“Champions keep playing until they get it right.”

– Billie Jean King - American former world No. 1 tennis player

AFC Funds Performance Summary

The AFC Asia Frontier Fund posted another positive monthly return despite the global stock market volatility, while the AFC Iraq Fund bounced back very strongly after a weak August performance and reported a monthly gain of +11.5%.

Start of U.S. Fed Easing Cycle is Positive for Frontier and Emerging Markets

Though the interest rate cut by the U.S. Fed on 18^th September 2024 was widely anticipated, we believe the beginning of this easing cycle will be positive for frontier and emerging markets, as a very hawkish U.S. Fed was one of the major headwinds that developing markets faced in the last two years.

However, central banks in Asian frontier countries began easing their monetary policy well before September 2024. A more dovish Fed Chair Powell will only reduce the pressure on Asian frontier central banks and make their job easier in managing monetary policy.

We mentioned at the end of 2023 that the start of a global monetary easing cycle in 2024 will be one of key factors driving returns in Asian frontier markets, and this has played out as per our expectations. We believe the easing monetary policy in our universe will not only help drive returns in the fourth quarter of 2024 but will also provide a platform for gains in 2025 as lower interest rates feed into corporate profitability.

This should support the re-rating of still discounted valuations in our universe – the AFC Asia Frontier Fund continues to trade at a very attractive P/E ratio of only 6.6x despite a return of 41.6% since December 2022.

Asian Frontier Central Banks Began Reducing Interest Rates Well Before the U.S. Fed – This has been Positive for Asian Frontier Stock Markets (Cut in Basis Points in Last 18 Months)

AFC Quarterly Webinar on Tuesday, 29^th October 2024

We will host our regular quarterly webinar to update existing and potential investors on the performance and outlook for our funds. The webinar will be held on Tuesday, 29^th October 2024, at 9:00am NY, 1:00pm UK, 2:00pm Swiss, and 9:00pm 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 highlight the following key points:

• Drivers of performance for the AFC Asia Frontier Fund so far in 2024
• Key catalysts for the AFC Asia Frontier Fund going forward
• Key country and stock picks for the AFC Asia Frontier Fund
• Any concerns for Asian frontier markets going into 2025
• Outlook for the AFC Asia Frontier Fund / AFC Iraq Fund / AFC Uzbekistan Fund / AFC Vietnam Fund

The webinar will run for 75 minutes, including an extended 30-minute Q&A session following the fund managers' presentations. 

Please click on the button below to register for the webinar. If you are interested but unable to attend, please still register, and we will send you a link to the recording afterwards.

October 2024 Subscription Cut-Off Date

The next cut-off date for subscriptions for our funds will be 25^th October 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 September 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 Iraq Fund - Manager Comment

The AFC Iraq Fund Class D shares returned +11.5% in September 2024 with a NAV of USD 1,758.99, outperforming its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 8.5% during the month. The fund is up 23.0% year to date versus 17.2% for the index. Since inception, the fund has gained 75.9% while the RSISUSD index is up by 21.4%, an outperformance of 54.5%.

The market shrugged off the widening of the ongoing Middle East conflict that is engulfing Lebanon, and in a replay of the earlier escalation in April 2024, it rallied on meaningfully expanded trading volumes throughout the month and continued to rally as the conflict intensified significantly by month end. Then, a series of Israeli and Iranian attacks and counterattacks ignited fears that these could lead to a war that would destabilise the region – fears that are resurfacing as the current widening has led to the first salvo of a likely series of attacks and counterattacks. This time, the timing of the upcoming U.S. presidential elections and the closeness of the race are major elements in the calculations of the combatants in assessing the scale and breadth of the series of attacks and counterattacks, as well as the prospects of a regional war.

