submitted in January 2023 as expected, nor in February 2023 as hoped for, but hopefully will be submitted this month – which means a delayed catalyst for the market’s next move – especially as all indications suggest that it will be a much more expansionary budget than was discussed here a few months ago.


RSISX USD Index Versus Average Daily Turnover

RSISX USD Index Versus Average Daily Turnover

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 28th February 2023)


Revaluation of the Iraqi Dinar Versus the US Dollar

Background: As written here last month, the Central Bank of Iraq (CBI), as part of an ongoing process of encouraging the move towards the adoption of banking and away from the informality that dominates economic activity, implemented in mid-November 2022 new procedural requirements for its provisioning of USD for importers. These procedural requirements are intended to bring the country’s cross-border fund transfers in-line with global standards requiring a high level of transparency. However, they represent a seismic shift to the country’s cash-dominated economy, in which large informal sectors drive the bulk of economic activity. As such, the introduction of the new procedural requirements immediately affected the volumes of the CBI’s daily USD-IQD transactions for cross-border fund transfers, which led to a supply-demand mismatch and consequently to a depreciation in the market price of the IQD versus the USD.

The government and the CBI subsequently introduced a sequence of measures to create demand for the IQD and to further the adoption of banking – crucial measures to de-dollarize the economy, and to accelerate its evolution away from the dominance of cash. As crucial as these measures are, their full effectiveness will take place over several years, and as such, the IQD’s market price versus the USD has continued to decline. Given public pressure for immediate measures, spurred by populist rhetoric, the CBI, with the government’s blessing, implemented a 10 per cent revaluation of the IQD exchange rate against the USD – from 1,450 to 1,300 IQD per USD – in the hope that the market price of IQD would reverse its depreciation versus the USD. 

Fundamentally, the revaluation in nominally lowering the official exchange rate does not alter the relationship between the official exchange rate and the market rate that existed pre-revaluation – which reasserted itself with the premium of the market rate over the official rate staying at the same elevated levels pre-revaluation (green line in lower half chart below).


Volumes in CBI’s USD-IQD Transactions Versus the USD/IQD Exchange Rates

Volumes in CBI’s USD-IQD Transactions Versus the USD/IQD Exchange Rates

(Source: Central Bank of Iraq (CBI) until 7th February 2023, Baghdad FX exchange houses from 8th February 2023, AFC Research, daily data as of 2nd March 2023)


While the revaluation was nominal, the combination with the CBI’s measures – that eased onerous bureaucratic processes for cross border-fund transfers at the official USD-IQD exchange rate, and the creation of incentives for the adoption of banking away from the dominance of cash – has accelerated the move away from informality that dominates the bulk of economic activities. The 22% premium of the market exchange rate over the official exchange rate (lower half of chart above) created a huge competitive advantage for companies operating formally versus those operating informally –consequently providing the economic incentive for informal companies to transfer to formality and to access the banking sector for the first time. These developments, and the high transparency levels demanded by the CBI’s procedural requirements introduced in mid-November 2022, have benefited the higher-quality banks. Moreover, they have accelerated the adoption of banking away from the dominance of cash as both a store of value and a means of economic exchange – a process that is positive for the AFC Iraq Fund’s investment thesis for the banking sector as discussed in “Banks & the Iraq Investment Thesis” in February 2022.

Consequently, the volumes of the CBI’s USD-IQD transactions have begun to recover from the lows at the end of the prior year and begun a gradual upward trend, helped by the market’s gradual adjustment to the increased levels of transparency demanded in cross-border fund transfers (first half of above chart). However, the still high degrees of informality, the dollarization in economic activities and the time needed for the market to fully adjust to the increased levels of transparency demanded in cross-border fund transfers mean that volumes will likely remain meaningfully lower than the pre-November 2022 levels – when the CBI’s new measure for cross-border fund transfers was first introduced. Consequently, the pressures on the market price of the exchange rate of the IQD versus the USD will continue, however, these pressures will ease in time and the premium over the official rate will likely stabilize in a range that is lower than the current high levels.

