“You can’t take the same actions as everyone else
and expect to outperform.”

– Howard Marks - American investor and writer

AFC Funds Performance Summary

Asian frontier stock markets had a good August despite the very volatile start to the month when global stock markets witnessed a significant correction. The bounce-back we saw in most Asian frontier stock markets continues to reflect that the important drivers of the ongoing re-rating are still in place in the form of lower interest rates, an ongoing macroeconomic and earnings recovery, and discounted valuations.

Many of our key markets such as Bangladesh, Kazakhstan, Pakistan, and Vietnam reported good monthly gains in a volatile month which also signifies the diversification benefits of being invested in Asian frontier markets via the AFC Asia Frontier Fund.

The AFC Asia Frontier Fund captures all these positive drivers of the ongoing recovery in Asian frontier markets with another positive month and a gain of +1.3% in August 2024.

Bangladesh Led Returns for Asian Frontier Markets in August 2024

September 2024 Subscription Cut-Off Date

The next cut-off date for subscriptions for our funds will be 24^th September 2024. 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 August 2024.

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 Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned +2.0% in August with a NAV of USD 3,453.46, bringing the year-to-date return to +9.8% and return since inception to +245.3%. The fund underperformed the benchmark, the Ho Chi Minh City VN Index, which gained 4.2% in August 2024 and has gained 10.9% year to date in USD terms. The fund’s annualized return since inception stands at +12.3% p.a. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 14.77%, a Sharpe ratio of 0.72, and a low correlation of the fund versus the MSCI World Index USD of 0.51, all based on monthly observations since inception.

Market Developments

In August 2024, global financial markets faced significant turmoil during the first week of the month, primarily driven by growing concerns over the health of the U.S. economy. This uncertainty sparked widespread selloffs across multiple countries, exacerbated by the unwinding of the yen carry trade strategy—a long-standing approach used by investors to capitalize on Japan's low interest rates.

The yen carry trade allowed investors to borrow at low interest rates in Japan and invest in assets with higher returns, such as U.S. technology shares. However, the strategy began to unravel at the start of August when the Bank of Japan unexpectedly raised interest rates and signalled that further increases were likely. This prompted investors to sell off their U.S. assets to repay their Japanese loans, causing a sharp decline in global markets.

The S&P 500 dropped by around 8%, while the Euro Stoxx 50 declined by around 6% in the first 3 trading days of August. Japan's TOPIX (Tokyo Stock Price Index) experienced a staggering 20% decline, representing its largest three-day loss ever.

Unfortunately, the Vietnamese market was not spared from this global turbulence, with the benchmark index also declining by around 4.2%. This sharp global downturn underscored the interconnectedness of financial markets and the far-reaching effects of economic uncertainties, emphasizing how shifts in one part of the world can ripple through economies worldwide.

August Flash Crash in Global Stock Markets

The global market downturn in early August turned out to be a short-lived correction, as most indices, including Vietnam's VN-Index, rebounded sharply. After initially losing 5.4% during the first week, the VN-Index rallied by 8.4% by the end of the month. This recovery was fuelled by a combination of solid fundamentals and favourable macroeconomic conditions, underscoring the resilience of the Vietnamese market.

The strengthening of the VND also supported the Vietnamese stock market as expectations grew that the Federal Reserve might cut interest rates soon due to signs of a slowing U.S. economy. The U.S. Dollar Index dropped by 2.6% in August, leading to a strengthening of the Vietnamese dong by 2.2% versus the USD. This trend could accelerate if the Fed begins rate cuts in September and continues through the rest of the year, further bolstering the Vietnamese market and the AFC Vietnam Fund.

U.S. Dollar Index (May-August 2024)

Vietnam is Entering its Next Growth Phase

Vietnam is set to embark on its next growth phase, driven by impressive macroeconomic performance in Q2 2024, marked by record GDP growth, strong industrial production, and a resurgence in exports. Significant gains in tax collections, stemming from rigorous anti-corruption efforts, have strengthened the nation's fiscal position, allowing for increased public investment in infrastructure. Under the leadership of the new Party General Secretary, To Lam, there is a renewed focus on political stability and economic growth, ensuring that Vietnam's momentum continues and the foundation for sustained long-term expansion is solidified.