For Iraq, these developments would threaten the relative stability that it has enjoyed over the last few years, irrespective of its distance from the conflict or of the non-existent possibility that it would be drawn into it as a combatant. However, since the start of the conflict in early October 2023, the market is up 54.4% by month end, with the rally resuming momentum as the conflict escalated in this month and earlier in April 2024. While this is partly the market discounting the potential that an escalating conflict would not draw in Iraq, it is primarily a function of the market discounting the powerful dynamics that were driving the transformation of the economy, and that were already in place prior to the onset of the conflict.

Specifically, these dynamics are the expansionary 2023 and 2024 budgets that are providing a major boost to the non-oil economy, and the developments that promise to accelerate the adoption of banking and bring about a transformation of the sector and its role in the economy. These in turn have provided the wherewithal for strong profit growth for the leading companies in the country as discussed last month in “Companies’ Profit and Equity Growth Continue”. The market’s technical picture, as asserted here over the last few months, continues to be positive, with the four-month pull-back taking place within its multi-month uptrend (chart below).

Rabee Securities U.S. Dollar Equity Index

Whereas globally, oil markets continue to discount a contained conflict, as much as they have done following its onset, with near-term expectations primarily reflecting concerns over the current oil supply-demand imbalance, which have over the last few weeks driven prices and expectations lower. Overall oil market expectations, as measured by Brent crude futures contracts as of 1^st October 2024 (yellow line, chart below), are still near the middle of a range bound on the upper end by supply fears following the invasion of Ukraine (red line, chart below), and in the lower end, by those at the end of 2021 (grey line, chart below) – with the price spikes following the first salvo in the series of attacks and counterattacks unlikely to change the trajectory of these price expectations. Interestingly, medium to long-term expectations were mostly reflecting prospects for a resumption of global growth following the U.S. Federal Reserve’s aggressive rate cuts and China’s significant stimulus package – all of which are supportive for Iraq’s equity market given the country’s extreme leverage to oil prices.

Market Expectations for Future Oil Prices
As measured by Brent Futures Contacts (USD per barrel)

We continue to believe that the upside opportunity for the AFC Iraq Fund will come about as the RSISX USD Index, which by the close of September was 13.5% 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 September 2024, the AFC Iraq Fund was invested in 8 names and had a cash level of 5.7%. 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 (92.7%), Norway (1.4%), and the U.K. (0.2%).

The sectors with the largest allocation of assets were financials (73.4%) and consumer staples (10.6%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 5.86x, the estimated weighted harmonic average P/B ratio was 1.66x, and the estimated weighted average portfolio dividend yield was 4.16%. 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 (non-US) (AAFF) USD A-shares returned +0.6% in September 2024 with a NAV of USD 1,730.47. The fund underperformed the benchmark MSCI Frontier Markets Asia Net Total Return USD Index (+2.0%) and the MSCI World Net Total Return USD Index (+1.8%) and on par with the MSCI Frontier Markets Net Total Return USD Index (+0.6%). Year-to-date, the fund shows a +11.4% return, outperforming the benchmark, which went up by 4.5%. The performance of the AFC Asia Frontier Fund A-shares since inception on 30^th March 2012 now stands at +73.1% versus the benchmark, which is down by 20.2% during the same period, showing an outperformance of +93.3% 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.

It was another volatile month for global stock markets but the AFC Asia Frontier Fund, similar to August 2024, managed to overcome this significant volatility and posted a positive return again. This continues to reflect the fund’s country allocation and stock selection strategy, which have proven resilient during times of uncertainty in the global economy.

Returns in September 2024 were led by Iraq, Sri Lanka, Mongolia, Pakistan, and Vietnam, while Kazakhstan, Georgia, Uzbekistan, and Bangladesh contributed negatively to performance.

The key event in our universe in September was the Presidential election in Sri Lanka. Mr. Anura Kumara Dissanayake (also known as AKD) emerged victorious in a closely fought election, which saw the contest go into the second round of counting for the first time in Sri Lanka’s election history.