At the end of February 2023, the AFC Iraq Fund was invested in 14 names and had a cash level of 1.5%. 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 (96.3%), Norway (1.8%), and the UK (0.4%). 

The sectors with the largest allocation of assets were financials (67.5%) and communications (10.8%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.89x, the estimated weighted harmonic average P/B ratio was 0.97x, and the estimated weighted average portfolio dividend yield was 4.46%. The fund portfolio carbon footprint is 0.31 tons per USD 1 mn invested.

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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 +2.3% in February 2023 with a NAV of USD 1,257.92. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−9.6%), the MSCI Frontier Markets Net Total Return USD Index (−2.5%), and the MSCI World Net Total Return USD Index (−2.4%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +25.8% versus the benchmark, which is down by 30.7% during the same period. The fund’s annualised performance since inception is +2.1%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.6% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.51, all based on monthly observations since inception.

The outperformance of the AFC Asia Frontier Fund against all major global indices once again illustrates the fund’s diversification benefits which can add value to an investor’s portfolio. The drivers of performance were Iraq, Mongolia, Sri Lanka, Kazakhstan, and Georgia. The correction of -7.8% in Vietnam’s VN-Index was the major negative contributor to performance in February.

We attended two investor conferences in Ho Chi Minh City and spent time on the ground in Vietnam last month. The general sentiment amongst corporates and domestic investors was somewhat subdued relative to the recent past due to the overhang of issues in the corporate bond/real estate sector as well as slowing export growth, weaker consumption, and higher interest rates keeping a lid on sentiment.


At the FPT University Campus in Hanoi

At the FPT University Campus in Hanoi

(Source: AFC Research)


However, you would have done fine as an investor if you did not have exposure to real estate stocks or banks with a higher corporate bond exposure. Our fund is not invested in any real estate stocks or any of the banks whose stock prices have been hit because of their exposure to corporate bonds. 

On the consumption side, demand appears to have taken a hit more on the lower end and mass market segment while consumer companies focussing on the mid to high-end segment seem to be doing relatively much better in terms of demand. Anecdotally, this appeared to be the case as most well-known restaurants and malls we visited were buzzing with activity and demand.

Tourism is also making a solid comeback and seeing more foreign tourists is now as common as it was in pre-pandemic times. As a result, the queues for immigration both while coming in and leaving Vietnam were jampacked.

Overall, though sentiment remains a bit subdued on the ground in Vietnam, 2023 was going to be a slower year in terms of economic growth given the higher base of 8% GDP growth in 2022. More importantly, the fundamentals of the economy remain strong with foreign direct investments flowing in, debt levels remaining at manageable levels, a favourable demographic for long-term consumption, and Vietnam being the prime and biggest beneficiary of the shift in global manufacturing supply chains. Therefore, we remain very positive on Vietnam and any major correction should be viewed as a buying opportunity for select stocks.


At Gemadept’s Nam Dinh Vu Port in Hai Phong

At Gemadept’s Nam Dinh Vu Port in Hai Phong

(Source: AFC Research)


The fund’s largest stock position, Kaspi, declared excellent results with full-year 2022 net profits growing by 36%, which was well ahead of the company’s guidance of 30%. For 2023, Kaspi has also guided robust net profit growth of 25%, which is impressive in the current global economic environment. The company’s Super App-led model continues to see momentum, especially in its Payments and Marketplace platforms, with newer initiatives like Kaspi Travel and e-grocery holding the potential to be future growth drivers. 

An estimated 2023 P/E ratio of only 8.3x for a fintech company which generates more than USD 1 bn in net profits does not seem justified, in our view, given that other fintech companies struggle to even show net profits. The stock price has had a pretty good run since its bottom in March 2022, but we believe it has more legs over the next few years.