Vietnam’s resilience is evident in its long-term growth trajectory since the Doi Moi reforms in 1986. Despite challenges like the Asian Financial Crisis, the Global Financial Crisis, and the Covid-19 pandemic, the country has consistently posted positive growth.

GDP of Vietnam (USD bn)

GDP Growth (%)

The recent upgrade in the Vietnam-US relationship to a Comprehensive Strategic Partnership, alongside other significant free trade agreements, positions Vietnam for further economic expansion with record-high FDI, export turnover, and GDP in 2024, coupled with an ambitious infrastructure plan. 

Vietnam's heavy public investment package is playing a crucial role in supporting economic growth and boosting small and medium-sized businesses. Over the next 2-3 years, the completion of the 2,000 km South-North Highway Network is expected to accelerate economic expansion significantly. In August, the Prime Minister approved an ambitious master plan to expand Vietnam's highway network to 9,234 km by 2050, setting a new national record and laying the foundation for sustained long-term growth across the country.

The Highway Network of Vietnam (km)

Vietnam is set to solidify its status as one of the fastest-growing economies in the region, with a forecasted annual growth rate of 6.5% through 2034.

The government's commitment to economic growth and anti-corruption under To Lam's leadership further underscores Vietnam's bright prospects in the coming years.

As Vietnam enters its next growth phase, the AFC Vietnam Fund is strategically positioned to capture emerging opportunities and enhance fund performance. Our focus remains on sectors with strong growth potential over the coming years, including export, consumption, and public investment. Since April, we have witnessed a price surge in stocks within the consumption and export sectors, driven by impressive Q1 earnings that initiated a recovery. In particular, Lam Dong Minerals & Building Materials (LBM), one of our largest portfolio holdings, experienced significant gains in May, June, and July. Additionally, our investments in other high-performing sectors, such as TNG Investment and Trading JSC (TNG) and Thien Long Group (TLG), have paid off, as these companies saw their net profits recover and surpass all-time highs. The impressive stock price performance of TNG and TLG has been instrumental in boosting the overall value of the AFC Vietnam Fund portfolio.

TNG from March 2023 to August 2024

TLG from March 2023 to August 2024

As we have highlighted in our previous reports, the sectors of consumption, export, and public investment are not merely short-term phenomena; they are integral to Vietnam's long-term growth trajectory. These sectors align with the Vietnamese government's consistent emphasis on them as drivers of sustained economic growth. Recognizing their importance, we have strategically decided to increase our allocation in these areas to capture the nation’s anticipated growth over the next 5-10 years. Vietnam's current achievements amid global turmoil demonstrate the country's resilience and potential to reach new economic heights in the coming decade.

We have observed that Vietnamese stocks valuations are currently at attractive levels, which may change soon. The potential upgrade of Vietnam from a Frontier to an Emerging Market by FTSE could occur as early as next year. Currently, the Vietnamese Ministry of Finance is finalizing a crucial circular regarding pre-funding, which, once issued, would address the main obstacle to this upgrade. As the countdown to the upgrade begins, we are preparing to take full advantage of this opportunity. We want to ensure that all our investors are aware of this potential shift so they can also benefit from what could be a significant market development.

At the end of August 2024, the fund’s largest positions were: Lam Dong Minerals and Building Materials JSC (8.0%) – a building material supplier, Agriculture Bank Insurance JSC (6.7%) – an insurance company, Minh Phu Seafood Corp (6.2%) – a seafood company, Thien Long Group (6.1%) – a manufacturer of office supplies, and Dong Hai JSC of Bentre (5.3%) – a packaging manufacturing company.

The portfolio was invested in 39 names and held 5.4% in cash. The sectors with the largest allocation of assets were consumer (47.2%) and financials (20.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 12.43x, the estimated weighted harmonic average P/B ratio was 1.30x, and the estimated weighted average portfolio dividend yield was 4.33%. The fund’s portfolio carbon footprint is 2.16 tons per USD 1 mn invested.

 AFC Asia Frontier Fund - Manager Comment

The AFC Asia Frontier Fund (AAFF) USD A-shares returned +1.3% in August 2024 with a NAV of USD 1,720.80. The fund underperformed the benchmark MSCI Frontier Markets Asia Net Total Return USD Index (+3.8%), the MSCI Frontier Markets Net Total Return USD Index (+2.0%), and the MSCI World Net Total Return USD Index (+2.6%). Year-to-date, the fund shows a +10.8% return, outperforming the benchmark, which went up by 2.4%. The performance of the AFC Asia Frontier Fund A-shares since inception on 30^th March 2012 now stands at +72.1% versus the benchmark, which is down by 21.8% during the same period, showing an outperformance of +93.9% since inception. The fund’s annualized performance since inception is +4.5%. 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 0.51, all based on monthly observations since inception.

