“The only thing we know about the future is that it is going to be different.”

– Dr. Peter Ferdinand Drucker - Austrian American management consultant, educator, and author

AFC Funds Performance Summary

The AFC Iraq Fund continued to perform strongly, achieving a notable monthly gain of +12.4%, while the Iraqi stock market reached a new all-time high. The AFC Asia Frontier Fund also reported another robust monthly gain of +2.6% despite declines in all major global indices. This highlights the excellent diversification benefits that Asian frontier markets provide.

Asian Frontier Markets Should Be Able to Manage a Second Donald Trump Presidency

With the most awaited event of the year leading to a victory for Donald Trump, attention now shifts to how his Presidency will affect various countries, especially in light of his comments regarding tariffs and trade. Though there will be some level of uncertainty until words translate into action, we believe that our universe of Asian frontier markets is well positioned to handle trade-related issues.

South Asian and Central Asian frontier markets have a relatively low exposure to exports as a percentage of GDP and are more dependent on their domestic economies to support economic growth. Furthermore, South Asian frontier markets like Bangladesh, Pakistan, and Sri Lanka are all going through macro-economic recoveries which are largely independent of U.S. trade policies or the outcome of the U.S. Presidential election.

Although Vietnam has a high dependency on exports, particularly to the U.S., it has been a key beneficiary of the global supply chain shift because of the higher tariffs on Chinese exports to the U.S. Any further expansion of tariffs on Chinese exports to the U.S. and/or an increase in geopolitical tensions between China and the U.S. could continue to benefit Vietnam positively with respect to manufacturing-related foreign direct investments.

In conclusion, we firmly believe that Asian frontier markets may outperform in the context of significant uncertainties surrounding U.S. trade policies because either (1) most of our markets have domestic driven economies or (2) some of our key markets like Vietnam could continue to benefit from escalating trade and geopolitical tensions.

South Asian and Central Asian Frontier Economies Less Dependent on Trade
(Exports as % of GDP in 2023)

Vietnam’s Exports are Dependent on the U.S but Vietnam is also a Key Beneficiary of the Global Supply Chain Shift (Exports to U.S. as % of Total Exports in 2023)

AFC Quarterly Webinar on 29^th October 2024

We conducted our regular quarterly webinar on 29^th October 2024 attended by both existing and prospective investors, who engaged with insightful questions. In case you missed this excellent webinar, you can watch the recording or view the presentation below.

November 2024 Subscription Cut-Off Date

The next cut-off date for subscriptions for our funds will be 25^th November 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 October 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 Travel

AFC Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned +12.4% in October 2024 with a NAV of USD 1,976.33, closing at an all-time high, while the Rabee Securities RSISX USD Index (RSISUSD index) climbed to an all-time monthly high, surpassing the January 2014 peak by 1.7%. The fund is up 38.2% year to date versus 37.7% for the index. Since inception, the fund has gained 97.6% while the RSISUSD index is up by 42.7%, an outperformance of 54.9%.

The promising aspect of the market’s strong momentum of the last two months (October saw an 17.7% increase, on the back of August’s 11.6% increase), was that it was matched by meaningful increases in trading volumes in which the average daily turnover for the two months was twice that of the preceding four-month pull-back. However, irrespective of whether the market over the next few months rallies further, consolidates, or pulls back, its overall trajectory is determined by the dynamics that are transforming the Iraqi economy. Foremost among them is the cumulative positive effects of the relative stability that the country has enjoyed over the past few years, creating a more stable and predictable macroeconomic framework for businesses and individuals to operate in and plan for capital investments on a scale last seen in the 1970’s and early 1980’s before the onset of the decades of conflict. 

Other key dynamics are the expansionary 2023 and 2024 budgets that are boosting the non-oil economy, and the structural changes in the financial sector that are accelerating the adoption of banking and bringing about a transformation of the sector and its role in the economy. The combination, in turn, is providing the wherewithal for the leading companies in the country to deliver outstanding profit growth. These dynamics are long-term in the making and should continue to unfold over the next few years, as discussed here in the market’s outlook for 2024, following a gangbuster 2023 in which the index was up 97.2% and the AFC Iraq Fund was up 110.4%.

These dynamics, as well as the market’s recent performance and outlook, were discussed in the AFC Iraq Fund section during Asia Frontier Capital’s quarterly webinar on 29^th October 2024 providing its regular “Asian Frontier Markets Update”. Given the heightened fears of a widening of the current Middle East conflict, the images below, highlighted during the webinar, reflect the argument that the Iraqi equity market’s rally follows from its discounting the powerful dynamics discussed here. These images were taken prior to, and after the Israeli attack on Iran on 26^th October 2024, and reflect the prosperity and normality that Baghdad is enjoying.

