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Sri Lanka's Stock Market Rallies on an Improving Outlook - June 2023 Update

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“It’s not what you look at that matters. It’s what you see.”

– Henry David Thoreau – American naturalist, essayist, poet, and philosopher.


Year to DateSince
AFC Asia Frontier Fund USD A1,311.70+1.8%+7.3%+31.2%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D942.11+5.8%+38.6%-5.8%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,845.97+2.3%+6.3%+84.6%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C3,123.47+3.0%+11.5%+221.7%
Ho Chi Minh City VN Index (in USD) +3.9%+11.6%+97.3%
  1. The NAV given is for the lead share series for the relevant master fund. Investors’ holdings may be in a different share class, series, or currency and have a different NAV. See the factsheets and 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.



All Four AFC Funds Report a Positive Month

June 2023 saw gains for all AFC Funds as Asian frontier markets continue to make a strong comeback this year. Pakistan and Sri Lanka also announced important developments regarding their International Monetary Fund “IMF” program and domestic debt restructuring exercise, which have been received positively by the stock markets in both countries.

Ruchir Desai, our co-fund manager of the AFC Asia Frontier Fund, was recently interviewed on Bloomberg TV, where he gave his outlook on Vietnam, and how the global supply chain shift is benefitting Bangladesh and Central Asia as well while also discussing several of the fund’s top stock picks. To view the interview, click below:



Ruchir's Interview with Bloomberg

(Source: Bloomberg)


Sri Lanka added to Top Country Picks

We have added Sri Lanka to our top country picks after our recent visit to the country in June 2023. The country’s macroeconomic position has stabilised, and this is a turnaround story as extremely cheap valuations get re-rated by declining interest rates which we expect will fall significantly as inflation drops. Furthermore, a strong rebound in tourism and remittance earnings will support an improving macroeconomic position and, more importantly, help build foreign exchange reserves.

You can read more on our view on Sri Lanka in our latest “AFC on the Road report”  and in the AFC Asia Frontier Fund manager comment below.

AFC Quarterly Update Webinar to be held on Tuesday, 25th July 2023

We will be hosting our quarterly update webinar on Tuesday, 25th July 2023, which will discuss our outlook and view on Asian frontier markets. The webinar will be held at 9:00 am NY, 2:00 pm UK, 3:00 pm Swiss and 9:00 pm HK/SG time.

The speakers on the webinar will be:

  • Thomas Hugger, CEO & Fund Manager
  • Ruchir Desai, Co-Fund Manager of the AFC Asia Frontier Fund
  • Ahmed Tabaqchali, Chief Strategist of the AFC Iraq Fund
  • Scott Osheroff, CIO of the AFC Uzbekistan Fund
  • Vicente Nguyen, CIO of the AFC Vietnam Fund

The webinar will run for an hour and include a 15-minute Q&A session after the fund managers’ presentations.

During the webinar, we will discuss the following key points:

  • Have interest rates peaked in Asian frontier markets?
  • Macro outlook for Asian frontier countries as inflation comes down
  • Top country picks for the rest of 2023
  • Longer-term structural trends benefitting Asian frontier countries.
  • Outlook for the AFC Asia Frontier Fund / AFC Iraq Fund / AFC Uzbekistan Fund / AFC Vietnam Fund

Please click on the button below to register for the webinar. In case you are interested but unable to attend, please register and we will send you a link to the recording afterwards.



Register Button



Our shareholder Dr. Marc Faber, publisher of the widely read Gloom, Boom and Doom report, will be speaking at an event for global citizens organised by Nomad Capitalist from 6-9 September 2023 in Kuala Lumpur. The event is targeted to individuals who crave the Nomad Capitalist lifestyle and are ready to explore overseas investments, offshore tax planning strategies, dual citizenship, and connect with a community of like-minded go-getters. For more information, click the image below:



Nomad Capitalist lifestyle


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AFC Travel

London 12th July - 5th August Ahmed Tabaqchali
Netherlands 13th July - 25th August Peter de Vries
Munich 14th - 19th July Scott Osheroff
Istanbul 26th July - 3rd August Scott Osheroff
Hong Kong 14th - 23rd August Andreas Vogelsanger
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AFC Iraq Fund Performance


The AFC Iraq Fund Class D shares returned +5.8% in June 2023 with a NAV of USD 942.11 versus its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 4.4% during the month. For the year, the AFC Iraq Fund is up 38.6%, outperforming the index’s increase of 30.4%. Since inception, the fund has lost 5.8% while the RSISUSD index is down 31.5%, an outperformance of 25.8%.