Despite a very volatile month for global stock markets and the first week of August witnessing a heavy correction, the fund made a very strong recovery to close the month well into positive territory. Pakistan, Vietnam, Bangladesh, Georgia, and Mongolia were the key drivers for gains in August. The negative contributors to fund performance were Iraq, Myanmar, and Sri Lanka.

The Dhaka Stock Exchange Broad Index in Bangladesh gained +9.9% in anticipation of broad-based reforms in the country driven by the leadership of a well-respected interim government led by the Nobel Laureate Mr. Muhammad Yunus. The interim government has hit the ground running in its endeavour to execute reforms by appointing a new governor of the Central Bank.

Mr. Ahsan Mansur, the new governor of the Central Bank, is a well-respected economist who until recently had spent many years at the IMF (International Monetary Fund). We believe the governor’s previous experience at the IMF will not only help improve macroeconomic stability in Bangladesh but will also help in the ongoing IMF program that Bangladesh is currently in.

Bangladesh Led Returns for Our Universe in August 2024

Investors also anticipate a significant reduction in the regulatory overhang in Bangladesh, especially in the banking and telecom sectors. Both these industries faced massive regulatory headwinds during the tenure of the previous government. 

The fund owns BRAC Bank, which rallied by +44.5% in August as investors reassessed sectors that would have greater autonomy in their decision-making. BRAC Bank’s P/E and P/B multiples have been de-rated in the last few years due to the regulatory overhangs it faced, but with the new government ushering in reforms, we believe there is much more room for BRAC Bank’s stock price and multiples to re-rate higher.

BRAC Bank’s Stock Price Has Re-Rated on Expectations of Less Regulatory Headwinds – This is the Only Bank the AFC Asia Frontier Fund Owns in Bangladesh

The fund initiated a position in Grameenphone, Bangladesh’s largest mobile telecom operator by market share. Similar to the banking sector, the telecom sector in Bangladesh has also faced major regulatory challenges, which could now be eased. Grameenphone’s fundamentals are solid but its valuation multiples have been de-rated because of the regulatory issues the telecom sector has faced in the past few years. We expect Grameenphone’s valuation multiples to improve in the anticipation that its management will now be able to take decisions without any major inhibitions.

We Expect Lower Regulatory Burdens on the Banking and Telecom Sectors Under the New Bangladesh Government – This Should be Positive for Valuations Multiples of BRAC Bank and Grameenphone

The fund’s largest position in Pakistan is now Airlink Communication (Airlink), as its rally continued into August. Airlink is the leading mobile phone assembler and distributor in Pakistan. The key reason for the rally in its stock price in August was the company’s announcement that it would begin assembling and distributing laptops and tablets for Acer. This new contract is in addition to its existing partnership to assemble and distribute Xiaomi smartphones and televisions in Pakistan.

Despite Airlink’s share price gain of +44.6% this month, the stock trades attractively at an estimated 2025 P/E ratio of 8.6x, with the prospects for very strong earnings growth over the next few quarters.

Airlink Communication is a Multi-Bagger for the AFC Asia Frontier Fund and is Now the Fund’s Largest Position in Pakistan

TBC Bank Group (TBCG) in Georgia declared a strong quarterly result with solid fundamentals. Net profits in Q2 2024 grew by 12%, while the bank’s Uzbekistan operations gained momentum, increasing net profits by 80% in Q2 2024, bringing Uzbekistan’s contribution to consolidated net profits to 7%.

The fund owns both TBC Bank Group and Bank of Georgia Group (BGEO), whose stock prices have staged a strong recovery after they corrected in May 2024 due to political noise in Georgia. Both TBCG and BGEO still trade very attractively at P/E ratios of 5.0x and 3.3x while delivering RoEs of 27.1% and 28.0% respectively.

Overall, Georgia’s economic growth is beating expectations, with GDP growth for the first seven months of 2024 coming in at 9.7%, which should be positive for both TBCG and BGEO going forward.