Selected Evening Scenes in Baghdad

Selected Morning and Afternoon Scenes in Baghdad

We continue to believe that the upside opportunity for the AFC Iraq Fund will come about as the RSISX USD Index, having surpassed its 2014 peak by 1.7%, rallies further, reflecting the powerful dynamics discussed here. However, risks remain given Iraq’s recent history of conflict, extreme leverage to volatile oil prices, as well as the risk that the widening of the current Middle East conflict will not be contained and evolve to destabilise the region.

At the end of October 2024, the AFC Iraq Fund was invested in 8 names and had a cash level of 11.6%. The fund invests in both local and foreign-listed companies that have the majority of their business activities in Iraq. The markets with the largest asset allocation were Iraq (87.2%), Norway (1.0%), and the U.K. (0.2%).

The sectors with the largest allocation of assets were financials (70.1%) and consumer staples (8.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.42x, the estimated weighted harmonic average P/B ratio was 1.83x, and the estimated weighted average portfolio dividend yield was 3.46%. The fund’s portfolio carbon footprint is 0.07 tons per USD 1 mn invested.

 AFC Asia Frontier Fund - Manager Comment

The AFC Asia Frontier Fund (AAFF) USD A-shares returned +2.6% in October 2024 with a NAV of USD 1,775.81. The fund outperformed the benchmark MSCI Frontier Markets Asia Net Total Return USD Index (−3.2%), the MSCI World Net Total Return USD Index (−2.0%), and the MSCI Frontier Markets Net Total Return USD Index (−0.6%). Year-to-date, the fund has delivered a +14.3% return, outperforming the benchmark, which is up by 1.2%. The performance of the AFC Asia Frontier Fund A-shares since inception on 30^th March 2012 now stands at +77.6% versus the benchmark, which is down by 22.8% during the same period, showing an outperformance of +100.4% since inception. The fund’s annualized performance since inception is +4.7%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 10.4% 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.

The positive momentum continued for the AFC Asia Frontier Fund and Asian frontier markets, led by ongoing stock market rallies in Iraq, Pakistan, and Sri Lanka. This once again shows the diversification benefits of the AFC Asia Frontier Fund, which reported another positive month while global markets were in the red. Gains in October were led by Iraq, Pakistan, Sri Lanka, and Kazakhstan, with the main negative contributors being Vietnam and Uzbekistan.

Aggressive interest rate easing continued from the State Bank of Pakistan which cut its benchmark interest rate by another 250 basis points, bringing the total interest rate reductions to 700 basis points since June 2024. Given that real interest rates are still very high and inflation is expected to remain in single digits in the near future, we believe there is room for another 250 basis point decrease in the benchmark interest rate when the State Bank of Pakistan makes its monetary policy decision in December 2024.

This swift easing in monetary policy in Pakistan was expected by us when we published our 2024 Outlook in December 2023 which you can refer to here. The AFC Asia Frontier Fund has been very well positioned to capture the +47% year to date rally on the Pakistan Stock Exchange and Pakistan is now the fund’s largest country weighting thanks to both greater allocation and price appreciation.

Another 250 Basis Points Cut in Pakistan’s Benchmark Interest Rate – We Expect More to Come and the Pakistan Rally to Continue

Kaspi, the fintech super app company from Kazakhstan and the fund’s second-largest stock position, announced its first major acquisition, purchasing Türkiye’s Hepsiburada, one of the leading e-commerce players in Türkiye. Kaspi will be purchasing 65% of Hepsiburada and this acquisition will significantly increase Kaspi’s target market size in terms of both population and market opportunity while leveraging Kaspi’s strong execution capabilities at Hepsiburada.

Kaspi also reported a strong 3Q24 result, with net profits growing by +18% while maintaining its full-year 2024 outlook of around +25% net profit growth. The stock continues to trade very attractively valued relative to its growth and fundamentals, with an estimated 2025 P/E ratio of 7.8x.

Kaspi’s E-Commerce Acquisition of Türkiye’s Hepsiburada Can Be a Long-Term Positive for the Company

Sri Lanka’s post-election rally continues as confidence builds regarding stable policymaking under newly elected President Mr. Anura Kumara Dissanayake (AKD). Additionally, another reason for a re-rating in Sri Lankan equities is the consensus that AKD’s party will be able to gain a majority in the upcoming parliamentary elections on 14^th November 2024.