2024 Sri Lankan Presidential Election - % of Votes Received

AKD’s election win does not come as a surprise as pre-election polls all pointed to his victory. However, the concern among investors before the election was the new President’s outlook towards the ongoing International Monetary Fund (IMF) program, which is very important to the country. Thus, the Colombo Stock Exchange All Share Index lost close to 10% in the two months in the run up to the election on 21^st September 2024.

Since taking office, President AKD has committed to any renegotiation of the IMF program within the program framework which reflects the new administration’s commitment to ongoing reforms. Furthermore, President AKD and his team have also committed to the ongoing completion of Sri Lanka’s debt restructuring which is a very positive sign.

We are not surprised by the new administration taking a more balanced view on the ongoing IMF program, debt restructuring and reforms. We believed well before the election that any incoming government would not try to make any extreme changes to the IMF program since the ongoing measures and reforms have led to strong economic recovery in Sri Lanka and the country needs the IMF program and the related bilateral/multilateral funding to further cement Sri Lanka’s economic progress (you can read more on this in our June 2024 Sri Lanka Report). A recovery in tourist arrivals, momentum in remittances from overseas Sri Lankans, and a better than expected 1H24 GDP growth of +5.0% all point to a robust recovery, which needs to be supported by the new government.

With this view above, we took advantage of the weakness on the Colombo Stock Exchange in the run up to election and added to the fund’s weight in Sri Lanka. This decision was rewarded as the Colombo Stock Exchange has witnessed a very strong post-election rally as investors factor in President AKD’s more balanced stance towards the IMF program and the economy in general.

Another positive step taken by AKD has been the reappointment of the Governor of the Central Bank of Sri Lanka and the Treasury Secretary, both of whom have played an important role in improving Sri Lanka’s macro-economic position since the economic crisis in 2022. This move also signifies the importance being given to continued economic stability and momentum in Sri Lanka.

The next key event in Sri Lanka are the Parliamentary elections which will be held on 14^th November 2024. With President AKD’s momentum, it is possible that his NPP/JVP alliance forms the next government in Sri Lanka.

The Colombo All Share Index in Sri Lanka has Seen a Strong Post Election Rally

Though the U.S. Fed reduced interest rates by 50 basis points in September, the monetary easing cycle has been well underway in our universe over the past 12-18 months. The State Bank of Pakistan cut its benchmark interest rates by another 200 basis points in September 2024 which was ahead of consensus, but the magnitude of the reduction did not surprise us since inflation is now well below single digits with the benchmark interest rate at 17.5%.

Given the gap between the benchmark interest rate and inflation, we believe the State Bank of Pakistan has room to make more aggressive interest cuts. It is possible to see benchmark interest rates in Pakistan come down by another 400-500 basis points by the end of 2024 which will continue to provide momentum to the KSE-100 Index.

There is Room for the State Bank of Pakistan to Continue Cutting Interest Rates Aggressively – This is Positive for the Ongoing Rally in Pakistani Equities

The Central Bank of Mongolia also continued with its easing monetary policy and decreased its benchmark interest rate by another 100 basis points, bringing the total reductions to 300 basis points so far in 2024. This interest rate easing by many central banks in our universe is one of the key reasons why we are positive on the outlook for our markets not only as we enter the last quarter of 2024 but also looking towards 2025 as a lower interest environment will strengthen both investor sentiment and corporate profitability.

The best-performing indexes in the AAFF universe in September were Sri Lanka (+9.1%) and Iraq (+8.5%). The poorest-performing markets were Laos (−4.7%) and Bangladesh (−3.1%). The top-performing portfolio stocks this month were a gold mining company from Mongolia (+35.5%), a Pakistani consumer healthcare company (+33.4%), a junior gold miner from Mongolia (+32.7%), a Mongolian concrete producer (+32.1%), and a Mongolian technology company (+25.4%).