TBC Bank and Bank of Georgia Stock Prices Have Recovered After Correcting in May 2024 on the Back of Strong Quarterly Results and Strong GDP Growth in Georgia

The best-performing indexes in the AAFF universe in August were Bangladesh (+9.9%) and Vietnam (+2.6%). The poorest-performing markets were Sri Lanka (−4.7%) and Iraq (−4.1%). The top-performing portfolio stocks this month were a consumer electronics assembler in Pakistan (+44.6%), a Bangladeshi bank (+44.5%), a consumer healthcare company in Pakistan (+44.4%), a tobacco products company in Bangladesh (+27.3%), and a Bangladeshi cement company (+20.2%).

In August, the fund purchased a mobile telecom company in Bangladesh, exited an oil and gas producer and a pharmaceutical company both from Pakistan. The fund also added to existing positions in Pakistan and Mongolia and reduced a position in Mongolia.

At the end of August 2024, the portfolio was invested in 65 companies, 2 funds, and held 4.9% in cash. The two biggest stock positions were an information technology company in Vietnam (4.8%) and a fintech company in Kazakhstan (4.6%). The countries with the largest asset allocation were Vietnam (15.8%), Pakistan (12.2%), and Uzbekistan (11.7%). The sectors with the largest allocation of assets were financials (31.2%) and consumer goods (22.0%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.54x, the estimated weighted harmonic average P/B ratio was 1.11x, and the estimated weighted average portfolio dividend yield was 3.28%. The fund’s portfolio carbon footprint is 0.45 tons per USD 1 mn invested.

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned +0.4% in August 2024 with a NAV of USD 1,398.12, bringing the return since inception (29^th March 2019) to +39.8%, while the return for the year stands at −19.6%. On an annualised basis, the fund has returned +6.4% p.a. with a Sharpe ratio of 0.29.

August saw a rebound in volume in some of the fund’s holdings, specifically the Uzbek Commodity Exchange (TSE: URTS) which closed the month up 15%. Furthermore, there was an announcement on 28^th August 2024 of the government’s intention to form a holding company for state-owned enterprises, with plans to list it both domestically and abroad. 

On 28^th August 2024, the government announced that a national investment fund would be created to hold the government’s share in 18 state-owned enterprises and whose shares will likely be listed on the Tashkent Stock Exchange and abroad on a foreign bourse. The fund’s holdings will include Uzbekistan Airways, Uzbekistan Airports, the government’s 40% share of the Uzbek Commodity Exchange (TSE: URTS), as well as telecommunication, financial services, and infrastructure-related companies. 

This fund will accelerate the government’s SOE transformation toward stronger corporate governance standards, in line with the OECD, upgrade financial reporting standards from local standards to IFRS, and hopefully attract new private sector foreign investment into these companies. Through the end of the decade, the minimum dividend payout ratio will also be set at 50% of the profits generated by the fund’s holdings, providing some clarity on cash flows for investors through the rest of the decade.

What remains to be seen is who will manage this vehicle, though the government has stated that it will attract an international management company. Franklin Templeton naturally comes to mind as they have spent significant time on the ground to create such a structure in partnership with the government. Furthermore, Templeton did something very similar with the Fondul Proprietatea scheme in Romania, which proved to be very successful. Having a well-known international manager involved in this process would be a big step in the right direction for Uzbekistan. For now, however, we are awaiting further details.

Uzbekistan’s Olympic Achievement

Over the last three years, Uzbekistan has invested roughly USD 50 million to prepare for the Paris Olympics. The results were pretty impressive, as Uzbekistan won 13 medals, including 8 gold. This placed Uzbekistan 13^th among the 206 participating countries, making it the top performer among Turkic, Muslim, and Post-Soviet states, coming in with the fourth most medals in Asia as well. 5 out of the 8 gold medals won were in boxing, which the region is well known for, along with judo and wrestling. 

Uzbekistan continues to let its presence be known on the world stage, whether through the Olympics or increasingly investing in international advertising for tourism, in line with increasing flight connectivity to Europe, the Middle East and Asia. Hopefully, in time, we will see an equally strong push in the development of the capital markets, which could mirror such performance in developing other sectors of the economy.

At the end of August 2024, the fund was invested in 24 names and held 8.0% cash. The portfolio was allocated to Uzbekistan (91.9%) and Kyrgyzstan (0.1%). The sectors with the largest allocation of assets were financials (44.2%) and materials (24.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.40x, the estimated weighted harmonic average P/B ratio was 0.74x, and the estimated weighted average portfolio dividend yield was 4.65%.

