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Asia Frontier Capital (AFC) - March 2023 Update

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“Success is a science; if you have the conditions, 
you get the result.”

– Oscar Wilde – Irish poet and playwright


Year to DateSince
AFC Asia Frontier Fund USD A1,266.38+0.7%+3.6%+26.6%

MSCI Frontier Markets Asia Net Total Return USD Index2

AFC Iraq Fund USD D868.23+4.1%+27.7%-13.2%

Rabee RSISX Index (in USD)

AFC Uzbekistan Fund USD F1,750.72-1.0%+0.8%+75.1%

Tashkent Stock Exchange Index (in USD)

AFC Vietnam Fund USD C2,956.09+3.8%+2.5%+195.6%
Ho Chi Minh City VN Index (in USD) +5.3%+6.4%+88.2%
  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 Funds not Impacted by Banking Sector Stress in U.S. and Europe

Despite the immense volatility faced by banking systems in the U.S. and Europe, Asian frontier markets were relatively unscathed, with the AFC Asia Frontier Fund, AFC Iraq Fund, and AFC Vietnam Fund reporting positive returns for March. This month’s performance continues to reflect the significant diversification benefits that Asian frontier markets offer investors during times of unsettling global events.

Furthermore, the banks in Asian frontier countries are not directly impacted by the banking sector stress which the U.S. and Europe faced in March since the banks in our universe predominantly focus on their domestic economies and run balance sheets geared towards traditional deposit and lending products. This lack of correlation with global events was evident in the performance of some Asian frontier markets like Sri Lanka, which was the third best performing market globally in the first quarter of 2023.


Sri Lanka was the Third Best Performing Market Globally in the First Quarter of 2023
(in USD Terms)

Sri Lanka is the Third Best Performing Market Globally in the First Quarter of 2023 (in USD Terms)

(Source: Bloomberg)


Continuing with our on-the-ground research approach, we attended the largest frontier and emerging markets conference in Dubai and met companies in person from Bahrain, Cambodia, Georgia, Jordan, Oman, Pakistan, Sri Lanka, and Vietnam.


BarclayHedge Awards

Barclay Hedge Awards



I am glad to let you know that BarclayHedge has again awarded us for our fund performance. This time, the AFC Asia Frontier Fund was recognized with the “Top 10 Award” in the categories “Emerging Markets Equity – Asia” and “Emerging Markets – Asia” for its February 2023 performance. These awards show the validity of the investment thesis of the AFC Asia Frontier Fund and underscore its suitability as a diversification tool for equity investors.

Asian Frontier Markets Update Webinar – Thursday, 27th April 2023

We will be hosting our quarterly webinar on Thursday, 27th April 2023, where we will discuss our views and thoughts on the outlook for Asian frontier markets. The webinar will be held at 9:00am NY, 2:00pm UK, 3:00pm Swiss and 9:00pm 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:

  • What is the impact of the banking sector stress in developed markets on Asian frontier countries?
  • Discussion on inflation and interest rates and their impact on our universe?
  • What is the impact of an economic slowdown in the U.S. and Europe on our universe?
  • Key trends for 2023 and beyond in 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.





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AFC Travel

London 14th April Thomas Hugger
Hong Kong 23rd - 28th April Andreas Vogelsanger
Sulaimani, Baghdad 7th May Ahmed Tabaqchali
Singapore 10th - 12th May Andreas Vogelsanger
Hong Kong 21st - 26th May Andreas Vogelsanger


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AFC Iraq Fund Performance



The AFC Iraq Fund Class D shares returned +4.1% in March 2023 with a NAV of USD 868.23 versus its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 2.3% during the month. For the year, the AFC Iraq Fund is up 27.7%, outperforming the index’s increase of 21.5%. Since inception, the fund has lost 13.2% while the RSISUSD index is down 36.2%, an outperformance of 23.0%.

The market and fund’s solid performance, on the back of last month’s super performance, enhanced by a revalued currency, underscores the underlying strength of the market’s recovery that is in the process of looking through and discounting the currency’s volatility as discussed here recently. The market’s technical picture continues to be positive and it is moving to the upper end of its 35-month up-trending channel (chart below). 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 it begins to discount the implications of the government’s proposed expansionary budget over the next few weeks.