Kaspi is Highly Profitable Unlike its Emerging Market Fintech Peers
(2022 Net Profits in USD mn)

Frozen Tashkent

(Source: Bloomberg)


Tourist arrivals in Sri Lanka continue to hold up well as a more stable political and macro environment allows a crucial industry to prosper. More than 100,000 arrivals for a second month in a row reflects the ongoing recovery of Sri Lanka’s tourism industry. 

Though tourist arrivals are still lower than pre-pandemic levels, if Sri Lanka can achieve 50% of their 2018 tourist arrivals of 2.3 million in 2023, it could generate almost USD 2.5 bn in foreign exchange revenue, which may not get the country out of the woods yet in terms of their external macro position, but it will certainly add some comfort to foreign exchange reserves relative to where the country is now.


Sri Lanka Tourist Arrivals Maintain their Momentum (Monthly Arrivals)

Sri Lanka Tourist Arrivals Maintain their Momentum (Monthly Arrivals)

(Source: Sri Lanka Tourism Development Authority)


The best-performing indexes in the AAFF universe in February 2023 were Laos (+11.3%) and Mongolia (+6.4%). The poorest-performing markets were Vietnam (−7.8%) and Iraq (−2.1%). The top-performing portfolio stocks this month were a mining company in Mongolia (+137.5%), a Sri Lankan bank (+23.5%), a Mongolian ceramic factory (+20.0%), a Sri Lankan consumer conglomerate (+16.5%) and another Sri Lankan bank (+15.7%).

In February, the fund added to its position in a Georgian bank, exited a machinery equipment producer in Mongolia, and also bought and sold existing positions in Mongolia.

At the end of February 2023, the portfolio was invested in 73 companies, 2 funds and held 7.4% in cash. The two biggest stock positions were a fintech company in Kazakhstan (4.4%) and a bank in Georgia (3.4%). The countries with the largest asset allocation were Iraq (15.8%), Mongolia (15.2%), and Vietnam (12.3%). The sectors with the largest allocation of assets were consumer goods (20.0%) and materials (13.3%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.28x, the estimated weighted harmonic average P/B ratio was 1.15x, and the estimated weighted average portfolio dividend yield was 3.17%. The fund portfolio carbon footprint is 0.79 tons per USD 1 mn invested.

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AFC Uzbekistan Fund - Manager Comment

AFC Uzbekistan Fund Performance


The AFC Uzbekistan Fund Class F shares returned −0.02% in February 2023 with a NAV of USD 1,768.93, bringing the return since inception (29th March 2019) to +76.9%, while the return for the year stands at +1.9%. On an annualised basis, the fund has returned +15.7% p.a. with a Sharpe ratio of 1.00.

February was a quiet month in Uzbekistan, with the big capital markets news being that Kuvasoy Cement, a Fergana Valley based cement producer, will be buying the government stake in nearby glass producer, Kvarts. On another note, with Uzbekistan’s annual first-quarter energy shortage now behind us as the weather forecast calls for 27 degrees Celsius next week, industrial activity should spike over the coming months as capacity utilisation across industries returns to more normal levels.

AFC Uzbekistan Fund Valuations as of 28th February 2023:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.75x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 3.97%


Kvarts Gets Privatised

The privatisation roadmap in Uzbekistan has been a bumpy one over the past few years. The initial plan for the largest glass producer in Uzbekistan, Kvarts (TSE: KVTS), located in the Fergana Valley, was to undergo privatisation through the stock exchange (Kvarts was listed on the Tashkent Stock Exchange on 11th April 2018 in which approximately 7.5% of the company’s shares were sold to the public in two offerings). However, in time KVTS was removed from the list of companies to be privatised through the exchange. Not long thereafter, there were rumours in Tashkent that a Turkish company would be acquiring the company, however, that never came to fruition. 

Finally, on 13th February 2023, UzSAMA, the Agency for State Asset Management, announced that publicly listed Kuvasoy Cement (TSE: KSCM) would be purchasing 89.78% of the shares in KVTS for USD 23.3 million, an 11% discount to the closing price of the shares prior to the announcement. 