The market’s technical picture continues to be positive, with the macroeconomic fundamentals discussed here last year supporting our view that the market’s uptrend will likely remain in force. However, its upward slope might moderate or go sideways as it consolidates its gains for the year before its next move higher. Supporting the consolidation thesis is the technical picture of the Rabee Securities RSISX IQD Index (the Iraqi dinar (IQD) version of the Rabee Securities RSISX USD Index) which reflects a multi-month consolidation pattern (second chart below). 

The fundamental drivers for the market’s next move would come from the government’s implementation of the 2023 budget following its passage into law at the end of the month. The expansionary budget, as it comes into force, would result in meaningful liquidity injections into the economy as a consequence of the oversized role of the government’s spending in the economy – acting as an efficient direct transmission mechanism of oil revenues into the real economy. Ultimately, these liquidity injections will feed into corporate profits, which in turn, will provide the impetus for the market’s next move.


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 30th June 2023)


RSISX IQD Index Versus Average Daily Turnover

RSISX IQD Index Versus Average Daily Turnover

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of 30th June 2023)


Construction Activity and Stability

As discussed here a few months ago in “Supermarkets and Stability”, one of the most promising recent developments in the economy is the meaningful capital investment by businesses and individuals, brought about by the relative stability of the last five years following the end of the ISIS conflict. These years were punctured by several shocks, such as countrywide demonstrations in late 2019, the assassination of Iran’s top general in Baghdad, the emergence of COVID-19, the crash in oil prices in 2020, the undecisive elections in 2021, followed by a year of a political impasse topped by 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 had experienced, and crucially, 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 since before the last prior decades of conflict. This 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 activity as reported in AFC Iraq’s travel report in the summer of 2019 “Significant Social and Economic Transformation”.

Over the five years since the end of the ISIS conflict, the construction activity that was then in the early stages of revival in Baghdad turned into a building boom, with construction cranes popping up everywhere and transforming the city. The last time Baghdad witnessed such a massive transformation was in the early days of the Iraq-Iran war, as the regime then embarked on a “Guns and Butter” policy to insulate the city’s population from the ravages of the war, but eventually abandoned the policy as costs mounted and the war dragged on. During these decades, the city’s population grew from 3.1 mn to 7.7 mn while its infrastructure, until the last few years, for the most part stayed the same. A continuation of the relative stability of the last five years and the multi-decade pent-up demand for infrastructure in Baghdad would sustain infrastructure build, which can reshape the city in much the same way the building boom of 2003-09 reshaped Dubai and brought much prosperity.

This private sector-led construction activity was supported by funding from the Central Bank of Iraq (CBI)’s IQD 14 tn (USD 10.7 bn) and IQD 4 tn (USD 3.1 bn) subsidised lending initiatives. Initially launched in 2015, the IQD 5 tn lending initiative was channelled through specialised state-owned banks and the housing fund, to support the real estate, industrial, and agricultural sectors, and the IQD 1 tn lending initiative was channelled through private sector-owned banks to support small and medium enterprises. Both initiatives were augmented in mid-2020 with extra funding by the CBI, and lending terms were eased with interest rates as low as zero for the housing sector, both of which accelerated the initial modest uptake with the bulk of the lending driven by demand for financing by the real estate sector. During 2021-22, about IQD 6.7 tn and IQD 0.5 tn were disbursed from the two initiatives for real estate financing (*). 