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  March 2023)


The government’s long-awaited 2023 budget proposal, finally submitted to parliament for review in mid-March, was more expansionary than discussed here a few months ago. It would likely result in a significant liquidity injection into the economy as a consequence of the oversized role of the government in the economy as the largest formal employer and driver of the non-oil economy – all of which result in an efficient and direct transmission mechanism of oil revenues into the real economy. The government is proposing to increase federal current expenditures by 22.8% in 2023 over 2022 representing a liquidity injection of 14.4% to 2022’s estimated federal non-oil GDP, with public sector salaries increasing by 15.0%, social welfare by 7.3%, and government spending on goods and services by 22.7% (federal excludes the Kurdistan Region of Iraq ‘KRI’, details in table below, and notes at the bottom of this newsletter).


2023 Budget Proposed Spending Versus 2022 Actual Spending

2023 Budget Proposed Spending Versus 2022 Actual Spending

(Source: Ministry of Finance (MoF), IMF, AFC Research, data as of 5th April 2023)


The government’s planned non-oil investment spending for 2023 is equally meaningful, and potentially far-reaching, which could add a further 13.2% liquidity injection to the non-oil economy, enhancing the liquidity injections of the government’s current expenditures. However, given the government’s historically low execution rate in investment spending and its capacity constraints, it is unlikely that most of this planned spending will materialize. As such, it will be its planned current expenditures, in the form of the public sector payroll, social security, and spending on goods and services, that will kickstart the country’s economic rebound following an uncertain year marked by political conflicts following the surprising 2021 parliamentary elections as discussed here in the last few months. Moreover, since the budget proposal was submitted to parliament in mid-March, it will take a few weeks for parliament to debate it before passing it into law. As such, given the slow machinery of government execution, the positive effects of the liquidity injections will likely take place in the second half of the year, which could magnify its effects. 

Ultimately, a liquidity injection of this magnitude will feed into meaningful growth in corporate profits, which in turn will provide the impetus for the market’s next move. The year-to-date performance of the AFC Iraq Fund, and the RSISX USD Index, signify 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. Furthermore, the index is still 54.5% below its 2014 peak and shows solid signs of recovery – all of which indicate that its risk-reward profile is very attractive compared with most global markets (chart below).


Normalized Returns for the RSISUSD Index Vs MSCI World Index, MSCI Emerging Markets Index and MSCI Frontier Markets Index

Normalized Returns for the RSISUSD Index Vs MSCI World Index, MSCI Emerging Markets Index and MSCI Frontier Markets Index

(Source: Bloomberg, data as of 31st March 2023)


At the end of March 2023, the AFC Iraq Fund was invested in 14 names and had a cash level of 3.4%. 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 (94.8%), Norway (1.4%), and the UK (0.4%).

The sectors with the largest allocation of assets were financials (67.8%) and communications (10.5%). The fund’s estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 9.41x, the estimated weighted harmonic average P/B ratio was 1.01x, and the estimated weighted average portfolio dividend yield was 4.30%. The fund’s portfolio carbon footprint is 0.25 tons per USD 1 mn invested.

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AFC Vietnam Fund - Manager Comment

AFC Vietnam Fund Performance


The AFC Vietnam Fund returned +3.8% in March with a NAV of USD 2,956.09, bringing the year-to-date return to +2.5% and return since inception to +195.6%. The fund underperformed the benchmark, the Ho Chi Minh City VN Index, which gained 5.3% in March 2023 and has gained 6.4% year to date in USD terms. Since inception, the fund strongly outperformed the index by 107.4%. The fund’s annualized return since inception stands at +12.4% p.a. The broad diversification of the fund’s portfolio resulted in an annualized volatility of 14.98%, a Sharpe ratio of 0.76, and a low correlation of the fund versus the MSCI World Index USD of 0.48, all based on monthly observations since inception.

March was certainly another eventful month! Silicon Valley Bank’s collapse and Credit Suisse’s forced sale has put financial markets in their worst state of panic since the global financial crisis of 2008. But given that Vietnam’s banks are mainly focused on the domestic economy and more traditional in nature, the Vietnamese stock market was less affected.