Banking stocks are leading the rally on the Colombo Stock Exchange as their very attractive valuations get re-rated from a recovery in loan growth and lower provisioning costs which will allow their profitability to see a significant improvement after being depressed by multiple factors over the last few years.

The AFC Asia Frontier Fund has good exposure to Sri Lankan banks, holding Commercial Bank of Ceylon (COMB) and Hatton National Bank (HNB), with COMB being the fund’s largest position in Sri Lanka while also being one of the fund’s top 10 holdings.

The AFC Asia Frontier Fund’s Sri Lankan Bank Holdings are Witnessing a Post-Election Re-Rating as Economic Growth Recovers and Policy Making Remains Stable

FPT Corp. (FPT), the Vietnamese software outsourcing company and the fund’s biggest stock position, declared another quarter of solid execution as its 3Q24 net profits grew by +20%. With its order book reaching USD 1 bn, FPT has very good visibility on revenues in the upcoming quarters. While the stock has performed very well, prospects for FPT remain robust, with an outlook for 20% earnings growth over the next two years.

FPT Corp. – The Vietnamese Software Outsourcing Company and the AFC Asia Frontier Fund’s Largest Stock Position Reported Another Very Strong Quarterly Result

The best-performing indexes in the AAFF universe in October were Iraq (+17.6%) and Pakistan (+9.9%). The poorest-performing markets were Bangladesh (−7.6%) and Vietnam (−1.8%). The top-performing portfolio stocks this month were a Pakistani tobacco company (+42.7%), a Bangladeshi pharmaceutical company (+29.2%), a software outsourcing company from Pakistan (+21.5%), a Sri Lankan conglomerate (+18.5%), and a consumer healthcare company from Pakistan (+18.3%).

In October, the fund purchased a pharmaceutical producer and a power equipment manufacturer in Pakistan. The fund exited a Pakistani consumer staple company, two banks, and an automobile producer in Vietnam. During the month, the fund also added to existing positions in Bangladesh, Pakistan, Sri Lanka, and Mongolia and reduced existing positions in Pakistan and Mongolia.

At the end of October 2024, the portfolio was invested in 65 companies, 2 funds, and held 7.4% in cash. The two biggest stock positions were an information technology company in Vietnam (4.5%) and a fintech company in Kazakhstan (3.6%). The countries with the largest asset allocation were Pakistan (14.3%), Vietnam (12.7%), and Uzbekistan (10.4%). The sectors with the largest allocation of assets were financials (30.4%) and consumer goods (21.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.48x, the estimated weighted harmonic average P/B ratio was 1.13x, and the estimated weighted average portfolio dividend yield was 3.51%. The fund’s portfolio carbon footprint is 0.54 tons per USD 1 mn invested.

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned −1.9% in October 2024 with a NAV of USD 1,327.82, bringing the return since inception (29^th March 2019) to +32.8%, while the return for the year stands at −23.6%. On an annualised basis, the fund has returned +5.2% p.a.

In October, we received further positive news regarding the partial sell-down of the Uzbek Commodity Exchange (TSE: URTS) by the Uzbek government, for which local investor demand remains very strong. However, the broader market continues to face challenges as we await the finalisation of the capital markets infrastructure. This improvement will make it easier for large foreign financial institutions, which are already showing interest, to begin allocating capital to the market.

Macro Update

While we await the completion of the upgrades to Uzbekistan's capital markets, which are progressing, it’s important to note that the macroeconomic outlook for Uzbekistan remains robust.

For the first nine months of 2024, GDP grew by 6.6%. Earlier this month, the IMF updated its GDP growth projections to 5.6% for 2024 and 5.7% for 2025. Thereafter, the Uzbek government announced expectations for GDP to reach USD 200 billion by 2030, an increase from USD 101 billion in 2023. Notably, 2023 GDP was revised upwards by 12%, or USD 10.7 billion, by the IMF as they incorporated figures from the grey market economy, which was estimated to constitute 60% to 70% of GDP when Asia Frontier Capital began investing in the country. The government has made significant strides in eliminating the grey market through enhanced enforcement, digital measures, and simplifications to the tax code. For example, following the tax code reforms, the number of individuals registered as "self-employed" surged by 87% year-on-year, reaching 4.08 million.

Despite facing persistent inflation—aimed to be reduced to 7% by the end of 2025—and budget constraints, the government has effectively maintained high and diversified economic growth driven by robust domestic demand.