This pent-up demand for real estate and the relative stability enjoyed by the country are acting as magnets, attracting regional capital to invest in the sector, such as Saudi Arabia’s USD 1 bn investment in a new commercial, housing and shopping district in Baghdad. Announced in early June 2023, the project named “Baghdad Avenue” is a part of the country’s accelerated reconciliation with its once close-knit neighbours in the countries of the Gulf Corporation Council (GCC), which was ruptured by the invasion of Kuwait in 1990 (**). This investment complements the new Saudi-Iraqi Investment Company, launched in late May 2023, with a capital of USD 3 bn to invest in Iraq, funded by the Saudi Arabian wealth fund PIF. These announcements were soon followed by plans for two significant regional investments in the country. The first was in mid-June 2023 when Qatar announced that it plans to invest USD 5 bn over the next few years, while the second was in early July 2023 when Saudi Arabia and the United Arab Emirates each announced plans to allocate USD 3 bn to fund the creation of joint business councils to expand investments in, and trade with, Iraq.

Supplementing the private sector-led construction activity in Baghdad is the beautification campaign of the city undertaken by the current government – formed in October 2022, a year following the un-indecisive October 2021 parliamentary elections that were marked by political conflict and strife – as part of its drive to gain public support and legitimacy. This beautification campaign involves “… improving roads, bridges and sidewalks, removing security checkpoints that worsened traffic, cleaning up facades of buildings damaged by war and revamping parks and promenades that hug the Tigris River that bisects the city” as reported by Reuters, in mid-May 2023 with photos showing the city reclaiming its former beauty.

The transformation of Baghdad has brought with it the inevitable loss of green spaces and traditional architecture that has marked its uniqueness throughout the centuries. Its famed date orchards and gardens that filled the city, as well as its beautiful traditional architecture such as the old homes with wood-latticed windows and traditional brick villas, are being replaced by malls, shopping districts, and apartment blocks - in an all too familiar pattern of destroying the old to build the new throughout the city’s history (***). These unfortunate aspects of the city’s development were reported recently by the New York Times and the Washington Post, with vivid photographs of the traditional and new that show a city that is being transformed after decades of conflict.

Below are photographs taken by AFC’s Ahmed Tabaqchali over the last few months of some of the parts of Baghdad that have been transformed and those that are being transformed.


42nd Steet, Baghdad

42nd Steet, Baghdad



King Abdul Malik bin Marwan Street, Baghdad

King Abdul Malik bin Marwan Street, Baghdad



Al Nedal Street, Baghdad

Al Nedal Street, Baghdad



Palm Trees Street, Baghdad

Palm Trees Street, Baghdad



Entertainment Club Street, Baghdad

Entertainment Club Street, Baghdad



(*) Source: Central Bank of Iraq, IMF Iraq country report number 2023/075, and “Priority financing
needs of Iraqi SMEs Report” published by GIZ May 2023.

(**) The reconciliation was reported here at the end of the market report for January 2023, when the city of Basra hosted the 25th edition of the bi-annual Arabian Gulf Cup football tournament, known as Khaleeji 25, for the first time since 1979. Then, over 50,000 GCC visitors streamed into Basra over the two weeks of the tournament in January 2023 which was the first such visit since the 70’s.

(***) This pattern was discussed here in “Sandstorms, and a stroll down Al-Mutanabbi Street” in its description of the historic buildings in Al-Mutanabbi Street writing “ … A few years, later the building was expanded, and a tower was added using bricks reclaimed from the demolition of the eastern section of Baghdad's historic city wall.”

At the end of June 2023, the AFC Iraq Fund was invested in 14 names and had a cash level of 2.6%. 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 (95.6%), Norway (1.3%), and the UK (0.5%).

The sectors with the largest allocation of assets were financials (70.1%) and communications (9.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 8.43x, the estimated weighted harmonic average P/B ratio was 1.03x, and the estimated weighted average portfolio dividend yield was 4.47%. The fund’s portfolio carbon footprint is 0.23 tons per USD 1 mn invested.

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AFC Vietnam Fund - Manager Comment

AFC Vietnam Fund Performance


The AFC Vietnam Fund returned +3.0% in June with a NAV of USD 3,217.34, bringing the year-to-date return to +11.5% and return since inception to +221.7%. The Ho Chi Minh City VN Index gained 3.9% in June 2023, 11.6% year to date, and 97.3% since inception of the fund, in USD terms. Since inception, the fund strongly outperformed the index by 124.4%. The fund’s annualised return since inception stands at +13.1% p.a. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 14.82%, a Sharpe ratio of 0.80, 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

The month of June brought several positive developments that supported the market. Key factors contributing to this positive sentiment were the rate cut and the increasing number of new stock trading accounts. Especially in May, we saw a notable surge in new trading accounts, with over 104,000 opened, marking the highest number in over nine months.


