“I hadn't been aware that there were doors closed to me until I started knocking on them.”

– Gertrude Belle Elion – American pharmacologist and Nobel Prize winner

AFC Funds Performance Summary

AFC Funds Continue to Display Diversification Benefits for Investors

Once again this month, the diversification benefits of being invested in Asian frontier markets were on display as the AFC Asia Frontier Fund, AFC Iraq Fund, and the AFC Uzbekistan Fund posted strong positive returns in a month when all global benchmarks registered significant negative returns.

The stellar run continued for the AFC Iraq Fund with a gain of +9.0% in September, taking its year-to-date return to +90.4%, making it one of the best-performing long-only single-country funds globally in 2023.

The AFC Asia Frontier Fund had another strong month and outperformed global benchmarks for the second month in a row. Year to date, the +19.3% gain for the AFC Asia Frontier Fund is well ahead of all other global benchmarks reflecting the fund managers’ focus on quality stock selection and appropriate country allocation.

This robust performance by the AFC Asia Frontier Fund is in line with what we have been communicating in our previous monthly newsletters, which is that the major headwinds of higher interest rates and higher inflation have abated in most Asian frontier markets.

This has led many central banks in our universe to lower interest rates, leading to a re-rating for our fund portfolio. We believe that this momentum will continue going into 2024 as we expect less hawkish monetary policies in Asian frontier markets backed by an earnings recovery next year as economic growth and macro indicators stabilise.

The AFC Asia Frontier Fund has Significantly Outperformed Global Benchmarks in 2023
(Total Return in USD)

AFC Uzbekistan Investor Tour

We are delighted to share last month’s remarkable success of our AFC Uzbekistan Investor Tour, an exclusive four-day event meticulously curated for 15 discerning investors. Spanning the vibrant cities of Tashkent and Samarqand, the tour provided a unique opportunity to delve into the heart of Uzbekistan's burgeoning economy.

During our journey, we not only explored the rich cultural fabric of Uzbekistan but also engaged in insightful meetings with several esteemed companies that are some of the top positions in our investment portfolio.

For most participants, the tour served as a transformative experience, illuminating the potential and promise that Uzbekistan holds for astute investors. Our detailed account of this enlightening expedition to this exciting frontier nation can be found in the AFC Uzbekistan Fund section below.

If you are interested in joining us on our next AFC Uzbekistan Investor Tour, it is slated for mid-May 2024, and you can register your interest by reaching out to This email address is being protected from spambots. You need JavaScript enabled to view it..

AFC Quarterly Webinar to be held on Wednesday, 25^th October 2023

We will host our AFC Quarterly Webinar on Wednesday, 25^th October 2023, discussing our outlook and views 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 and will be recorded for viewing at your convenience.

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:

• Drivers of outperformance for Asian frontier markets in 2023
• Outlook for Asian frontier markets going into 2024
• Top stock picks for the AFC Asia Frontier Fund
• 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. If you are interested but unable to attend, please register, and we will send you a link to the recording afterwards.

I am very pleased to inform you that BarclayHedge has again awarded our AFC Asia Frontier Fund for its strong performance. The AFC Asia Frontier Fund was recognized with the top 10 award in the category  “Emerging Markets Equity – Asia” for its performance during the month of August 2023. This is in addition to the award the fund won in February 2023 and the continued momentum in performance this year reflects our bullish call on Asian frontier markets at the start of 2023. This award shows the validity of the investment thesis of the AFC Asia Frontier Fund and underscores its suitability as a diversification tool for equity investors.

The next cut-off date for subscriptions for our funds will be 25^th October 2023. If you would like to know more about the subscription process, please get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it. 

Please find below the managers’ comments on each of our four funds for September 2023.

AFC in the Press

Upcoming AFC Travel

Thomas Hugger, Ruchir Desai, and Peter de Vries are based in Hong Kong, while Andreas Vogelsanger is based in Bangkok, Vicente Nguyen in Ho Chi Minh City, Scott Osheroff in Tashkent, and Ahmed Tabaqchali in London and Iraq. If you have an interest in meeting with our team at their homeports or during their travels, please contact Peter de Vries at This email address is being protected from spambots. You need JavaScript enabled to view it..