AFC Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned −4.6% in August 2024 with a NAV of USD 1,576.87, underperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which lost 4.1% during the month. The fund was up 10.2% year to date versus 8.0% up for the index. Since its inception, the fund has gained 57.7% while the RSISUSD index is up by 11.9%, an outperformance of 45.8%.

The combination of a hotter-than-normal (hottest) month of the year, for the second month in a row (charts below), and the 40-day Arbaeen pilgrimage, cast their shadows over the country’s economy and on the market’s trading volumes. The pilgrimage ended with a climax marking the end of the 40-day mourning period (Arbaeen in Arabic) of the death of Prophet Muhammad’s grandson, Imam Hussein, which ended on the 25^th of August. Normal economic activity generally slows down considerably during the Arbaeen - among the world’s largest annual pilgrimages, with a reported 21.4 million pilgrims taking part this year, with some walking to Karbala from across Iraq. Normally, about two-thirds of pilgrims come from Iraq and one-third from Iran, Lebanon, the Gulf states, Pakistan, India, the U.K., and the U.S.

Monthly Weather Averages for Baghdad (°C)

August 2024 Temperature Graph for Baghdad (°C)

The top companies in the market continued their strong net profit and shareholder equity growth with the release of the 2^nd quarter of 2024 (Q2/24) reports, which showed strong quarter-over-quarter and year-over-year growth. Given that these companies operate in different sectors, each with their own dynamics, and each company within the same sector (banking) with its own particular dynamics, the tables below aim to capture these differences by looking at both quarterly and yearly growth. They compare Q2/24 to Q1/24, Q2/24 to Q2/23 to capture quarterly growth both sequentially and year-over-year, as well as trailing 12 months (TTM) ending in Q2/24 to TTM ending in Q2/23 to capture full year growth. 

The background to the healthy growth enjoyed by these companies is the relative stability that the country has enjoyed over the last few years, which provided a 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. Supporting this growth are the liquidity injections into the economy by the government’s expansionary three-year budget for 2023-25 that resulted in an estimated real non-oil GDP growth in 2023 of 6.0%, followed by an estimated 3.5% in 2024, which is projected to grow further still by 3.3% in 2025 (IMF). For the banking sector, this has been further fuelled by the significant fundamental developments that promise to accelerate the adoption of banking and bring about a transformation of the sector and its role in the economy, which in turn should promote the growth of other companies.

Net Profit and Shareholder Equity Growth for Selected Companies

The combination of a hotter than usual August and the 40-day Arbaeen pilgrimage have affected trading activity, extending the profit taking for a fourth month in a row. However, the market’s technical picture continues to be positive, and the pull-back has been within its multi-month uptrend (chart below).

Rabee Securities U.S. Dollar Equity Index

We believe that the upside opportunity for the AFC Iraq Fund will come about as the RSISX USD Index, which by the close of August was 20.3% below its 2014 peak, regains that peak and rallies further, reflecting the developments discussed here over the last few months. However, risks remain given Iraq’s recent history of conflict, extreme leverage to volatile oil prices, as well as the risks that the widening of the current Middle East conflict will not be contained and evolve to destabilise the region.

At the end of August 2024, the AFC Iraq Fund was invested in 8 names and had a cash level of 12.3%. 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 (85.9%), Norway (1.5%), and the U.K. (0.3%).

The sectors with the largest allocation of assets were financials (67.3%) and consumer staples (11.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.13x, the estimated weighted harmonic average P/B ratio was 1.40x, and the estimated weighted average portfolio dividend yield was 5.32%. The fund’s portfolio carbon footprint is 0.09 tons per USD 1 mn invested.

Notes:
(*) The AFC Iraq Fund newsletter “Companies’ Profit and Equity Growth Continue” that we published on 1^st September 2024 used an estimate for Q3/23 to estimate the FY23 figures, as the company had not reported the full year numbers at that time. However, the company has since reported full year 2023 numbers, and as such Q4/23 was calculated from those and from the  Q1-Q3/23 numbers.
(**) Using unaudited quarterly data, and net profit is net profit after tax. IBSD’s net profit is arrived at after accounting for the company’s tax rate.

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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