Market Developments

The collapse of U.S.-based Silicon Valley Bank, the biggest bank failure since the global financial crisis, and the emergency rescue of Credit Suisse by Swiss rival UBS, sparked a sell-off in mainly European and U.S. banking stocks as contagion fears spread. This is why the Federal Reserve had to pump around USD 300 bn into the U.S. banking system in order to calm the market. In addition, the Swiss government pledged to make as much as CHF 109 bn available and the Swiss National Bank backed this forced takeover of Credit Suisse with a guarantee of CHF 100 bn. The combined sum of 209 bn Swiss francs is equivalent to about a quarter of Switzerland’s gross domestic product. 

The impact on Vietnam’s banking system is quite limited, given that its banks are less connected in terms of investments to U.S. and European banks. Also, Vietnamese banks are much more conservative than their European and U.S. peers as they are still focused on very traditional banking services, such as attracting deposits from their customers and then lending these funds out to other customers in the form of loans and mortgages. But the “noise” on social media and the press about the fear of another “banking crisis similar to 2008” also influenced investors in Vietnam, where the stock market is mainly driven by domestic retail investors. The VN-Index therefore weakened around mid of March, but managed to recover after the decisive actions by the Fed and the Swiss National Bank and closed the month in positive territory, up +3.9%.

The root cause of this current banking crisis is the fight against inflation by the various central banks around the world. Global short term interest rates were too low for too long and are now increasing at a rapid pace to bring inflation back under control. The Fed, for example, increased interest rates 9 times over the last 12 months from 0% to 4.75%. Given that a lot of money was injected into the banking system during the recent pandemic, banks invested some of these funds in bonds when interest rates were still much lower and are now sitting on sizeable unrealized losses, given that interest rates went up so much. The cartoon below illustrates the challenge central banks around the world are facing currently.


The Challenge of Fighting Inflation without Hurting the Banks

The Challenge of Fighting Inflation without Hurting the Banks

(Source: The San Diego Union Tribune)


Despite the current turmoil in the banking world, the Vietnamese lender VPBank signed an agreement on 27th March 2023 to sell a 15% stake (USD 1.5bn) to Japan’s Sumitomo Mitsui Banking Corporation (SMBC) through a private placement. VPBank’s total assets amounted to approximately USD 27bn as of 31st December 2022, with a network of 251 branches nationwide. VPBank is also among the best-capitalised banks in Vietnam with a capital adequacy ratio (CAR) of approximately 15%, well above the regulatory requirement of 8%, which demonstrates its strong balance sheet, providing headroom for future growth.


Signing Ceremony between SMBC and VPBank

Signing Ceremony between SMBC and VPBank

(Source: Cafef)


Vietnamese Interest Rates

On 16th March this year, the State Bank of Vietnam SBV unexpectedly lowered its discount rate from 4.5% to 3.5% and lending rate from 5% to 4% in order to support certain businesses, especially in the small and medium size segments. In a surprise move on 31st March 2023, the SBV announced that it will also reduce its refinancing rate to 5.5% from 6%, effective 3rd April 2023. A reduction in the refinancing rate will help banks get cheaper loans from the central bank, which in turn can lower their lending interest rates to businesses. The SBV announced that inflation in Vietnam already eased in February and they believe that the Fed will soon halt its rate hiking cycle which would reduce pressure on the Vietnamese dong. At the same time, the SBV also pumped more than VND 52 tn (USD 2.2 bn) into its banking system. This action helped to ease the liquidity crunch of the last few months, which further brought down overnight interbank rates from 8.4% in October 2022 to around 1% in March 2023.


Overnight Interbank Rate

Overnight Rate

(Source: SBV, AFC Research)


Also, the yield of the 10-year Vietnamese government bond dropped from around 5.2% to below 4% in the last few months.


Vietnamese 10 Year Government Bond Yield (%)

Vietnamese 10Y Government Bond Yield (%)

(Source: ADB)


As the SBV balances economic growth while ensuring price stability, there will be an increasing bias to shift towards a more accommodating stance ahead. We therefore believe that the SBV will probably announce a further interest rate cut at the end of next quarter.

Strong Recovery in Tourism

The Chinese Government decided to add Vietnam as of 15th March 2023 onto the list of countries to which China’s group tours can be conducted. On this news, Vietnamese carriers started the race to resume direct routes to China, given that flight tickets are in high demand. It is expected that Vietnam’s target of welcoming 8 mn international tourists for this year will soon be achieved. When we look back at 2019, the year before the onset of the pandemic, 11 Chinese and three Vietnamese airlines carried nearly eight mn passengers between the two countries, with the latter accounting for 4.6 mn. According to a survey done in 2019 by the General Department of Tourism, Chinese tourists spent an average of USD 1,022 per trip, higher than some other markets such as Japan, Korea, and Southeast Asian countries. With this level of spending, revenues from Chinese tourists reached about USD 5.9 bn in 2019, accounting for 18% of Vietnam’s total tourist revenues.