AFC Travel

AFC Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned +9.0% in September 2023 with a NAV of USD 1,294.46 versus its benchmark, the Rabee Securities US Dollar Equity Index (RSISUSD index), which gained 8.4% during the month. For the year, the AFC Iraq Fund is up 90.4%, outperforming the index’s increase of 79.4%. Since inception, the fund has gained 29.4% while the RSISUSD index is down 5.8%, an outperformance of 35.2%.

As written here over the last few months, and most recently in “Market Rallies as it Begins to Discount the Budget’s Passage”, the three-year 2023-25 budget should lead to sizeable liquidity injections into the economy following its passage in June 2023. This, in combination with the positive global macro-economic developments, will drive economic growth that should eventually feed into meaningful growth in corporate profits, which in turn would sustain the market’s current rally. The banking sector, in particular the top-quality banks, are likely to be key beneficiaries of this emerging economic growth that would come with increased adoption of banking, and a move away from the dominance of cash as both a store of value and a means of economic exchange. AFC Iraq Fund’s investment strategy for the banking sector, as discussed in “Banks & the Iraq Investment Thesis” in February 2022, argues that the increased adoption of banking would come with growth in bank lending resulting in an expansion in the money circulating in the economy and consequently to increases in non-oil GDP’s growth rate and size. Over time, banks’ earnings should grow substantially, leading to meaningful increases in their valuations, and ultimately feed into much higher market multiples and in-time significantly higher share prices (*).

Evidence of this thesis in action can be seen from the latest Central Bank of Iraq (CBI) data on bank lending to the private sector, which shows a continuation of the multi-year up-trend brought about by the relative stability that the country has enjoyed over the last few years following decades of conflict (**). Lending to the private sector increased by 11% for the year by July 2023, following increases of 18%, 14%, and 23% respectively in 2022, 2021, and 2020 – following the 4% recovery in lending in 2019 after the lending stagnation as a consequence of economic crisis brought about by the ISIS conflict and the fall in oil prices in 2014-17. On the other hand, private sector deposits increased by 3% for the year by July 2023, following increases of 27%, 20%, 17%, and 12% respectively in 2022, 2021, 2020, and 2019. Interestingly, deposit growth year-to-date lagged loan growth, having outpaced it in 2021-22, indicating greater confidence by the banks. As such, the loan-deposit ratio began to tick up during the year, indicating that current deposits can sustain further growth in loans (chart below).

Private Sector: Deposits & Loans

The increased lending to the private sector in combination with increased government oil revenues has led to increases of 5% for the year to July 2023 in broad money, or the amount of money circulating in the economy. This comes on the heels of increases of 20%, 17%, 16%, and 8% respectively in 2022, 2021, 2020, and 2019 (chart below). The trend in broad money’s monthly year-over-year increases over the last few years mirrors those for private sector loans and deposits.

Money Circulating in the Economy

The significant liquidity injections into the non-oil economy by the expansionary 2023-25 budget should lead to a re-acceleration in the year-over-year growth in bank lending to the private sector, private sector deposit growth, and the amount of money circulating in the economy. The effects of such stimuli should lead to further recovery in non-oil GDP, following the resumption of growth in the first quarter of 2023 (chart below), which should feed into meaningful growth in corporate profits further supporting the stock markets’ positive momentum.

Oil and non-Oil GDP Real Growth

Finally, the Rabee Securities US Dollar Equity Index, even after its 79.4% increase year-to-date, is still 32.9% below its January 2014 peak. As such, we believe that the upside opportunity for the AFC Iraq Fund would come about as the Rabee Securities US Dollar Equity Index regains that peak. A further rally could be supported by the expected increase in banks’ earnings driven mostly by the fundamental developments, while also potentially benefiting from some of the technical developments as banks increase their capital base – both of which were discussed in detail last month in “Banks to Fuel the Market's Next Phase”.

Notes:     

(*)    Prior newsletters reviewed AFC Iraq Fund’s investment strategy for the banking sector, banking developments, and earnings profiles of two of the country’s major banks:

• A combination of recent fundamental and technical developments that promises to accelerate the adoption of banking and bring about a transformation of the sector and its role in the economy in “Banks to Fuel the Market's Next Phase”.
• AFC Iraq Fund’s investment thesis for the banking sector in “Banks & the Iraq Investment Thesis”.
• Earnings profiles and business strategies of the National Bank of Iraq (BNOI) in “The Opportunity in Retail Banking” in April 2022, and of the Bank of Baghdad (BOB) in “Banks and the Predictability of Earnings” in November 2022.