In September, the fund purchased a tobacco company in Pakistan, a rubber glove manufacturer in Sri Lanka, and a mall owner and operator in Vietnam. The fund also exited an airport retail store operator in Vietnam. During the month, the fund added to existing positions in Bangladesh, Mongolia, and Sri Lanka and also reduced existing positions in Mongolia.

At the end of September 2024, the portfolio was invested in 67 companies, 2 funds, and held 4.1% in cash. The two biggest stock positions were an information technology company in Vietnam (4.8%) and a fintech company in Kazakhstan (3.7%). The countries with the largest asset allocation were Vietnam (15.9%), Pakistan (12.6%), and Uzbekistan (11.3%). The sectors with the largest allocation of assets were financials (32.1%) and consumer goods (21.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 6.57x, the estimated weighted harmonic average P/B ratio was 1.07x, and the estimated weighted average portfolio dividend yield was 4.03%. The fund’s portfolio carbon footprint is 0.51 tons per USD 1 mn invested.

AFC Vietnam Fund - Manager Comment

The AFC Vietnam Fund returned −0.6% in September with a NAV of USD 3,433.96, bringing the year-to-date return to +9.2% and return since inception to +243.4%. The fund underperformed the benchmark, the Ho Chi Minh City VN Index, which gained 1.6% in September 2024 and has gained 12.6% year to date in USD terms. The fund’s annualized return since inception stands at +12.1% p.a. The broad diversification of the fund’s portfolio resulted in an annualised volatility of 14.72%, a Sharpe ratio of 0.71, 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 September 2024, the Vietnamese stock market was notably impacted by Typhoon Yagi, one of the most severe natural disasters to hit northern Vietnam. The Typhoon, which struck during the first week, caused widespread devastation—claiming more than 300 lives, with floodings and landslides impacting over 70,000 homes, particularly in the northern mountainous regions. Major areas like Hanoi, Quang Ninh (home to the UNESCO heritage site Ha Long Bay), and Hai Phong, Vietnam's largest seaport, were impacted by the typhoon. The devastation prompted the nation to shift its efforts toward providing aid and relief to the affected storm victims. In alignment with this national response, the investment manager of the  AFC Vietnam Fund also donated to support the victims of the disaster, reinforcing its commitment to both the community and the country during this challenging time. As a result of this typhoon, the stock market dropped by over 2% in the first half of the month but managed to recover and close at 1352.56 points, marking a gain of 1.54% in USD terms.

While the broader market rebounded in the latter half of the month, the insurance sector did not recover as quickly. The sector was significantly affected by the typhoon, with BVH, the largest insurer, dropping 5.8%, PVI sliding 6.1%, MIG losing over 10%, BIC tumbling 4%, and ABI, one of our largest positions, plunging by 6.2%. Given that the insurance sector accounts for around 7% of the AFC Vietnam Fund's portfolio, the storm’s impact weighed heavily on our fund’s performance.

PVI Holdings from February 2024 – September 2024

Typhoon Yagi

According to Deputy Minister of Agriculture and Rural Development Nguyen Hoang Hiep, the total economic damage from Typhoon Yagi could reach USD 2.5 bn, a figure five times higher than the total damage caused by natural disasters in 2023 and exceeding the combined toll of the past three years. The losses are expected to reduce GDP growth by 0.15%, bringing it below the prior forecast of 6.8-7%. Localities such as Hai Phong, Quang Ninh, Thai Nguyen, and Lao Cai could see their growth rates drop by more than 0.5%. Despite this, the Vietnamese government remains committed to its initial GDP growth target of 6.8-7%, which surpasses the 6.0-6.5% forecast from the National Assembly and predictions from international institutions such as the IMF, World Bank, and ADB. Given this confidence, we believe that Vietnam can still achieve an impressive GDP growth in 2024, despite the significant impact of Typhoon Yagi.