Chinese tourists mainly visit the Central Region of Vietnam and prefer sport activities and entertainment by the sea. It is therefore expected that Nha Trang alone will receive 1 mn Chinese travelers in the summer months from March to October. According to General Statistics Office of Vietnam, international tourist arrivals in the first quarter of this year reached 2.7 mn visitors, which is around 60% of pre-pandemic levels in the first quarter 2019. A recovery in tourism in Vietnam will of course provide an important contribution to GDP growth.


Foreign Visitors to Vietnam by Month After COVID-19 (in Thousands)

Foreign Visitors to Vietnam by Month After COVID-19 (in Thousands)

(Source: GSO, AFC Research)


Vicente Nguyen, our CIO of the AFC Vietnam Fund, travelled to Da Nang in March to join an AGM of one of our investments. Da Nang is one of the most important tourist destinations in the Central Region of Vietnam. It was interesting to see how many Korean tourists were around and how well occupied hotels and restaurants were. He stayed at one of the beachfront hotels which was crowded with foreign tourists and even the waiting time to catch an elevator was more than 15 minutes.


A Hotel in Danang Full of Korean Tourists

A Hotel in Danang with Full of Korean Tourists

(Source: AFC Research)


Political Stability and the Corruption Perception Index

Over the last few months, we have had quite a few calls from investors and some of them even visited us in Vietnam to find out about the current state of the economy and political environment and its outlook. Many of them were concerned with the extent of the ongoing anti-corruption campaign and the political stability of Vietnam in view of recent political changes with the dismissal of the Vietnamese President and two Vice Prime Ministers a few months ago. Of course, we follow the political situation in Vietnam very closely and believe that political reshuffling and the anti-corruption campaign are very beneficial and necessary in the future economic and political development of Vietnam. In terms of stability, Vietnam, unlike most western countries, is a socialist republic with a one-party system. Vietnam has gradually shifted from a centrally planned to a market economy and has transformed the country from one of the poorest in the world into a lower middle-income country. Vietnam now is one of the most dynamic emerging countries in the South East Asian region. The advantage of this one-party system is that most policies are kept stable throughout the years and rarely change. Key positions of the country such as the President or the Prime Minister, who are elected for a five-year term by the parliament, are only executives who manage and lead the country based on the Communist Party’s policies. Even if they would be dismissed and replaced before the end of their term, policies and political agenda will remain the same, unless voted otherwise by the parliament. 

According to Transparency International, Vietnam’s global corruption perception ranking improved from position 104 in 2020 to 77 at the end of 2022, overtaking countries such as India, Indonesia, and Thailand. This is certainly a remarkable improvement after a few years of anti-corruption campaigns, and will form an important ingredient in Vietnam’s long term success story.



Corruption Perception

(Source: Transparency, AFC Research)


Vietnam’s Road to One of the Most Important Global Manufacturing Hubs

Over the past two decades, Vietnam has become a top destination for investment in manufacturing due to its strategic location and advantages in shipping, competitive labor, and production costs. Compared to other Southeast Asian countries, Vietnam stands out with international airports, seaports, and rail links facilitating production flow and transportation. But Vietnam also successfully managed to attract more and more high-tech multinational corporations, such as Samsung, LG Electronics and Apple to just name a few. According to the World Bank, manufacturing contributed nearly 25% of the nation’s GDP in 2021, up from around 17% in 2010. It looks very likely that this trend will continue. 


Manufacturing Value Added in GDP (%)

Manufacturing Value Added in GDP (%)

(Source: World Bank, Financial Times)


At the end of March 2023, the fund’s largest positions were: Agriculture Bank Insurance JSC (7.2%) – an insurance company, PVI Holdings (6.9%) – also an insurance company, Everpia Vietnam JSC (6.0%) – a bedding manufacturer, BIDV Insurance Corporation (5.9%) – an insurance agency, and Minh Phu Seafood Corp (5.5%) – a seafood company.