Newly Opened Stock Trading Accounts

New Opened Stock Trading Accounts

(Source: VSD, AFC Research)


This influx of new investors, particularly local individuals, signifies a return of confidence in the market after a prolonged period of uncertainty. The increased capital inflow from these new investors bolstered market liquidity, resulting in a significant rise in daily trading value from USD 521 mn in May to USD 737 mn in June, reaching the highest level in 12 months. Notably, on 8th June 2023, the daily trading value surpassed USD 1.1 bn, the highest in a year.


Market Daily Trading Value (USD mn)

Market Daily Trading Value (USD mn)

(Source: HOSE, AFC Research)


The resurgence of local individual investors played a vital role in the market's improvement. In June, the number of gainers outweighed the number of losers, signaLling a positive market breadth. This trend indicates a potential long-term growth trajectory.


Market Breadth

Market Breadth

(Source: Bloomberg, HOSE, AFC Research)


Furthermore, there were positive technical indicators as the VN-Index finally surpassed the 200-day moving average line, breaking free from the downtrend and establishing a long-term uptrend, which is a favourable sign for the market.


After More Than a Year, the VN-Index has Finally Surpassed Its 200-day Moving Average Line

After More Than a Year, the VN-Index has Finally Surpassed Its 200-day Moving Average Line

(VN Index April 2022 to June 2023; Source: Bloomberg)


Looking at the broader economic landscape, the second quarter of 2023 exhibited a slight recovery compared to the weaker performance in the first quarter.


Q2 Showed an Overall Slight Improvement

Q2 Showed An Overall Slight Improvement

(Source: GSO, AFC Research)


Various aspects of the Vietnamese economy, including industrial production, exports, and investment, showed signs of improvement. Despite the global economy experiencing weak demand and inflationary pressures in the first quarter of 2023, Vietnam managed to achieve a modest GDP growth rate of 3.2%. Due to effective measures taken by the Federal Reserve in the US, the subsequent decrease in inflation, from 9.1% in June 2022 to 4.0% in May 2023, further supported the recovery. This trend helped stimulate demand and reignite growth in the second quarter of 2023.

GDP growth increased from 3.3% of the first quarter to 4.1% in the second quarter. Vietnamese exports experienced a significant decline of 11.9% in the first quarter of 2023, and continued to decrease 12.3% in the second quarter. In this situation, the Vietnamese Government's issuance of stimulus policies, such as rate cuts, tax cuts, and a substantial public investment package, also contributed to the economic recovery. Industrial production showed a marked improvement, with an increase of 1.6% in the second quarter, compared to a slight fall in the first quarter of -0.8%. Foreign direct investments (FDI) also exhibited a recovery, from -2.2% in the first quarter to 2.7% in the second quarter. Looking at the chart, we can see strong growth from the public investment package which plays an important role toward economic growth in the situation of weak global consumption. Although the improvement in Q2 is small, it is a turning point for the economy and we firmly believe that the economy will keep growing and accelerating for the remainder of the year. 

The second quarter of 2023 marked a positive turning point for the Vietnamese economy, with GDP growth showing signs of recovery. After a modest growth rate of 3.3% in the first quarter, the second quarter witnessed a notable improvement, reaching 4.1%. 

One sector that showed positive growth during the quarter was industrial production. After a slight decline of -0.8% in the first quarter, industrial production rebounded impressively, growing 1.6% in the second quarter. This positive momentum indicates the resilience and adaptability of the Vietnamese manufacturing industry.

Foreign direct investment (FDI) showed signs of recovery, with an improvement from -2.2% in the first quarter to 2.7% in the second quarter. This indicates renewed investor confidence in the Vietnamese market and highlights the country’s attractiveness as a destination for foreign capital.

The Vietnam-EU Free Trade Agreement (EVFTA), signed in 2020, has significantly benefitted Vietnam's export market. According to a study conducted by the Ministry of Planning and Investment, the EVFTA is projected to contribute to a substantial increase in Vietnam's export turnover to the EU. By 2025, export turnover is expected to rise by 42.7%, and by 2030, the increase is forecasted to reach 44.3% compared to the scenario without an agreement. Conversely, the import turnover from the EU will also experience growth, albeit at a lower rate than exports, with an estimated increase of 33% by 2025 and 36.7% by 2030.

