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AFC Uzbekistan Fund valuations as of 31st March 2024:
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Estimated weighted harmonic average trailing P/E (only companies with profit):
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4.31x |
| Estimated weighted harmonic average P/B: |
0.79x |
| Estimated weighted portfolio dividend yield: |
3.97% |
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AFC Uzbekistan Fund 5th Birthday
On 29th March 2024, the AFC Uzbekistan Fund celebrated its fifth birthday. How quickly times passed and how much Uzbekistan has changed since Thomas and I first came here in 2018. Our initial thesis of Uzbekistan morphing into the most important economy in Central Asia is indeed on track as the country emerges into the manufacturing and logistical heartland of the greater region.
While the past 18 months have seen a correction in equity prices on the Tashkent Stock Exchange, leading to recent weakness in the fund’s performance, capital markets reforms are moving in the right direction, with the most recent news being that Bank of Georgia (“BOG”) is the first participant in the Uzbek government’s “Regulatory sandbox” scheme which will allow BOG to move toward providing custody services for government and corporate bonds and eventually equities.
Things are certainly moving slower than we would like as capacity within the government remains an extreme headwind. Still, we are encouraged by the direction of continued development, even if it is happening slower than we would like. The transformation of Uzbekistan and the capital markets over the next five years should, therefore, be even more profound than the last five, and we look forward to having the AFC Uzbekistan Fund benefit, being a first-mover in the country.
Uzbekistan’s pivot to China
Since the start of 2024, Uzbekistan has made nothing short of a lightning-fast pivot to China. The Uzbek government appears to be looking to balance influence in the region by conducting more business with China to counterbalance Russian investment.
As stated in previous updates, the “New Fertile Crescent Region” is going to see the formation of a socio-economic bloc stretching from Russia, China and Central Asia into the Middle East. Uzbekistan is accelerating regional integration, shifting some of its focus of investment from Russia toward China and the change year to date has been impressive and visible on the ground. However, as good leaders do, if Chinese influence begins to get too strong in Uzbekistan, we wouldn’t be surprised to see President Mirziyoyev begin courting Europe in order to play them against China and Russia, and vice-versa. Regardless, as the great game of geopolitical chess gets more complex, Uzbekistan is in a position to benefit as foreign direct investments soar.
From electricity generation, battery storage, mining, logistics, metal fabrication, auto production, to textiles, the scale and number of Chinese investment deals announced during March alone have been staggering.
Some of the more interesting ones include China working with the Uzbek government to jointly develop two low-quality uranium projects. The quality of the projects is important to note because China is focused on securing uranium supply regardless of cost, making several of Uzbekistan’s mothballed Soviet-era projects interesting again, especially to a state-owned enterprise investor who is price agnostic. China Energy Construction Group broke ground on Monday 25th March 2024, on a 300 megawatt-hour battery energy storage system, which is intended to store renewable energy produced during non-peak periods. This will be an interesting project as Uzbekistan is planning to generate 25% of its electricity from renewables by 2030, which could have catastrophic consequences as grid instability rises as seen in western countries, but time will tell as the country pushes apace with over a dozen solar and wind projects.
Further, China Mining Energy Group plans to invest USD 200 million in a copper metallurgy plant, and CNOOD Asia Limited plans to build a textile complex for USD 325 million, both in Namangan region in eastern Uzbekistan. The car manufacturer BYD, who has already partnered with state-owned UzAvto to build BYD electric cars in Uzbekistan, announced a USD 160 million expansion plan to grow annual production from 50,000 vehicles in 2024 to 500,000, while China’s Geely Automobile Holdings Limited plans to begin selling its Zeekr brand of electric cars in the market this year.
In addition to these investment projects, the Asian Infrastructure Investment Bank (AIIB) will invest USD 670 million for reforms to help Uzbekistan transition toward a market-oriented economy.
The above are just some of the deals that were announced while new Chinese restaurants and a few hotels are springing up in Tashkent, as Chinese are increasingly present on the city’s streets. The pace of change involving Chinese investment is nothing short of impressive, reminiscent of what I experienced when living in Phnom Penh, Cambodia, in 2015 and the rapid transformation of Cambodia that followed as Chinese capital began to flood into the market.