The portfolio was invested in 54 names and held 2.9% in cash. The sectors with the largest allocation of assets were consumer (38.6%) and financials (37.9%). The fund’s estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.89x, the estimated weighted harmonic average P/B ratio was 1.11x, and the estimated weighted average portfolio dividend yield was 5.21%. The fund’s portfolio carbon footprint is 15.17 tons per USD 1 mn invested.

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AFC Asia Frontier Fund - Manager Comment

AFC Asia Frontier Fund Fund Performance


The AFC Asia Frontier Fund (AAFF) USD A-shares returned +0.7% in March 2023 with a NAV of USD 1,266.38. The fund underperformed the MSCI Frontier Markets Asia Net Total Return USD Index (+5.1%), the MSCI Frontier Markets Net Total Return USD Index (+1.2%), and the MSCI World Net Total Return USD Index (+3.1%). The performance of the AFC Asia Frontier Fund A-shares since inception on 30th March 2012 now stands at +26.6% versus the benchmark, which is down by 27.1% during the same period. 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 fund closed with another positive month and ended the first quarter of 2023 with a gain of +3.6% at a time when there was immense volatility in global markets due to the fallout in the banking systems of U.S. and Europe. The fund’s performance so far this year once again illustrates the lower correlation of the fund with global markets and its diversification benefit for investors. The main positive contributors to this month’s performance were Sri Lanka, Iraq, Vietnam, Kazakhstan and Cambodia. The major negative contributors were Pakistan, Bangladesh, and Georgia.

The major news in our universe this month was the approval of an IMF (International Monetary Fund) loan to Sri Lanka. This is a big positive for the country as it not only will help improve macro-economic stability but it will also potentially help unlock funding from other bilateral and multilateral agencies who usually view an IMF program as a trigger to initiate funding to a country.

The Colombo Stock Exchange as well as the Sri Lankan rupee (LKR) have reacted very positively to these developments surrounding the improving macro-economic environment with the Colombo All Share Index being the third best performing market globally this year in USD terms with a gain of +23.3% while the LKR is the best performing currency globally this year against the USD with an appreciation of 12.6%. USD liquidity in the banking system has improved significantly as exporters brought back their USD into the country while tourism and remittance inflows maintain their momentum.


IMF Funding and Ongoing Reforms made Sri Lanka the Third Best Performing Market Globally in the First Quarter of 2023 (in USD Terms)

IMF funding and Ongoing Reforms has Made Sri Lanka the Third Best Performing Market Globally Year to Date (in USD terms)

(Source: Bloomberg, % change in prices between 30th December 2022-31st March 2023)


Besides the IMF deal being in place, reform momentum from the Sri Lankan government continues with the state putting up for sale key assets like SriLankan Airlines and Sri Lanka Telecom. The divestment process may take a few quarters, but the government is showing its intent on getting the economy in order.


The Sri Lankan Rupee is the Best Performing Currency Globally this Year Versus the USD

The Sri Lankan Rupee is the Best Performing Currency Globally this Year Versus the USD

(Source: Bloomberg, % change in prices between 30th December 2022-31st March 2023)


The Sri Lankan stock market bottomed out at the end of last year and we added to two of our Sri Lankan holdings in December 2022 and January 2023 but the market has now rallied a fair bit in the first quarter so we will wait for a correction and/or the outcome of debt restructuring talks with both external and domestic creditors as well as the results of the upcoming local government elections before adding more weight to Sri Lanka.


Monthly Tourist Arrivals into Sri Lanka Remain Strong

Monthly Tourist Arrivals into Sri Lanka Remain Strong

(Source: Sri Lanka Tourism Development Authority)


Vietnam reported 1Q23 GDP growth of +3.3% which came in softer than market expectations. However, we are not very surprised by this as both exports and domestic consumer spending have been weakening over the last two quarters. Vietnam’s economy is very interlinked with the global economy as its exports account for almost 100% of GDP and therefore any economic slowdown in key export markets like the U.S. and E.U. will have a spill over effect onto Vietnam.


Vietnam GDP Growth Weakened in 1Q23 – Should not Come as a Surprise Given Vietnam’s High Exposure to Global Trade

Vietnam GDP Growth Weakened in 1Q23 – Should not Come as a Surprise Given Vietnam’s High Exposure to Global Trade

(Source: Bloomberg)


The result of this weaker than expected first quarter GDP growth was the State Bank of Vietnam (SBV) surprisingly cutting its benchmark interest rate by 50 basis points. On the margin, this move by the SBV can be positive for market sentiment but it will need to be supported by government actions to reduce the bottlenecks in the corporate bond and real estate sector in order to improve sentiment.