GDP

Uzbek Commodity Exchange Secondary Offering Update

In the final week of September, the government announced a secondary offering to sell 4.44% of its stake in the Uzbek Commodity Exchange (TSE: URTS). This sale will reduce the government’s ownership to 40% post-offering and will enhance the liquidity of the company’s shares, which currently have a free float of 15%. The 4.44% stake equates to 3,326,031 shares or approximately USD 3.7 million as of 31^st October 2024. The offering is structured as a Dutch auction, with a price range set from UZS 12,900 to UZS 18,000 per share, resulting in a dividend yield of 20.16% at the low end and 14.44% at the high end of the range. 

This paragraph recaps the September 2024 update and is highlighted because the book building was originally scheduled to close on 25^th October 2024. However, in mid-October, the government announced that the closing of the book would be pushed back to 8^th November 2024. Typically, this would suggest an unsuccessful offering since more time is allowed to attract investors. However, in this instance, the situation is quite the opposite. The book is likely to be significantly oversubscribed, but due to a surge in new brokerage accounts being opened, mainly by local Uzbek retail investors, stock brokerages have been overwhelmed by demand. The extension was a necessary step to accommodate the influx of inquiries and account processing.

This news is very encouraging, indicating that a well-managed state-owned enterprise is successfully privatising further shares amid strong demand. This marks a significant contrast to the partial privatisations of a glass manufacturer and a metal fabrication company in 2018 and 2019, both of which struggled with profitability and saw their share prices decline following their secondary offerings.

At the end of October 2024, the fund was invested in 24 names and held 8.3% cash. The portfolio was allocated to Uzbekistan (91.6%) and Kyrgyzstan (0.1%). The sectors with the largest allocation of assets were financials (40.9%) and materials (22.2%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.19x, the estimated weighted harmonic average P/B ratio was 0.67x, and the estimated weighted average portfolio dividend yield was 2.92%.

AFC Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned −3.3% in October with a NAV of USD 3,319.32, bringing the year-to-date return to +5.5% and return since inception to +231.9%. The fund outperformed the benchmark, the Ho Chi Minh City VN Index, which lost 4.6% in October 2024 and has gained 7.4% year to date in USD terms. The fund’s annualized return since inception stands at +11.7% p.a. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 14.72%, a Sharpe ratio of 0.68, 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

The October decline in the Vietnamese stock market was primarily driven by the VND's depreciation against the USD, with the dollar rising over 2.9% this month. Resilient U.S. economic data has led investors to anticipate a slower pace of Fed rate cuts, strengthening the USD globally. However, we believe the VND's recent depreciation is temporary. Expected Fed rate cuts, robust FDI inflows, trade surpluses, and remittances should support the VND in the fourth quarter. We currently forecast a 3.0% depreciation of the VND against the USD for 2024.

October’s market decline was also partly influenced by some investors' anticipation that FTSE might upgrade Vietnam to Emerging Market status during the month. However, as outlined in our last newsletter, FTSE opted to keep Vietnam on its watch list until the effective implementation of the Non-Pre-Funding Regulation, a key requirement for the upgrade. This regulation, effective from 2^nd November 2024, has prompted brokers to survey clients and set loan limits. Given this timeline, we expect FTSE could announce Vietnam's upgrade to Emerging Market status in either the March 2025 or September 2025 semi-annual review.

The impressive Growth of Vietnam’s Economy

Vietnam's economy demonstrated impressive growth in 3Q 2024, despite the impact of Typhoon Yagi in September. GDP growth reached 7.4% in 3Q 2024, surpassing most forecasts and driving the nine-month cumulative growth in 2024 to 6.8%. Key sectors propelling this expansion include industrial production, exports, FDI, retail, and tourism. Industrial production rose 8.3% y-o-y, while export revenue surged 15.4% to a record high of USD 299.6 bn, marking the 13^th consecutive month of export growth. FDI remained robust, with USD 17.3 bn disbursed in the first nine months, up 8.9% y-o-y, setting a new record. Retail sales showed an 8.8% growth, and tourism flourished with 12.7m international arrivals, up 43% y-o-y, contributing approximately USD 13 bn to Vietnam’s economy. Vietnam’s economic growth has been broad-based and well-balanced across sectors, highlighting the resilience and dynamism of the economy.