KSCM is majority owned by the United Cement Group, a Cyprus-registered holding company with various industrial interests in Kazakhstan, Kyrgyzstan, and Uzbekistan. Last year United Cement Group conducted a similar transaction by purchasing 86.9% of Qizilqum Cement (TSE: QZSM) from the Uzbek government as the company solidifies its position in the country’s cement sector, also owning a majority share of Bekobod Cement (TSE: BECM), located in the same city as publicly listed steel company, Uzmetkombinat (TSE: UZMK). 

We would have preferred the shares in KVTS to have been sold to the general public, especially as a majority stake in the company was up for sale, as this could have given the opportunity for Uzbekistan to showcase its seriousness in both establishing a robust privatisation schedule and allowing for non-state management to clean up operations. Further, the company’s debt to equity level has dropped significantly from 1.7x in December 2021 to 0.83x as of September 2022 as the company’s new floating glass production lines ramp up operations. We have been watching the company’s debt level closely since KVTS used to pay great dividends but stopped once KVTS leveraged to expand its production capacity. With the company’s debt/equity ratio, we believe a return to an attractive dividend payout is not far off. 

While the privatisation of the company to United Cement Group isn’t ideal in our eyes for the development of Uzbekistan’s capital markets, we are currently small shareholders of both KVTS and KSCM and should therefore benefit from future efficiencies generated from United Cement Group’s management, as well as future capacity upgrades as KVTS has the potential to become a leading Central Asian glass producer, exporting throughout the region.

U.S. Secretary of State visited Uzbekistan on 1st March 2023

We have written in the past about our thesis for the developing multi-polar world we live in and specifically what we dub the “New Fertile Crescent” region, which stretches from the Middle East up through Central Asia and encompasses Russia, China, Turkey, and Iran among others. 

As this new multi-polar world forms, we firmly believe Central Asia will be aligned with China and Russia, due to proximity, logistical constraints, cultural influence, and of course China and Russia being the region’s top trading partners. However, we also foresee increasing interest from western countries to attempt to put a proverbial thorn in China and Russia’s side by trying to gain influence in the region and fracture the current status quo. This is likely to ultimately be unsuccessful, but it is something we keep a close eye on as we hope for continued regional stability and economic growth. Of course, it doesn’t hurt Central Asian countries to play one side off against the other in order to maximise their own leverage and economic benefit, but they are clearly more “eastward than westward leaning”.

Thus, on 1st March 2023 Secretary of State, Anthony Blinken visited Uzbekistan and met President Mirziyoyev to discuss bilateral cooperation. This is his first trip to Central Asia as Secretary of State, and he is visiting Uzbekistan after having attended the C5+1 Ministerial meeting in Astana where representatives from Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan attended. 

Having crisscrossed Uzbekistan several times since 2018, mainly for meeting with management of the fund’s holdings, two regions of the country have alluded me – Karakalpakstan and Khorezm. Karakalpakstan is home to the Aral Sea and Khorezm, the ancient city of Khiva. Therefore, over the last weekend in February, I flew to Nukus in Karakalpakstan and then took a three-hour scenic drive south through the desert along the Turkmenistan border, where I passed several hundred-year-old hilltop fortresses on my way to Khiva. It was a nippy minus 12 degrees Celsius, but well worth it for Khiva was void of tourists, a stark contrast to the hordes that are there in warmer months. For those who intend to visit Uzbekistan, Khiva should most certainly be on your list.




(Source: AFC Research)


At the end of February 2023, the fund was invested in 26 names and held 13.3% cash. The portfolio was allocated to Uzbekistan (86.71%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (37.4%) and financials (30.7%). 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 1.02x, and the estimated weighted average portfolio dividend yield was 3.97%.

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AFC Vietnam Fund - Manager Comment

AFC Vietnam Fund Performance


The AFC Vietnam Fund returned −5.7% in February 2023 with a NAV of USD 2,847.92, bringing the year-to-date return to −1.3% and return since inception to +184.8%. The fund outperformed the benchmark, the Ho Chi Minh City VN Index, which lost 9.1% in February 2023 and has gained 78.8% since inception in USD terms. The fund’s annualised return since inception stands at +12.1% p.a. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 15.02%, a Sharpe ratio of 0.73, and a low correlation of the fund versus the MSCI World Index USD of 0.48, all based on monthly observations since inception.