Furthermore, with key export markets seeing a slowdown leading to lower economic growth in Vietnam, an interest rate cut now may not lead to an increase in credit growth in the near term as the economic cycle in Vietnam is still bottoming out.

Though Vietnam’s economy may face a tougher than anticipated 2023, we are not overly concerned, as the longer term trend for the country is very positive since Vietnam is the prime beneficiary in the region from the global supply chain shift which is being supported by the country’s very favourable demographics, improving infrastructure and revival in international tourism.


The State Bank of Vietnam Surprisingly Cut Benchmark Interest Rates by 50 Basis Points to Support the Economy

The State Bank of Vietnam Surprisingly Cut Benchmark Interest Rates by 50 Basis Points to Support the Economy (Update Once Data is on Bloomberg)

(Source: Bloomberg)


The best-performing indexes in the AAFF universe in March were Vietnam (+3.9%) and Iraq (+2.3%). The poorest-performing markets were Mongolia (-9.1%) and Cambodia (-3.0%). The top-performing portfolio stocks this month were a Sri Lankan bank (+28.6%), a Mongolian construction materials company (+26.5%), a Mongolian copper and gold explorer (+23.1%), a Mongolian concrete producer (+13.3%) and a Vietnamese mall operator (+10.7%).

In March, the fund bought a stock exchange operator in Pakistan and added to existing positions in Bangladesh and Pakistan. The fund also bought and sold existing positions in Mongolia.

At the end of March 2023, the portfolio was invested in 74 companies, 2 funds and held 2.9% in cash. The two biggest stock positions were a fintech company in Kazakhstan (4.2%) and a convenience store operator in Mongolia (3.8%). The countries with the largest asset allocation were Iraq (16.9%), Mongolia (15.8%), and Vietnam (13.1%). The sectors with the largest allocation of assets were consumer goods (20.9%) and financials (13.8%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.93x, the estimated weighted harmonic average P/B ratio was 1.12x, and the estimated weighted average portfolio dividend yield was 3.35%. The fund’s portfolio carbon footprint is 1.11 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 −1.0% in March 2023 with a NAV of USD 1,750.72, bringing the return since inception (29th March 2019) to +75.1%, while the return for the year stands at +0.8%. On an annualised basis, the fund has returned +15.0% p.a. with a Sharpe ratio of 0.95.

March saw yet another announcement on the government’s planned privatisation program after several unsuccessful attempts in recent years. What makes this announcement different, however, is the program’s terminology and assistance from a foreign team that has led a successful privatisation program in another frontier market. During the month, market activity was muted with modest net selling pressure due to the Navruz holiday.

AFC Uzbekistan Fund Valuations as of 31st March 2023:

Estimated weighted harmonic average trailing P/E (only companies with profit): 5.65x

Estimated weighted harmonic average P/B:

Estimated weighted portfolio dividend yield: 4.50%


Light Trading and News in the Month of Navruz

Navruz is the celebration of the first day of spring, literally translating to “New Day”. A Persian holiday celebrated throughout Central Asia and as far as the Middle East, this year it was celebrated on 20th March.

In Uzbekistan, this meant a prolonged holiday of five days. The country has an interesting way of adjusting its holiday schedules, borrowing Saturday days off from one weekend and making other weekends workdays in order to take what was a three-day holiday and extending it, so people have more time with family. It’s the only country I’ve ever been to where arbitrary Saturdays become workdays in order to extend a weekday holiday. Nonetheless, this is Uzbekistan and a mix of the unique work schedule toward month-end and the inevitable need for cash among locals to celebrate Navruz with their families is what we pinpoint to be the contributor to the moderately weak stock market during the month.

Amid the muted trading, the Central Bank announced a cut in the policy rate from 15% to 14%, returning rates to where they were before the Russia-Ukraine war when they were raised 200 basis points due to increased foreign exchange volatility in the region. Furthermore, inflation over the past year has been stable and ended February at 12.23%. This relaxing of credit conditions should trickle down to the economy later this year as credit growth is likely to accelerate off the back of cheaper financing, leading to more demand across the economy and indirectly more demand for the fund’s core holdings of materials, financial services, and consumer goods companies.