Vietnam’s Economic Growth in the First 9 Months of 2024

Export Continues to Reach New High’s (USD bn)

Following Vietnam's strong economic performance in 2023, the government has decided to raise its 2024 growth target from 6.5% to an ambitious 6.8-7.0%, with an even higher goal of 7.0-7.5% for 2025. On 21^st October 2024, Prime Minister Pham Minh Chinh announced at the National Parliament Meeting, "Vietnam's GDP is expected to grow by 6.8-7.0 percent this year, and we are aiming for 7.0-7.5 percent in 2025, supported by a 15 percent credit growth target and substantial public investment in transport infrastructure." He emphasized Vietnam's commitment to attracting foreign investment and expanding export markets, stating, "Numerous challenges lie ahead, but no challenge can slow us down." The stability in Vietnam’s political landscape has undoubtedly reinforced its economic momentum, paving the way for continued growth.

Solid Political Stability

With To Lam assuming the role of General Secretary of the Vietnamese Communist Party and Luong Cuong being elected President on 21^st October 2024, Vietnam has achieved full leadership stability, effectively concluding any internal competition within the Politburo. This unified leadership structure allows the government to concentrate fully on national economic growth objectives. Political stability is crucial in supporting Vietnam’s long-term growth outlook, providing a solid foundation for ambitious economic initiatives and strategic development plans.

Luong Cuong, the New President of Vietnam

State Spending for Investment and Development

Following Vietnam’s quarterly economic report released in October, HSBC revised its 2024 GDP growth forecast for Vietnam to 7%, indicating confidence in the country’s economic momentum. HSBC anticipates a continued, broad-based recovery across various sectors in the coming quarters. This 7% forecast is the most optimistic growth estimate provided by any international financial institution for Vietnam’s economy this year. Additionally, S&P Global Market Intelligence identified Vietnam as a top fast-growing economy for the next decade, forecasting an average annual growth rate of 6.2%, followed by India at 5.9%, the Philippines at 4.8%, and Indonesia at 4.7%. While long-term forecasts involve uncertainties, the S&P Global Market Intelligence projections underscore a strong level of confidence in Vietnam’s economic potential.

3Q 2024 Earnings Growth – Recovery in Consumption and Exports

In October 2024, many listed companies began releasing their quarterly financial reports. According to FINGROUP, earnings growth for companies on the HOSE reached 17% year-on-year. Within our portfolio, most companies reported positive results, with the AFC Vietnam Fund experiencing an estimated earnings growth of around 10% in 3Q 2024, lower than anticipated due to the impact of Yagi storm which damaged the profitability of the insurance sector. Other companies performed well, including positions in the insurance sector.

• Thien Long Group (TLG), Vietnam's largest stationery company, showed an impressive recovery in 3Q 2024, with net profit jumping 53% to VND 90.2 bn, trading at a P/E ratio of 9.6x.
• Hang Xanh Motors Service (HAX), the largest Mercedes dealer in Vietnam, reported a significant increase in net profit, rising 9.8 times to VND90.2 bn, underscoring the recovery of the Vietnamese consumption market.
• TNG Investment and Trading (TNG), one of the largest garment exporters in Vietnam, showed an impressive growth in net profit in 3Q 2024, increasing by 63% from VND 68 bn to VND 111 bn, reaching an all-time high in the company’s history.
• Agriculture Bank Insurance (ABI), one of our top five positions, reported a loss due to the impact of the Yagi typhoon in September, with a slight loss of VND 16 bn (~USD 700k) attributed to increased payout provisions. Despite this, ABI generated positive cash flow, ending 3Q 2024 with a record cash balance of VND 3,234 bn against a market capitalization of VND 1,752 bn. Currently trading at a P/E ratio of 8x and P/B ratio of 1.1x, with a 4% dividend yield, ABI is in our view undervalued.

TNG Net Profits (VND bn)

Overall, our portfolio's earnings growth aligns with our forecasts on exports, consumption, and public investment sectors. We remain confident in capturing growth opportunities in Vietnam over the next few years.

At the end of October 2024, the fund’s largest positions were: Lam Dong Minerals and Building Materials (8.2%) – a building material supplier, Thien Long Group (7.1%) – a manufacturer of office supplies, Agriculture Bank Insurance (6.7%) – an insurance company, Minh Phu Seafood Corp (6.3%) – a seafood company, and Hang Xanh Motors Service (6.2%) – a Mercedes-Benz dealership.

The portfolio was invested in 38 names and held 3.4% in cash. The sectors with the largest allocation of assets were consumer (43.0%) and financials (24.4%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 11.49x, the estimated weighted harmonic average P/B ratio was 1.31x, and the estimated weighted average portfolio dividend yield was 4.06%. The fund’s portfolio carbon footprint is 1.61 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

This email address is being protected from spambots. You need JavaScript enabled to view it.