2024 GDP Growth Forecasts by ADB

Compelling Macro-Economic Numbers

In September, the General Statistics Office of Vietnam released the official economic data for August, confirming Vietnam's strong growth trajectory. According to the report, Vietnam’s economy demonstrated solid performance, with Industrial Production Index (IIP) growth reaching 9.5% in August. While the IIP is expected to face some setbacks due to the damage from Typhoon Yagi in September, it is still likely to maintain a good performance. GDP growth in Q3 is expected to be robust, supporting the full-year target. 

Also, other key economic indicators continued to show impressive improvement in August. FDI disbursement soared to USD 14.15 bn, marking an 8.0% year-on-year increase, hitting a new high. Meanwhile, exports surged by 15.1% to USD 265.09 bn, leading to a record trade surplus of USD 19.1 bn in the first eight months of 2024. Vietnam's transition from a trade deficit to a trade surplus country, starting in 2020, mirrors China's economic transformation in previous decades. In addition to strong export performance, consumption and tourism also outperformed expectations. Retail sales grew by 8.5% year-on-year, while international tourists reached 11.4 m, contributing around USD 12 bn to the economy. With these strong fundamentals, we are confident that Vietnam's economy will grow at an impressive rate in 2024.

Impressive Economic Performance in August 2024 (yoy)

Optimistic Market Outlook for Vietnam

In the second half of September, two significant developments positively influenced the Vietnamese stock market, creating strong momentum for long-term performance over the next 2-3 years: the introduction of the Non-Pre-funding Circular and the anticipated Fed rate cut. These factors are expected to be key drivers for sustained market growth.

Emerging Market Status - Non-Pre-funding Circular

On 18^th September 2024, the Ministry of Finance issued a circular providing pre-funding solutions guidelines for securities brokers, custodian banks, and investors. This regulation, set to take effect on 2^nd November 2024, represents a significant step toward improving the efficiency of Vietnam's securities market. Once implemented, FTSE will allow its clients 3-6 months to test the system and offer feedback. Based on this timeline, we anticipate FTSE could announce Vietnam's upgrade to Emerging Market status during either its March 2025 or September 2025 semi-annual market review. According to estimates from Morgan Stanley, Vietnam's upgrade to Emerging Market status could result in billions of U.S. dollars flowing into the market, creating a substantial positive impact on the stock market.

Expected Passive and Active Money Inflow into Vietnam

Fed Rate Cut

What many had anticipated finally happened on 18^th September 2024, when the Federal Reserve (Fed) announced a 50-basis point rate cut—the first since 2020. Fed Chairman Jerome Powell also signalled potential further reductions, with another 50 basis points expected at the end of 2024, followed by 100 bps in 2025 and an additional 50 bps in 2026, bringing the key rate to 2.75-3.00% by 2026. This decision is a positive catalyst for emerging markets like Vietnam, with wide-reaching benefits across both the stock market and the broader economy. Here are some of the key impacts:

• Support for Global Consumption and Investment 

Over the past two years, the high-interest-rate environment has dampened global consumption and investment, especially in the U.S.—Vietnam's largest export market, accounting for over 33% of total export turnover. Vietnam's exports to the U.S. were particularly affected by the rate hikes in 2022 and 2023 but began to recover in September 2023. With the Fed rate cut, we expect a stronger resurgence in Vietnamese exports to the U.S., alongside more stable growth in the coming years. Lower interest rates will also encourage global firms to increase investment in Vietnam, boosting foreign direct investment (FDI) inflows.

• Easing of Monetary Policies

Many countries have been reluctant to loosen monetary policy due to the U.S.'s high interest rates. In Vietnam, the State Bank of Vietnam (SBV) attempted to reduce rates to a four-year low, but the widening interest rate gap between the USD and VND drove the exchange rate to an all-time high in July 2024, limiting further cuts. With the Fed rate cut, central banks around the world, including the SBV, can now feel more confident about easing their monetary policies to stimulate growth without worrying about excessive pressure on exchange rates.