Another Privatisation Plan Announcement?!

False starts are never good and too many can turn off investors. This is something we have discussed extensively with market participants on the ground, especially the government. Uzbekistan has a limited timeframe to get its act together and initiate significant reforms, for too many false starts risks alienating foreign investors. While the country is certainly moving in the right direction, when the government makes announcements, they need to be followed through rather than falling on deaf ears. Now, while this continues to frustrate us, the investment climate continues to improve and Uzbekistan does have an ace up its sleeve as it is going to benefit greatly from the accelerating bifurcation between the East and the West due to its strategic location in this emerging new world order where the influence of the countries in the “Global South” become much stronger. This is set to benefit Uzbekistan with its commodity-rich economy and young, fast-growing workforce in the heart of Central Asia.

During March, some significant international developments confirming our opinion on the bifurcation of the world and the “New Fertile Crescent” region being a key place to be investing unfolded. China, with its increasingly important geopolitical clout (much to the dismay of the United States) brokered a deal between Iran and Saudi Arabia which saw them announce plans to re-establish diplomatic relations after seven years. Also, Syria and Saudi Arabia agreed to re-open embassies after more than a decade, and Saudi Arabia additionally announced it will join the Shanghai Cooperation Summit which is a political and security union consisting of countries in Eurasia, including China, Russia, and India. Further, there were reports from Ghana to France and Brazil which announced that certain trade would be conducted in currencies other than the U.S. dollar, something we expect to start seeing an increasing amount of as countries shift in varying capacities away from the U.S. dollar in global trade, a clear risk to America’s superiority in global trade. As the world is reshaped, Uzbekistan stands to benefit with its commodity-rich economy, large and young population, as well as being an integral logistical connection between east and west, providing an alternative land route which circumvents Russia. 

All of the aforementioned is very bullish for Central Asian economies as the region falls within the orbit of Russia, China, and the Middle East, where we see the majority of investment originating from. Thus, it was good timing when on 24th March 2023 President Mirziyoyev announced a three-part privatisation program in Uzbekistan. 

This announcement includes the partial privatisation of shares in 40 SOE’s ranging from gold and copper mining to banking and insurance which are to be offered to the public in what is being termed the “People’s IPOs”. Privatisations will happen via an auction process on the “E-Auksion” trading platform where it is planned that up to 2% of each company will be sold. Further, state ownership in 1,000s of other companies and an equal amount of real estate objects are also planned to be auctioned.

While we will wait to see how this planned program evolves, we were more intrigued by the government’s use of the term “People’s IPO’s” as this term has been used in several post-Soviet countries and may indicate a better-planned process for this program. Specifically, this ties into news that Franklin Templeton has agreed to help Uzbekistan create a national investment fund whose shares will be listed on the Tashkent Stock Exchange and which will help to attract foreign institutional capital. This is on the back of their signing a cooperation agreement with the State Asset Management Agency in January 2023 during President Mirziyoyev’s visit to Singapore. 

Franklin Templeton simultaneously announced plans to open an office in Tashkent by the end of April 2023. This is a potentially very positive development for the capital markets because reading the tea leaves, we believe Franklin Templeton will be attempting to create a similar investment vehicle to the one they managed in Romania called “Fondul Proprietatea”. The Romanian vehicle at listing held shares in 80 SOE’s and underwent an IPO on the Romanian Stock Exchange to give local and foreign investors access to the “crown jewels” of the economy. If a similar structure can be executed in Uzbekistan and eventually dual-listed abroad, this could be the catalyst that transforms the domestic capital market, from both a liquidity standpoint as well as attracting foreign institutional investors and in due course, private sector IPO’s. 

As is always the case in Uzbekistan, we will be keeping an eye out for more news on this privatisation program as we want to see the government announce more specifics and see that the timeframe that is announced for privatisations is adhered to. Uzbekistan is moving in the right direction and as a frontier market will of course stumble, but getting back up and continuing to push forward is necessary for the country’s transformation, something we remain confident in.

At the end of March 2023, the fund was invested in 26 names and held 14.0% cash. The portfolio was allocated to Uzbekistan (86.00%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were materials (38.3%) and financials (28.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.65x, the estimated weighted harmonic average P/B ratio was 1.00x, and the estimated weighted average portfolio dividend yield was 4.50%.

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