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The AFC Uzbekistan Fund Class F shares returned −2.9% in February 2024 with a NAV of USD 1,631.97, bringing the return since inception (29th March 2019) to +63.2%, while the return for the year stands at −6.1%. On an annualised basis, the fund has returned +10.5% p.a. with a Sharpe ratio of 0.61.
February was another month of muted market activity where buyers were largely absent from the market, and overall volume on the Tashkent Stock Exchange was quiet. As a result, share prices slowly drifted lower, making the fund’s portfolio company valuations that much more attractive, as our core positions continue to experience strong growth, which is nonetheless frustrating as we await the next up-leg in the market. Longer-term however, being able to purchase more shares at attractive prices is good for our long-term holding nature and presents an attractive opportunity for new or existing investors looking to gain or add exposure to Uzbekistan.
The Middle Corridor Strengthens
As America’s influence wanes in Central Asia following its withdrawal from Afghanistan, China has been accelerating diplomatic relations in order to ensure its dominance (along with Russia) in the region as it expands its Belt & Road Initiative, creating an alternative logistics route to Europe, circumventing Russia.
During the final week of January, President Mirziyoyev visited China where he met Xi Jinping and the two countries upgraded their relationship to an “all-weather” comprehensive strategic partnership. This is significant because, as discussed below on the trans-Afghan railway, which will connect Uzbekistan and Pakistan, expanding a key trade route for Uzbekistan, Pakistan is the only other country in the region which holds the same strategic partnership designation with China. This indicates to us that China is serious about increasing its influence in Afghanistan (most likely for its vast endowment of natural resources) and which will simultaneously increase connectivity and trade between Central and South Asia.
Back to China and Uzbekistan, Chinese investment has increased in the country to USD 14 bn through 2023, while joint ventures have grown to over 2,300. Meanwhile, companies like the electric vehicle manufacturer BYD are planning to establish a factory in Uzbekistan, and undoubtedly others will follow. From my time in Cambodia and Vietnam it’s clear that significant Chinese investment in logistics and manufacturing in a country can create a gravity for others to follow.
For example, Turkish firm “Warboots” has announced plans to invest USD 50 mn to build a factory for production of military footwear in Akhangaran industrial zone, 60 km from Tashkent. The factory will create 4,000 jobs and generate USD 700 mn in production for export.
Uzbekistan is still in its early days of development, and while patience is required to see the fruits of the governments labour to transform the economy pay off, it is certainly moving in the right direction. We are merely anxiously awaiting such similarly positive spillover into the capital markets which will be even more exciting for the fund and its respective performance.
Uzbekistan Recommences Rail Construction with Afghanistan
The Uzbek government knows that it needs to enhance logistical connectivity to the rest of the world as Uzbekistan suffers from the unfortunate status of being one of only two double-landlocked countries in the world, the other being Liechtenstein. Thus, one key corridor is to Pakistan’s Gwadar port via Afghanistan. Currently there is only road connectivity on the route, and contrary to popular belief, it is now safer and more efficient than during the U.S. occupation of Afghanistan. However, the plan to build a 760 km railway along this route, which is initially estimated to be completed by the end of the decade and have the capacity to carry 15 mn tons of freight per year, would be a game-changer for the region. The next step in making this plan come to fruition is repairing a 75 km stretch of rail linking Termez, Uzbekistan to Mazar-i-Sharif, Afghanistan. The repair is planned to cost USD 6.3 mn and take three months and thereafter will allow Uzbekistan to export goods such as cement, steel, and finished goods more efficiently to northern Afghanistan where it has a de facto monopoly due to lower logistics costs compared to Pakistan or Iran.
AFC Uzbekistan Tour 2024
For those interested in visiting Uzbekistan with us, we are organizing our third AFC Uzbekistan Tour, which will be held from Sunday 19th May 2024 to Tuesday 21st May 2024. We will begin on the 19th with a day tour of Tashkent, followed by company meetings and site visits on the 20th and 21st. If you are interested in joining, please write us at This email address is being protected from spambots. You need JavaScript enabled to view it..
At the end of February 2024, the fund was invested in 24 names and held 8.6% cash. The portfolio was allocated to Uzbekistan (91.33%) and Kyrgyzstan (0.05%). The sectors with the largest allocation of assets were financials (44.5%) and materials (30.7%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 4.57x, the estimated weighted harmonic average P/B ratio was 0.91x, and the estimated weighted average portfolio dividend yield was 3.58%.
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