(**)    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. While these years were punctured by several shocks, such as the countrywide demonstrations in late 2019, the assassination of Iran's top general in Baghdad followed by the emergence of COVID-19 and 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 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 in the last prior decades of conflict; that in turn, 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 reviewed in prior newsletters:

• “Construction Activity and Stability” in July 2023.
• “Supermarkets and Stability” in December 2022.

At the end of September 2023, the AFC Iraq Fund was invested in 14 names and had a cash level of 6.0%. 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 (92.5%), Norway (1.2%), and the UK (0.3%).

The sectors with the largest allocation of assets were financials (73.9%) and consumer staples (8.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.60x, the estimated weighted harmonic average P/B ratio was 1.46x, and the estimated weighted average portfolio dividend yield was 3.18%. The fund’s portfolio carbon footprint is 0.08 tons per USD 1 mn invested.

 AFC Asia Frontier Fund - Manager Comment

The AFC Asia Frontier Fund (AAFF) USD A-shares returned +3.5% in September 2023 with a NAV of USD 1,457.33. The fund outperformed the MSCI Frontier Markets Asia Net Total Return USD Index (−7.5%), the MSCI Frontier Markets Net Total Return USD Index (−3.8%) and the MSCI World Net Total Return USD Index (−4.3%). The performance since inception on 30^th March 2012 now stands at +45.7% versus the benchmark, which is down by 25.6% 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 0.50, all based on monthly observations since inception.

Once again, the AFC Asia Frontier Fund displayed its diversification benefits to investors with another strong outperformance against all major global benchmarks. This is the second month in a row of strong positive performance while global markets had another negative month. With a year-to-date performance of +19.3%, the AFC Asia Frontier Fund has also significantly outperformed global benchmark indexes so far in 2023. It was once again an all-round performance in September, with gains led by Iraq, Mongolia, Pakistan, Uzbekistan, Georgia, and Kazakhstan.

The AFC Asia Frontier Fund has Significantly Outperformed Global Benchmark Indexes in 2023
(Total Return in USD)

The highlight of the month was U.S. President Joe Biden’s visit to Vietnam, which further signifies and strengthens the growing economic and geopolitical relations between both countries. Vietnam has various tiers of diplomatic relations with countries, with the highest being Comprehensive Strategic Partnership. During the visit by President Joe Biden, Vietnam upgraded its relationship with the U.S. to that of a Comprehensive Strategic Partnership. With this upgrade with the U.S., only four other countries share a Comprehensive Strategic Partnership with Vietnam, namely, China, India, Russia, and South Korea. 

We believe such closer relations between the U.S. and Vietnam do not come as a surprise since the U.S. is attempting to build warmer relations with strategic Asian countries, given its ongoing competition with China in various spheres. For Vietnam, closer ties with the U.S. are important not only for geopolitical reasons but more so for economic ones. 

The U.S. is Vietnam’s largest export market accounting for around 27% of its total exports, but more critical is how trade between both countries has grown since the start of trade and geopolitical tensions between China and the U.S. For example, Vietnam’s exports to the U.S. between 2017 and 2022 have risen by almost 3x, as many companies have relocated part or all of their manufacturing operations to Vietnam. Hence, Vietnam has become an essential trade partner and supplier to the U.S. of key products like apparel, consumer electronics, footwear, furniture, and seafood, among others.

Vietnam's Exports to the U.S. have Grown by Almost 3x since 2017 – Vietnam’s Comprehensive Strategic Partnership with the U.S. can Lead to Further Growth
(in USD bn)

In our view, this Comprehensive Strategic Partnership between the U.S. and Vietnam can give Vietnam a solid platform to significantly add value to its manufacturing and export capabilities. As part of this new relationship, the U.S. is keen to assist Vietnam in developing its technology industry for both manufacturing and human resource skills, which can help Vietnam develop its high-end technology industry such as semiconductors and this can help the U.S. de-risk some of its supply chains. 

With Vietnam already having a well-established position in consumer electronics assembly and manufacturing, its well-educated workforce can be leveraged with U.S. assistance and training, which should allow Vietnam to move up the value chain in terms of its technology manufacturing output. Vietnam’s ability to fully take advantage of this closer technology partnership with the U.S. can go a long way in helping Vietnam improve its labour productivity, which will be the key driver for its long-term economic growth. 