In addition to the positive impact of the EVFTA, the ongoing conflict between Ukraine and Russia has further heightened the interest of European enterprises in diversifying their suppliers. This situation has made Vietnam an attractive destination for these companies, seeking to reduce their reliance on a single market, such as China. Our visit to Vietnam in June provided us with the opportunity to witness firsthand the construction progress of the impressive USD 1 bn LEGO factory in Binh Duong Province. This serves as a clear testament to the growing interest and confidence of European companies in the Vietnamese market.

The combination of the EVFTA's trade advantages and the strategic positioning of Vietnam as a reliable alternative supplier has created a favourable environment for increased economic collaboration between Vietnam and the European Union. This presents a promising outlook for Vietnamese businesses seeking to expand their export markets and solidify their presence in the global supply chain.


AFC Visits LEGO’s USD 1 Bn Factory Construction Sight

AFC Visit LEGO’s USD 1 Bn Factory Construction Sight

(Source: AFC Research)


Our visit also included a stop at Transimex, the largest logistics company in Ho Chi Minh City, and Cat Lai Port, the largest port in Vietnam. The bustling business activity observed during the visit indicated a strong recovery in the economy. While the short-term outlook may still seem gloomy, we believe that the worst is over, and numerous positive outcomes are on the horizon. As the economy stabilizes, this presents a prime opportunity for investors to buy at the bottom and benefit from the expected strong growth during the period of 2024-2028, driven by the global economic recovery and the Vietnamese Government's aggressive stimulus policies.

Vietnam's Long-Term Success Story is Just Beginning

The development of the highway network is a testament to the nation's commitment to infrastructure investment. With the planned expansion of the highway network from 89 km in 2010 to 1,150 km in 2023 and a target of over 9,000 km by 2050, Vietnam is following a similar path as China did in the 2000s. These infrastructure projects will play a crucial role in supporting the country’s long-term economic growth.


Dau Giay – Phan Thiet Highway with a Speed Limit of 120 km/h

Dau Giay – Phan Thiet Highway with a Maximum Speed of 120 km/h

(Source: vnexpress, AFC Research)


Vietnam’s Highway Network Master Plan

Vietnam’s Highway Network Master Plan

(Source: Ministry of Transportation, vnexpress)


Amidst this trend, companies in the public investment sector, such as construction firms, infrastructure contractors, and construction material suppliers, stand to benefit the most. Lam Dong Mineral (LBM), one of the largest positions in our portfolio, is well-positioned to capitalize on this trend. As a key contractor for major highway projects, LBM expects substantial profits in the next five years. The company's net profit has already demonstrated strong growth, increasing nearly 50% YoY in 2022 and more than 300% in 1Q2023 compared to 1Q2022.


Net Profit of LBM (VND bn)

Net Profit of LBM (VND bn)

(Source: LBM, HOSE, AFC Research)


Overall, the economic recovery in the second quarter, combined with positive market indicators and the ongoing infrastructure development, paint a bright and promising long-term outlook for the Vietnamese economy and stock market. Vietnam's success story is just beginning, and we are confident in the future growth opportunities that lie ahead.

At the end of June 2023, the fund’s largest positions were: Military Insurance Corp (8.6%) and Agriculture Bank Insurance JSC (7.1%) – both insurance companies, Lam Dong Minerals and Building Materials JSC (6.9%) – a building material supplier, PVI Holdings (6.4%) – also an insurance company, and Minh Phu Seafood Corp (6.3%) – a seafood company.

The portfolio was invested in 54 names and held 8.0% in cash. The sectors with the largest allocation of assets were consumer (44.2%) and financials (33.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.33x, the estimated weighted harmonic average P/B ratio was 1.25x, and the estimated weighted average portfolio dividend yield was 5.19%. The fund’s portfolio carbon footprint is 6.35 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 +2.3% in June 2023 with a NAV of USD 1,845.97, bringing the return since inception (29th March 2019) to +84.6%, while the return for the year stands at +6.3%. On an annualised basis, the fund has returned +15.5% p.a. with a Sharpe ratio of 1.00.