• Reduction in FX Stress

The Fed's previous high-interest-rate policy strengthened the USD, leading to a surge in the USD’s value against most currencies, including the VND. This caused significant pressure on foreign exchange rates globally. With the Fed now cutting rates, this stress is expected to ease, allowing central banks to apply more accommodative monetary policy without the same level of currency devaluation concerns.

• Decreased Sovereign Debt Burden

Higher interest rates increase borrowing costs, putting a strain on countries with significant sovereign debt. For Vietnam, the Fed’s rate cut will alleviate some of this burden, making it easier for the government to borrow at more favourable terms and manage its debt more effectively.

• Boost to Investment Sentiment

Rising Fed rates over the past few years led to significant outflows from the Vietnamese stock market, with foreign investors withdrawing over USD 2 bn during the first eight months of 2024. This exodus negatively impacted local investor sentiment, causing the benchmark VN-Index to fluctuate between 1,200-1,300 points without a breakout. We believe the recent Fed rate cut will restore positive investment sentiment, spurring foreign inflows and encouraging local investors. Vietnam’s strong economic growth could propel the VN-Index to new heights in the coming years.

At the end of September 2024, the fund’s largest positions were: Lam Dong Minerals and Building Materials JSC (7.8%) – a building material supplier, Agriculture Bank Insurance JSC (6.6%) – an insurance company, Thien Long Group (6.5%) – a manufacturer of office supplies, Minh Phu Seafood Corp (6.0%) – a seafood company, and Hang Xanh Motors Service JSC (5.5%) – a Mercedes-Benz dealership.

The portfolio was invested in 39 names and held 6.0% in cash. The sectors with the largest allocation of assets were consumer (45.0%) and financials (21.1%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 12.19x, the estimated weighted harmonic average P/B ratio was 1.25x, and the estimated weighted average portfolio dividend yield was 4.44%. The fund’s portfolio carbon footprint is 2.33 tons per USD 1 mn invested.

AFC Uzbekistan Fund - Manager Comment

The AFC Uzbekistan Fund Class F shares returned −3.2% in September 2024 with a NAV of USD 1,353.39, bringing the return since inception (29^th March 2019) to +35.3%, while the return for the year stands at −22.2%. On an annualised basis, the fund has returned +5.6% p.a. with a Sharpe ratio of 0.23.

September saw some renewed capital markets news, which further confirms that we are moving closer to a phase change in the capital markets. The notable news is that Hungarian bank OTP Bank (with local subsidiary Ipoteka Bank: TSE: IPTB) became a registered member of the capital markets sandbox regime, and that the government announced a secondary offering of 4.44% of the Uzbek Commodity Exchange (TSE: URTS).

Uzbek Commodity Exchange Secondary Offering Announcement

In the final week of September, the government announced that it will conduct a secondary offering to sell down 4.44% of its stake in the Uzbek Commodity Exchange (TSE: URTS). This will bring the government’s ownership to 40% after the offering and will help further increase the liquidity of the company’s shares, with a current free-float of 15%. The 4.44% stake equates to 3,326,031 shares or approximately USD 4 million as of 30^th September 2024. The offering will be a Dutch auction with a price range set from UZS 12,900 to UZS 18,000 per share, equating to a dividend yield of 20.16% at the low end and 14.44% at the high end of the range.

The government's decision to sell off non-core holdings is excellent news, as it reflects the ongoing opening up of the Uzbek economy. However, this announcement led to a weak performance for the fund in September. The price of URTS dropped 5% from its mid-month high of UZS 16,200 on 23rd September 2024, ending the month at UZS 15,398. Despite this, the company is poised for continued strong growth, as discussed further below. The share price decline is primarily due to retail investors selling in the hope of buying new shares at a lower price, causing temporary weakness.