Therefore, we believe that if executed in the way it is intended, the Comprehensive Strategic Partnership between the U.S. and Vietnam can be a game changer for Vietnam and make its structural investment case even stronger than it is at present. We believe two companies that can benefit significantly from closer links between the U.S. and Vietnam are FPT Corp. (FPT VN) and Gemadept (GMD VN), the largest and second largest Vietnamese positions in the AFC Asia Frontier Fund.

FPT is Vietnam’s largest software outsourcing company with strong client relationships in the U.S. and a well-established technology education business in Vietnam that can train human resources in new technology skills. Hence, FPT’s software outsourcing and technology education businesses are exceptionally well leveraged to the U.S. strategy of diversifying its technology supply chains. 

GMD is Vietnam’s largest private port operator, with strategically located ports in both the north and south of Vietnam. As Vietnam’s trade relations with the U.S. grow, GMD’s business can benefit as it is an excellent proxy for Vietnam’s trade growth not only with the U.S. but also with rest of the global economy since Vietnam is a trade-dependent nation as trade accounts for approximately 200% of Vietnam’s GDP.

FPT Corp. and Gemadept are Very Well Positioned as U.S-Vietnam Trade and Economic Relations Become Closer (AFC Asia Frontier Fund holds both these Companies)

In Sri Lanka, inflation continues to taper off significantly, with September 2023 inflation coming in at only 1.3%. Though there is a base effect from last year, this inflation number is well below the Central Bank’s medium term inflation target of 5%. Therefore, we were not surprised by the Central Bank’s decision to reduce benchmark interest rates by another 100 basis points in its monetary policy meeting held on 5^th October.

Inflation in Sri Lanka Continues Tapering Off Giving Even More Room for the Central Bank of Sri Lanka to Cut Interest Rates

Besides an interest rate cut in Sri Lanka, the National Bank of Kazakhstan announced a 50 basis point reduction in its benchmark interest rate on the back of its 25 basis point cut in August 2023 as inflation continues to ease. This continued interest rate easing cycle in many Asian frontier countries should bode well for investor sentiment going forward.

The National Bank of Kazakhstan Reduced Its Benchmark Interest Rates by another 50 Basis Points as Inflation Eases

The best-performing indexes in the AAFF universe in September were Iraq (+8.4%) and Kazakhstan (+6.1%). The poorest-performing markets were Vietnam (−5.7%) and Cambodia (−3.7%). The top-performing portfolio stocks this month were a Mongolian coking coal mining company (+56.3%), a Kazakh uranium producer (+42.9%), a Mongolian concrete producer (+31.0%), a Mongolian technology company (+30.9%) and a Vietnamese transportation company (+22.0%).

In September, the fund exited a Mongolian ceramic producer and a Mongolian agriculture company. The fund also added to existing positions in Mongolia and Papua New Guinea and reduced some existing positions in Mongolia.

At the end of September 2023, the portfolio was invested in 72 companies, 2 funds and held 4.6% in cash. The two biggest stock positions were a fintech company in Kazakhstan (4.8%) and a bank in Georgia (3.9%). The countries with the largest asset allocation were Iraq (20.4%), Mongolia (13.3%), and Vietnam (11.9%). The sectors with the largest allocation of assets were consumer goods (17.8%) and financials (14.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.19x, the estimated weighted harmonic average P/B ratio was 0.99x, and the estimated weighted average portfolio dividend yield was 3.51%. The fund’s portfolio carbon footprint is 0.60 tons per USD 1 mn invested.

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned +2.3% in September 2023 with a NAV of USD 1,767.48, bringing the return since inception (29^th March 2019) to +76.7%, while the return for the year stands at +1.8%. On an annualised basis, the fund has returned +13.5% p.a. with a Sharpe ratio of 0.84.

During the last week of September, we hosted the second AFC Uzbekistan Investor Tour, bringing 15 investors from all around the world to Uzbekistan, giving them boots-on-the-ground exposure to one of the most exciting, undervalued, and misunderstood investment regions, as Central Asia emerges as an increasingly significant geopolitical hotspot.

AFC Uzbekistan Fund Valuations as of 30^th September 2023:

AFC Uzbekistan Investor Tour

From 24^th to 27^th September, we hosted AFC’s second Uzbekistan Investor Tour, where 15 investors descended on Tashkent. We spent four days showing them the culture, food, and of course, the investment opportunity we have been harping on about since 2018. 

