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Asia Frontier Capital unveils Iraq fund

Asia Frontier Capital has set its eyes on investment opportunities in Iraq with the launch of a new fund.

The launch of the open-ended AFC Iraq Fund follows the hiring of Ahmed Tabaqchali, who joined the firm as chief investment officer of Iraq investments in November, said the investment manager, which focuses on investments in frontier markets.

“Iraq has the potential to be an enormously wealthy country, but has been held back by over 35 years of wars, crippling sanctions, and civil strife,” according to Tabaqchali.

“While the risks are probably higher than in other frontier markets, I see the perceived risk as being significantly higher than the actual risk,” Tabaqchali added. 

The fund’s investment universe consists of local companies, which have their main business activities in Iraq as well as foreign-listed companies, which have a majority of their business in Iraq.

According to the firm, the fund provides investors an avenue to diversify their portfolio and gives access to the Iraqi market, which has a low correlation with global, emerging and other frontier markets. 

The fund aims to capture value in growth companies over the next seven-to-ten years, targeting companies leveraged to Iraq’s post-conflict recovery and growth trajectory.

“The fund will capture returns linked to the resource-based upside derived from improvements in the overall economy, which will see significant benefits from the next commodity cycle upswing,” the firm said.

“Outside of post-conflict and oil price recovery opportunities, Iraq equities offer value and exposure to sectors less dependent upon oil such as banks, insurance, consumer goods and telecom among others.”

Iraq- an attractive entry point?

The firm believes Iraq offers a compelling growth story as a young and attractively-valued market, which has significant room to grow. 
The firm said it is attractive for investors to enter the market now as the valuations are significantly depressed due to the drop in oil prices and armed conflict. 
“The underlying fundamentals for Iraq are strong and improving, and any slowdown or halt to conflict will have a significant positive impact on the domestic market in the next economic cycle.”
The investment manager said Iraq has had one the fastest growth rates in the world and an estimated GDP of $233bn in 2014. 
“The country will benefit significantly from post-war recovery as stability offers individuals and businesses the opportunity to work, employ, and spend, which will drive domestic consumption and investment.”
“While there are no doubt the Iraqi economy is facing challenges, the current market valuations have the characteristics of a short-term negative overreaction and do not reflect the potential of the Iraqi market in the medium and longer term,” said Thomas Hugger, chief executive of Asia Frontier Capital.

Part of the Mark Allen Group.