Market Developments

February’s market correction was mainly caused by concerns about U.S. inflation and higher-than-expected U.S. interest rates. In addition, news about the financial difficulties of Novaland worried Vietnamese investors. NVL failed to pay back bondholders VND 1tn (USD 42mn) on 12th February 2023 and is now trying to negotiate a restructuring of its bond and to extend its maturity by two months. Even though there were already some rumours in the market that NVL had liquidity issues and might fail to repay its bondholders, once this became fact, investor sentiment took a hit and triggered some panic selling in the market. 

Our view has not changed, however, and we believe that the Vietnamese market is trading at very attractive valuations with a P/E ratio of around 10x and hence offers a great buying opportunity for long-term investors.

Earnings Growth Slowed Down in Q4/2022

Earnings growth in the fourth quarter of 2022 slowed down considerably, mainly due to the impact of increasing interest rates and lower export numbers. According to the Ho Chi Minh Stock Exchange, the total net profit of listed companies was VND 66.5 tn, down 28.8% compared to Q4 in 2021. This brings down the 2022 earnings growth for the VN-Index to 10% and the expected earnings growth for 2023 to 7%, whereas the 2023 earnings growth for our portfolio is still expected to reach around 12%.


VN-Index Earnings Growth

VN-Index Earnings Growth

(Source: Viet Capital Securities, HOSE, AFC research)


Even though higher interest rates are a burden for most industries, the insurance sector is a beneficiary. Hence the insurance sector, with a weighting of around 20% in our portfolio, reported robust results in Q4/2022. The net profit of the four insurance companies which we hold jumped by 196% yoy on average, which brought the overall earnings growth for the whole portfolio to 8.7%, in comparison to −28.8% for the VN-Index. But apart from the impressive results from the insurance sector, our two holdings in the tourism sector also helped our overall portfolio with an average earnings growth in Q4/2022 of 109% yoy.

China’s Reopening

We are invested in two agriculture companies, Loc Troi Group (LTG), Vietnam’s largest rice exporter, and Minh Phu Seafood Corp (MPC), Vietnam’s largest shrimp exporter. Since China reopened its borders, prices for agricultural goods produced in Vietnam skyrocketed, due to the sudden massive demand from China. The cost of the tropical fruit durian, for example, jumped last month to a record high of USD 8/kg, while the price of other fruits, such as dragon fruit, custard apples, and jackfruit, tripled yoy since China's reopening on 8th January 2023 after three years of COVID-19 isolation. Even other agricultural products such as vegetables and seafood have seen strong price increases lately, especially lobster and shrimp prices which are expected to increase further this summer with the arrival of Chinese tourists. Mr. Dang Phuc Nguyen, General Secretary of the Vietnam Fruit Association, said that 19.2% of Vietnam’s agricultural, forestry and fishery products are exported to China. He believes that the Chinese market offers the most potential as an export market for Vietnam this year after its northern neighbour abandoned its "Zero COVID" policy. 

According to the Lang Son Province Customs Department, exports to China through the border crossing in the northern province are processing smoothly again with over 700 trucks carrying Vietnamese products clearing customs each day. According to a report by the Ministry of Agriculture and Rural Development, China imports nearly USD 10 bn worth of agricultural products from Vietnam each year. Exports to China account for more than half of Vietnam’s total fruit and vegetable exports.


Customs Clearance for Trucks at Tan Thanh Border Crossing during and after COVID-19

Customs Clearance for Trucks at Tan Thanh Border Crossing during and after COVID-19

(Source: Vietnamese Government)


Obviously, China is the largest and most important trading partner of Vietnam with total trade value of USD 177.7 bn in 2022, (imports USD 119.3 bn, export USD 58.4 bn) equivalent to 24.2% of total national trade value. It is expected that with the reopening of China’s borders, trade volumes between Vietnam and China will increase even more in 2023, a factor which is not yet fully priced into Vietnam’s GDP growth forecasts this and next year.