Central Asia and especially Uzbekistan are largely misunderstood by outsiders, thought of as a mere post-Soviet backwater. However, this could not be further from the truth. Thus, getting some on-the-ground exposure, it’s always fun to see people’s reactions and surprise. Several attendees were impressed with Uzbekistan’s infrastructure, while others were surprised by the country’s cleanliness and rapid development, as construction is seemingly on every corner. 

With low leverage in the financial system, a growing population, strong economic growth (with the Asian Development Bank increasing its 2023-2024 GDP estimate from 5% to 5.5%), and well-endowed natural resource base, secular tailwinds should propel the country forward regardless of any global macro-economic volatility.

Likewise, while Scott Osheroff has been engaged in Uzbekistan since 2018, it is easy to get mired in the day-to-day challenges and lose sight of the bigger picture. There is a Russian proverb about the “difference between immigration and tourism”, which aptly describes this, and thus, bringing fresh eyes to Uzbekistan is always an excellent way for Scott to reflect on just how far Uzbekistan has come since 2018.

Some takeaways from the tour are that government officials are much more open to speaking honestly about the challenges the country faces in achieving its development and reform goals. The big one is that intellectual capacity is a significant headwind due to a shortage of skilled white-collar labour, but one which should be solved over the long run as the government reforms the education system. Investor relations across listed companies, which used to literally be non-existent, has changed markedly, with presentations in English about the businesses and corporate strategy, and management willing to answer every question they had an answer to. Equally, while the freedom of movement in Uzbekistan used to be highly restricted, on the final day of the tour during our trip to Samarqand it was interesting to see how what used to take three passport checks to get on the train had gone to zero (Scott was in Samarqand one month before the tour and still had one passport check). Further, there are clearly tourists abound at the major sites as Uzbekistan is marketed better internationally. At the main sites in Tashkent and Samarqand we heard Spanish, Italian, German, French, Russian, and English being spoken. 

All of these small positives are indeed steps in the right direction; however, one thing commonly discussed with participants on the tour was when the value in the capital markets will be unlocked. We spoke with the Asian Development Bank about how developing the capital markets would be a boon for the economy as it would allow companies to access capital cheaper than through bank financing and that these fresh capital injections would lead to job creation, thereby boosting GDP. Eloquently put by one of our clients during the tour, he said “I expect Uzbekistan to outperform the S&P500 over the next five years. The only question is: Does all of the outperformance occur in the second half of year four?” The answer is anyone’s guess, but when looking at what is needed to transform the capital markets (hint: NOT MUCH), once the government enacts necessary reforms, the next re-rating should be sharp and violent to the upside as capital pours into the market, similar to what we saw with the fund’s performance in 2020 (+22.69%) and 2021 (+44.82%).

Site Visit to Uzmetkombinat – Uzbekistan’s Largest Steel Plant

C5+1 Meeting in New York

The C5+1 diplomatic summit is an event that has been held annually since 2015 between the Central Asian states of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan with the United States to strengthen the region’s relationship with the U.S., acting as a quasi “third-neighbour” policy to counterbalance the region’s strong influence from Russia and China. The most recent summit was held on 19^th September 2023 in New York City, where the U.S. seems increasingly keen on increasing engagement with the region in order to help it become more independent from Russia and China, mainly through soft power in the form of cheap money and promised investment from state-backed groups such as the Development Finance Corporation (DFC) and the IFC.

However, as an investor, we do our best to look at the world through an objective lens. For years we have harped on the emerging new world order at hand, which is that of a bifurcated world and where the region we like to call the “New Fertile Crescent” stretching from the Middle East through Central Asia and encompassing Turkey, India, Pakistan, Russia and China (discussed in a video interview Scott had a few months ago here https://www.youtube.com/watch?v=GYbJRwYjabs) become increasingly powerful both economically and militarily. The countries in the New Fertile Crescent are where we believe the majority of Uzbekistan’s future investment will come from, as well as soft power in the form of culture.

Thus, while the region is undoubtedly courting the West, we believe it is merely what good politicians do, gaining leverage over their true business partners, China, Russia, and the Middle Eastern countries, to be better positioned at the negotiating table. Of course, the region is also happy to get cheap financing from Western international financial institutions. Still, the big news about this meeting during the month in Western media feels more like posturing as the West would most certainly like to gain influence in Central Asia to counter Russia and China; however, that strategy will likely to fall flat in the long term. For example, during our investor tour, we met a government official who was asked where foreign direct investments in Uzbekistan will likely come from in future years. His response was China and countries in the greater region (the New Fertile Crescent). 