June was a very quiet month on the news front, which was exacerbated by a shortened trading month due to the Eid holiday and extreme summer temperatures, which reached up to 46 degrees Celsius in Tashkent, only adding to the general malaise.

AFC Uzbekistan Fund Valuations as of 30th June 2023:

Estimated weighted harmonic average trailing P/E (only companies with profit): 4.98x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 3.93%


Short and sweet is usually best, as we always try to keep these updates succinct without sounding like a broken record. In light of the fact that there was no significant news regarding Uzbekistan or the broader capital markets during the month, we can simply reconfirm that the Uzbekistan economic transition and growth story continues to move in the direction we have been prognosticating. We are hopeful that some capital markets developments, such as the passing of the capital markets legislation happens in the near future, along with some already announced IPOs of SOEs, but being that this is a frontier market, we are confident they will occur in due course. In the meantime, we continue to add to our existing positions in the “blue chips” of Uzbekistan, which show solid double-digit earnings and equity growth, while several companies continue to pay double-digit dividend yields as well.

In light of a struggling global economy and what I believe is going to be a decade of persistently stubborn inflation, Uzbekistan remains well positioned as a proverbial island of stability and growth due to its vast natural resources (specifically gold), semi-protectionist policies, growing population and low debt levels.

In July, we will have much more to discuss as second-quarter earnings will start trickling in, along with all companies having filed annual general meeting results by that time, which we are looking forward to, along with some potential new dividend announcements for the portfolio.

Furthermore, on 9th July, there will be a presidential election in Uzbekistan. However, this is a mere formality as the President recently called snap elections due to the changes in the constitution which have extended the presidential term from five years to seven. Without any significant opposition we are confident that President Mirziyoyev will win and that business will go on as usual.

Mark Your Calendar: Second AFC Uzbekistan Fund Investor Tour

We would like to inform you that the second AFC Uzbekistan Investor Tour will be held from Sunday, 24th September 2023 to Wednesday, 27th September 2023. On Sunday we will organise a sightseeing tour around Tashkent, followed by company visits on Monday and Tuesday, including meetings with government officials and organizations. On Wednesday, we will organise a day trip to Samarkand. Please contact us within the next few days since the tour is filling up quickly.

At the end of June 2023, the fund was invested in 25 names and held 11.2% cash. The portfolio was allocated to Uzbekistan (88.77%) and Kyrgyzstan (0.03%). The sectors with the largest allocation of assets were materials (40.0%) and financials (33.5%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 4.98x, the estimated weighted harmonic average P/B ratio was 0.98x, and the estimated weighted average portfolio dividend yield was 3.93%.

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AFC Asia Frontier Fund Fund Performance



The AFC Asia Frontier Fund (AAFF) USD A-shares returned +1.8% in June 2023 with a NAV of USD 1,311.70. The fund underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+4.5%), the MSCI Frontier Markets Net Total Return USD Index (+2.3%), and the MSCI World Net Total Return USD Index (+6.0%). However, year-to-date, the fund returned +7.3% versus +5.7% for the benchmark, an outperformance of 1.6%. The performance since inception on 30th March 2012 now stands at +31.2% versus the benchmark, which is down by 25.1% during the same period. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.5% and a correlation of the fund versus the MSCI World Net Total Return USD Index of 0.52, all based on monthly observations since inception.

In June, the fund’s performance returned to positive territory with gains driven by Iraq, Vietnam, Kazakhstan, Georgia, Uzbekistan, and Sri Lanka. 

The State Bank of Vietnam cut its benchmark refinancing rate by another 50 basis points in June, making it the third time in three months that the SBV has reduced interest rates for a total of 150 basis points reduction since April 2023. This move suggests that the SBV believes economic growth in Vietnam has bottomed out, inflation is under control, and the U.S. Fed will not be as aggressive in raising interest rates compared to 2022. 

With this move, the benchmark refinancing rate is only 50 basis points above its pandemic low. This suggests that investor sentiment will improve going forward as lower interest rates will drive greater participation from domestic retail investors. We have already witnessed this trend, with the VN-Index gaining +4.2% in June. As earnings are expected to recover in 2024 in an environment of lower interest rates, it will not be surprising to see the VN-Index stage a rally from here.