China Plays an Important Role in Vietnam Trade (USD bn)

China Plays an Important Role in Vietnam Trade (USD bn)

(Source: Bloomberg, AFC Research)


In 2022, mobile phones, computers and cameras were the key export products to China, with revenues of around USD 17 bn, USD 11.5 bn and USD 3.9 bn respectively. In addition to industrial products, Vietnam also sold many agricultural products to China, such as rubber, seafood, tapioca, fruits, and vegetables, with total value of around USD 6.8 bn.


Top Export Products to China in 2022 (USD bn)

Top Export Products to China in 2022 (USD bn)

(Source: GSO, AFC Research)


Our portfolio benefits from an ever-increasingly important agricultural sector with China’s reopening. Minh Phu Seafood Corp (MPC), one of our top 5 positions, is the largest shrimp exporter in Vietnam with annual revenue of around USD 700m. In 2022, the company decided to switch its main export market from the U.S. to China due to the high shipping cost to the U.S. The strategy worked well, with the 2022 net profit of the group reaching its highest level in history at VND 829bn (USD 35.3m), +28.9% yoy. We expect that the net profit of MPC will continue to grow around 20% this year, reaching around VND 1,000bn.


Net Profit of Minh Phu Seafood Corp (MPC) Reached a New All-time High (VND bn)

Net Profit of Minh Phu Seafood Corp (MPC) Reached a New All-time High (VND bn)

(Source: MPC, AFC Research)


Vietnamese Government Deploys a Large Economic Stimulus Package to Boost Growth

In an environment of rising interest rates and inflation, the Vietnamese government deployed an important public investment package to boost economic growth in 2023. The government expects that lower consumption in the U.S. and Europe will create some challenges for its export-oriented economy with the Fed continuing to increase interest rates in order to control inflation. The National Assembly therefore approved a total economic stimulus package in 2023 of VND 711tn (USD 30.2bn), an increase of 25% over the budget of 2022. There are many public investment projects in the pipeline for this year, such as the North – South Highway project, Long Thanh International Airport in HCMC, Ring Road No. 3 project in HCMC, etc.


Public Investment Disbursement (VND trn)

Public Investment Disbursement (VND trn)

(Source: GSO, AFC Research)


The Vietnamese government estimates that a successful deployment of this package would contribute around 1-2% to GDP growth in 2023 which would help to offset the negative impact of higher interest rates. 

The new Long Thanh International Airport is currently under construction about 40 km east of Ho Chi Minh City. The Vietnamese government approved its construction on 4th January 2021 and the first phase is scheduled to be completed by 2025. Once the construction of this new airport is fully completed, it will be able to handle over 100 million passengers annually. This project is so far the biggest infrastructure project in Vietnam's history with investment capital of around USD 16 bn (estimated budget in 2014). It will replace the existing Tan Son Nhat International Airport as the city's main airport. Once completed, the airport is expected to contribute around 3-5% to GDP.


Long Thanh International Airport under Construction

Long Thanh International Airport under Construction

(Source: VnExpress)


At the end of February 2023, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.8%) – an insurance company, PVI Holdings (7.1%) – also an insurance company, BIDV Insurance Corporation (6.3%) – an insurance agency, Minh Phu Seafood Corp (6.1%) – a seafood company, and Lam Dong Minerals and Building Materials JSC (6.0%) – a building material supplier.

The portfolio was invested in 52 names and held 1.7% in cash. The sectors with the largest allocation of assets were consumer (40.1%) and financials (35.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.61x, the estimated weighted harmonic average P/B ratio was 1.08x, and the estimated weighted average portfolio dividend yield was 5.40%. The fund portfolio carbon footprint is 26.79 tons per USD 1 mn invested.

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With kind regards,

Thomas Hugger
CEO & Fund Manager