The world is changing quickly, and Central Asia is near the heart of the Mackinder Heartland, with Uzbekistan being among the most geo-strategically important countries in the region. Uzbekistan is very well positioned going forward, and we are delighted to be investing in the country, regardless of the challenges which naturally are experienced across the developing world at such stages of economic development. Uzbekistan is a long-term investment, and we remain bullish.

Third AFC Uzbekistan Investor Tour

We are planning a third AFC Uzbekistan Investor Tour in the middle of May 2024. Exact dates are yet to be fixed, but if you are interested in joining, please email us (This email address is being protected from spambots. You need JavaScript enabled to view it.) so we can gauge investor interest.

At the end of September 2023, the fund was invested in 25 names and held 7.0% cash. The portfolio was allocated to Uzbekistan (92.94%) and Kyrgyzstan (0.04%). The sectors with the largest allocation of assets were financials (37.4%) and materials (35.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.00x, the estimated weighted harmonic average P/B ratio was 0.70x, and the estimated weighted average portfolio dividend yield was 3.47%.

AFC Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned −2.9% in September with a NAV of USD 3,197.22, bringing the year-to-date return to +10.8% and return since inception to +219.7%. The Ho Chi Minh City VN Index lost 6.5% in September 2023, gained 12.9% year to date, and is up by 151.2% since inception of the fund, in USD terms. Since inception, the fund strongly outperformed the index by 122.7%. The fund’s annualised return since inception stands at +12.6% p.a. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 14.84%, a Sharpe ratio of 0.76, and a low correlation of the fund versus the MSCI World Index USD of 0.49, all based on monthly observations since inception.

Market Developments

As we navigate the changing market environment, it is essential to acknowledge the notable shifts in market dynamics that occurred during the month of September.

In August, the market was substantially bolstered by the remarkable performance of real estate stocks and the influence of VIC, a major index constituent. These factors propelled the market to impressive heights. However, in September, we witnessed a substantial correction in these very stocks, which in turn exerted a negative impact on the benchmark index.

Real Estate Stocks Decline from the Peak

As previously highlighted in our reports, speculative capital had been flooding into the real estate sector, boosting stock prices and driving the broader index higher. However, we remained steadfast in our commitment to value investing principles rather than chasing momentum in this sector. This prudent approach served us well this month, allowing us to outperform the VN-Index by 370 basis points.

On the flip side, our focus on manufacturing, export, and public investment sectors proved advantageous, with a number of key holdings contributing to our outperformance over the index.

For instance, TNG, a garment manufacturer, made a commendable recovery in September, witnessing a 19.4% increase of its stock price from the August lows. Another substantial holding, MPC, the largest shrimp exporter in Vietnam, exhibited similar resilience, gaining 8.4% from the August lows. Other holdings like VGG and PTB also delivered positive results.

Export Stocks had an Impressive Recovery from the Lows in August 

The standout event of September was undoubtedly the official visit of U.S. President Joe Biden to Vietnam, following the G20 Summit in New Delhi. The primary objective of this visit was to elevate the partnership between the United States and Vietnam to the highest level, a Comprehensive Strategic Partnership. This move places the United States among Vietnam's top-tier partners, alongside China, Russia, India, and South Korea.

President Joe Biden Meets General Secretary Mr. Nguyen Phu Trong 

The significance of this partnership lies in its potential to further expand economic and investment opportunities. One notable sector that stands to gain substantially is semiconductors. During President Biden's visit, leaders of prominent U.S. chip manufacturers, including Amkor Technology, Marvell, and Synopsis, also explored investment prospects in Vietnam. Amkor Technology, for instance, plans to invest USD 1.6 bn in chip production in Bac Ninh Province from today until 2035. Marvell announced the establishment of an R&D Chip Design Center in Ho Chi Minh City, further underscoring the growing interest in Vietnam's semiconductor landscape. Intel, already an established player in Vietnam's chip production sector, also revealed plans to increase its investments.

Chip Exports to the U.S.