Benchmark Interest Rates in Vietnam are Almost Back to Pandemic Lows – this Should be Positive for Investor Sentiment as Earnings Recover in 2024

Benchmark Interest Rates in Vietnam are Almost Back to Pandemic Lows – this Should be Positive for Investor Sentiment as Earnings Recover in 2024

(Source: Bloomberg)


In Sri Lanka, the much-anticipated domestic debt restructuring was announced with the banking sector’s domestic debt holdings not affected by the restructuring exercise. This will be a much-needed relief for the Sri Lankan banking sector, and we expect this development to lead to not only a rally in banking sector shares but also in the overall stock market as a significant uncertainty has been removed. Furthermore, lower inflation and additional cuts in interest rates will continue to drive a market re-rating in Sri Lanka with the Central Bank of Sri Lanka announcing a further 200 basis point reduction in benchmark interest rates on 6th July in addition to the 250 basis point cut in June.


The Colombo All Share Index is Reacting Positively to Sri Lanka’s Improving Macroeconomic Position

The Colombo All Share Index is Reacting Positively to Sri Lanka’s Improving Macroeconomic Position

(Source: Bloomberg, % change in prices between 30th December 2022 – 10th July 2023)


The Interest Rate Cycle Turning in Sri Lanka should be Positive for the Colombo All Share Index

The Interest Rate Cycle Turning in Sri Lanka should be Positive for the Colombo All Share Index

(Source: Bloomberg)


Pakistan has finally achieved a breakthrough with the International Monetary Fund (IMF) as both sides agreed to a nine-month Stand By Arrangement for USD 3 bn. This short-term funding arrangement will provide comfort to investors over the upcoming external repayments for the country and the stock market will most likely react positively given the extremely discounted valuations for the KSE-100 Index at a P/E ratio of only 4.0x.

However, one should note that this IMF agreement is only a short-term fix to the country’s macro-economic outlook. Eventually, a longer-term IMF program will be needed which could happen post the general elections scheduled for later this year. For any stock market rally to sustain in Pakistan, it needs to shore up investor confidence with both macro-economic and political stability, both of which are currently in short supply.

Despite concerns of a global economic slowdown, garment exports from Bangladesh have recorded positive growth in the past twelve months, which is a very favourable sign of the country benefitting from the global supply chain shift. Garment export growth of 10.3% in the latest financial year ending in June 2023 continues to reflect the market share gains Bangladesh is making in the global apparel export market.


Garment Export Growth of More Than 10% in the Last 12 Months is a Sign Bangladesh is Benefitting from the Global Supply Chain Shift (in USD bn)

Garment Export Growth of More Than 10% in the Last 12 Months is a Sign Bangladesh is Benefitting from the Global Supply Chain Shift (in USD bn)

(Source: Bangladesh Export Promotion Bureau, for financial years ending June)


The best-performing indexes in the AAFF universe in June were Sri Lanka (+10.4%) and Iraq (+4.4%). The poorest-performing markets were Cambodia (−1.3%) and Laos (−1.1%). The top-performing portfolio stocks this month were a Mongolian coal miner (+20.8%), a Sri Lankan bank (+20.1%), another Sri Lankan bank (+17.5%), a Sri Lankan activated carbon manufacturer (+13.0%) and a Mongolian concrete producer (+12.6%).

In June, the fund purchased a Sri Lankan cement company and added to existing positions in Laos and Mongolia. The fund also reduced existing positions in Mongolia.

At the end of June 2023, the portfolio was invested in 74 companies, 2 funds and held 5.2% in cash. The two biggest stock positions were a fintech company in Kazakhstan (4.2%) and a bank in Kazakhstan (4.2%). The countries with the largest asset allocation were Iraq (17.6%), Mongolia (14.5%), and Vietnam (12.4%). The sectors with the largest allocation of assets were consumer goods (20.0%) and financials (15.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.55x, the estimated weighted harmonic average P/B ratio was 0.95x, and the estimated weighted average portfolio dividend yield was 3.82%. The fund’s portfolio carbon footprint is 1.05 tons per USD 1 mn invested.

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