The book build is already underway, having started on 26^th September and closing on 25^th October 2024, with settlement and execution of trades on 29^th October 2024. Open to all investors, Uzbek nationals will be given preference with the right to subscribe for up to 1,000 shares each, followed by Uzbek legal entities, and then anyone else (whether Uzbek nationals bidding for more than 1,000 shares or foreigners). With our experience in the Uzbek market from 2018, this is the most attractive secondary offering we have seen and we will be looking to participate if there is room in the book as URTS is a de facto monopoly, and with Resolution 570, signed by the Cabinet of Ministers on 12^th September 2024, the company looks set to strengthen this position as well as begin onboarding new products.

The resolution signed on 12^th September points to the requirement to increase minimum share capital of commodity exchanges to UZS 100 bln (~USD 7.8 million) by 1^st November 2024 and to UZS 200 bln (~USD 15.7 million) by 1^st July 2025, with the aim of protecting the financial interests of business entities engaged in commodity trading, as well as improving settlement guarantees, settlement and requiring annual audits by one of the “Big 4” accounting firms going forward.

URTS is likely to increase its minimum share capital, now at UZS 47.2 bln, by capitalizing retained earnings (UZS 206.2 bln as of their 1H 2024 financial report) via the issuance of 4 “bonus shares” for every share held. While this may affect dividends paid for 2023 on a one-off basis, historically, the issuance of bonus shares in companies has boosted share prices. When URTS issued bonus shares last in August 2020, the stock price saw a subsequent 20% spike.

Additionally, the resolution discusses the launch of local access for international trading of non-deliverable forward contracts (derivatives, which URTS has worked with American institutions to develop) on a special platform of the Uzbek Commodity Exchange. This would allow URTS to establish trading connections with international markets and, in due course, introduce hedging mechanisms for commodities traders and Uzbek companies, which historically haven’t been able to hedge FX due to the high costs. FX hedging could significantly impact the trading of key export commodities including copper, natural gas, and uranium. This is also likely to be launched in parallel with a platform for the trading of electricity by the private sector.

URTS remains a core holding of the AFC Uzbekistan Fund, and the government sell-down and potential for derivative and broader commodity trading give us confidence that the company remains far too cheap and should in due course be revalued as market liquidity from increased investor participation improves.

Hungary’s OTP Bank joins the Sandbox

In September, Hungary’s OTP Bank received regulatory approval from Uzbekistan’s National Agency for Advanced Projects (the capital markets agency) to be registered as a custodian bank in the regulatory sandbox regime alongside Bank of Georgia, which we have discussed in previous letters. It is encouraging to see another multinational bank entering the sandbox as custody is a big issue for large foreign funds who want a private sector custodian rather than the Uzbek government. In the coming months, we expect the key infrastructure to be completed, which will enable foreigners to open accounts with these two custodians to buy government bonds, corporate bonds (with plans for UZS and USD corporate bond issues), and of course equities. In parallel with these launches, we hope to see the hosting of equity and debt quotes on Bloomberg, which has been a long time in the making. 

This is the progress we have been patiently waiting for, and it’s good to see the proverbial ingredients beginning to turn into an increasingly solid base of new capital markets infrastructure. While we are not quite there yet, such news as the above is significant progress from where the capital markets were at the beginning of the year. Hopefully, things accelerate from here, and we begin to see a much-anticipated increase in capital flows into the market, something which is already starting but whose acceleration and increase in size will be most welcomed for fund performance. 

At the end of September 2024, the fund was invested in 24 names and held 8.7% cash. The portfolio was allocated to Uzbekistan (91.2%) and Kyrgyzstan (0.1%). The sectors with the largest allocation of assets were financials (43.1%) and materials (25.8%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.52x, the estimated weighted harmonic average P/B ratio was 0.70x, and the estimated weighted average portfolio dividend yield was 4.76%.

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. 

By accessing information contained herein, users are deemed to be representing and warranting that they are either a Hong Kong Professional Investor or are observing the applicable laws and regulations of their relevant jurisdictions.

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