This strategic influx of investments from major players reflects the United States' commitment to strengthen its presence in the semiconductor sector in Vietnam, already a top Asian chip exporter to the U.S. and a key pillar in the latter’s efforts to further diversify its global supply chain.

The Vietnamese Economy Continues to Improve

We maintain our confidence in Vietnam's long-term economic prospects, especially given the favorable market backdrop. As we have previously emphasized, the Vietnamese stock market is currently trading at historically low valuations, akin to the period following the real estate crisis of 2012-2013. During that time, Vietnam faced a significant economic challenge, yet competent government intervention and key partnerships, such as the Comprehensive Partnership agreement signed with the United States in 2013, revitalized the nation's growth trajectory. The result was a remarkable recovery in GDP growth and a staggering 175% increase in the market index from 2012 to 2018.

GDP Growth Bottomed Out in Q1/2023

September brought some encouraging developments, most notably in the realm of exports. The negative growth in exports saw a significant improvement, narrowing considerably compared to the first half of 2023 when it experienced an increase of 4.6% year-on-year. August, in particular, stood out as it marked an all-time record high for exports, reaching an impressive USD 32.4bn. September is the first month we see positive export growth. It shows that exports seem to have bottomed out. We expect slightly positive growth in 4Q 2023 and strong growth in 2024.

Export Growth is Coming Back

One key driver behind this positive export trend has been the increased confidence among local enterprises. This newfound optimism can be attributed to the State Bank of Vietnam's consistent efforts to lower interest rates, reducing them from approximately 10% to the current range of 5.5-6.0%. This has facilitated easier access to low-cost financing for businesses, enabling them to expand their operations and invest in growth opportunities.

These favourable conditions have contributed to the noteworthy rise in the Purchasing Managers' Index (PMI) for August. After a prolonged period below the 50 level, signifying contraction, the PMI saw a substantial increase and closed at 50.5. This uptick in the PMI reflects improving economic sentiment and suggests a more positive outlook for Vietnam's industrial and manufacturing sectors.

PMI Back Above 50 Mark for First Time in Six Months

While the real estate sector's struggles have dampened GDP growth, substantial public investments and economic stimulus measures have provided critical support. The upgraded partnership with the United States now brings added promise. This presents a unique opportunity for investors to partake in Vietnam's long-term growth story at valuation levels comparable to those of a decade ago. 

We encourage you to consider the implications of this favorable environment as you make your investment decisions. The future looks promising, and we are excited to be on this journey with you.

At the end of September 2023, the fund’s largest positions were: Lam Dong Minerals and Building Materials JSC (7.7%) – a building material supplier, Thien Long Group (7.4%) – a manufacturer of office supplies, Minh Phu Seafood Corp (7.3%) – a seafood company, TNG Investment and Trading JSC (7.3%) – an apparel manufacturer, and Military Insurance Corp (7.3%) – an insurance company.

The portfolio was invested in 56 names and held 3.6% in cash. The sectors with the largest allocation of assets were consumer (47.6%) and financials (23.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 10.55x, the estimated weighted harmonic average P/B ratio was 1.26x, and the estimated weighted average portfolio dividend yield was 4.59%. The fund’s portfolio carbon footprint is 2.43 tons per USD 1 mn invested.

I hope you have enjoyed reading this newsletter. If you would like any further information, please get in touch with me or my colleagues at This email address is being protected from spambots. You need JavaScript enabled to view it.

With kind regards,

Thomas Hugger
CEO & Fund Manager

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Disclaimer:

This Newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this Newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this Newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

For Switzerland only: This is an advertising document. The state of the origin of the fund is the Cayman Islands. This document may only be provided to qualified investors within the meaning of art. 10 para. 3 and 3ter CISA. In Switzerland, the representative is Acolin Fund Services AG, Leutschenbachstrasse 50, 8050 Zurich, Switzerland, whilst the paying agent is NPB Neue Privat Bank AG, Limmatquai 1 / am Bellevue, 8024 Zurich, Switzerland. The basic documents of the fund report may be obtained free of charge from the representative. Past performance is no indication of current or future performance. The performance data do not take account of the commissions, if any, and fund transfer costs incurred on the issue and redemption of units.

AFC Asia Frontier Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. AFC Iraq Fund and AFC Uzbekistan Fund in Singapore, Switzerland, the United Kingdom, and the United States. AFC Vietnam Fund in Japan, Singapore, Switzerland, and the United Kingdom. 

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