Uzbekistan: The Overlooked Frontier Market Trading at 2-3x PE With 20-40% Dividend Yields
Scott Osheroff, who launched a dedicated Uzbekistan fund through Asia Frontier Capital in March 2019, describes discovering the market in 2018 when companies were trading at 2–3x earnings with dividend yields of 20–40% and triple-digit earnings growth. The country had been quietly open for reform for a year and a half with virtually no foreign investor attention. The fund, now around $18M AUM, is domiciled in Cayman with a feeder for US investors, a $50K minimum, monthly redemptions, and no lock-up.
The investment thesis rests on a structural reform story. After Islam Karimov's authoritarian rule ended with his death in 2016, President Mirziyoyev—a former prime minister since 2003—launched rapid liberalization: eliminating forced labor in cotton, resolving border disputes with Kyrgyzstan and Tajikistan, engaging the Taliban diplomatically, digitizing bureaucratic processes to curb bribery, and slashing corporate tax to ~12%. There are no capital gains taxes on the stock exchange and only a 5% dividend tax. Osheroff frames the region as a "new fertile crescent"—low debt, young demographics, protectionist legacy providing a manufacturing base to build from.
Demographics are a central pillar: 35 million people (versus Kazakhstan's 17 million), average age under 30, adding ~900,000 people per year, with the population projected to hit 40 million by 2040. Structural unemployment and this youth bulge, Osheroff argues, keep the government incentivized to maintain liberalization—directly addressing the concern raised by Doug Casey about countries reversing free-market reforms once they feel wealthy enough.
A pipeline of major privatizations is the near-term catalyst. Roughly 14 state assets are slated for listing, including Uzavto (largest automaker, IPO expected this year), Usmet (dominant steel monopoly, government selling down from 81%), and Almalyk (one of the world's five largest copper mines, undergoing a $6B expansion to create a pit 10km wide by ~2028, IPO expected Q3/Q4 at $50–100M). The Tashkent Stock Exchange has ~135 listed companies with ~600 more OTC; the exchange runs on Korean-built technology and brokerage accounts can reportedly be opened in under five minutes.
Key risks and caveats acknowledged include still-elevated inflation (9.8% pre-Ukraine invasion, now prompting a 300bps rate hike to 17%), implementation bottlenecks (a southern governor reportedly said he couldn't execute half the weekly reform decrees for lack of capacity), and the reality that future capital will likely come from Chinese and Middle Eastern sources rather than Western investors. GDP per capita sits at roughly $1,700, underscoring both the opportunity and the frontier-market execution risk. The bottom line from Osheroff: for investors looking for an uncorrelated, resource-rich, demographically young, reform-driven market that almost no one in the West has heard of, Uzbekistan offers a rare combination of deep value and asymmetric upside.
Scott Osheroff of Asia Frontier Capital makes the case for Uzbekistan as one of the world's most underappreciated emerging markets, opened up since 2016 under President Mirziyoyev. With ~600 listed companies, no capital gains tax, 5% dividend tax, a young population of 35 million, and a pipeline of major privatizations, the country offers asymmetric upside most Western investors have never considered.
i think the chance of reverting to non-free-market policies is very low because structural unemployment and a fast-growing young population of 35 million adding 900,000 per year keeps the government incentivized to maintain liberalization
Uzbekistan has the largest industrial, manufacturing, and agricultural base in the entire Central Asian region
uzbekistan for all intents and purposes is not a bad place to be hiding and also gaining upside
Uzbekistan had a stock market with about 600 companies between the main board and the OTC
uzbekistan has huge commodity reserves of gold, zinc, silver, and copper
companies were trading at PEs of two and three times with dividend yields of 20 30 40 and that were growing their earnings at four five six hundred percent
some of them are still growing at five six hundred percent year over year their earnings
the Uzbekistan fund launched as a dedicated fund in March of 2019
Uzbekistan has a population of 35 million people and Kazakhstan has 17 million
Uzbekistan grew at seven percent last year after growing 1.2 or 1.3 percent the prior year, making it one of the few countries that grew year over year in 2020-2021
Islam Karimov ruled Uzbekistan from the fall of the Soviet Union up until his death in 2016
Shavkat Mirziyoyev had been prime minister since 2003 and was elected president in December of 2016
forced labor in the cotton industry has officially been eliminated and cotton bans have been eliminated in terms of textile companies purchasing from them
the International Labour Organization came out last month saying that the cotton harvest for 2021 showed no forced labor or child labor
Tashkent was destroyed in an earthquake in 1966 and was rebuilt with money from all of the Soviet satellites as well as Russia
until February 2018 it was illegal to take photos of the subway because it was considered a quote-unquote strategic asset
Uzbekistan is adding about 900,000 people per year and the average age is just under 30 years old
the population is set to reach 40 million by 2040
Uzbekistan had been open at that point for a year and a half and no one was talking about it
the western border of uzbekistan is a straight line purposely cutting them off from the Caspian Sea
Uzbekistan resolved border conflicts with Kyrgyzstan and Tajikistan under President Mirziyoyev, and land border crossings into those countries are now possible without problem
Uzbekistan had been involved in negotiations with the Taliban through Qatar for about two or three years prior to the US pulling out
Uzbekistan has a much lower concentration of wealth compared to Kazakhstan, Tajikistan, and Turkmenistan
Uzbekistan has a very diversified economy relative to its neighbors
there are as many notaries in kazakh cities as there probably were gas stations in the united states in the 1980s
Corporate tax in Uzbekistan is about 12 percent
There are no capital gains taxes on the Uzbek stock market and the dividend tax is five percent
There are about 135 companies listed on the Tashkent Stock Exchange and the balance of 600 are on the OTC market
Uzbekistan has a plan to privatize 14 companies through the stock exchange including the largest steel mill, one of the biggest copper gold mines in the world, one of the biggest gold mining operations in the world, and the national oil and gas transportation company
Opening a brokerage account in person in Uzbekistan takes a maximum of five minutes with three pieces of paper and no notary or apostille required
The Uzbek stock exchange uses an online trading platform built on Korean technology
Kazakhstan built a dam on the Kazakh-Uzbek border and the Kazakh side of the Aral Sea is beginning to slowly refill
Uzbekistan is receiving help from the European Bank for Reconstruction and Development to remediate the Aral Sea area
Uzbekistan is the bread basket of the entire region from a fruit, vegetable, and nut standpoint
Uzbekistan broke ground on a railway cutting through Afghanistan into Pakistan recently
Uzbekistan's GDP per capita is approximately 1,700 dollars
Future capital investment in Uzbekistan will primarily come from Chinese and Middle Eastern money rather than Western investors
Kazakhstan is really just an exporter of unprocessed crude oil, some grains, copper cathode, and gold with most assets and industries controlled by the government
The main roads in Uzbekistan are better than 95 percent of roads in America
Uzbekistan has about 65 percent of its GDP in foreign exchange reserves
The high-speed rail in Uzbekistan uses Spanish technology, not Chinese technology
Asian Frontiers Capital has about 18 million dollars under management and started in March 2019
Uzbekistan inflation was 18 to 19 percent four or five years ago and was at 9.8 percent before the invasion of Ukraine
The Uzbek central bank raised its policy rate 300 basis points to 17 percent from 14 percent because of volatility from Russia and Ukraine
If the Uzbek central bank wasn't restraining credit growth, credit growth in the country would be 50 or 60 percent due to enormous demand
Bank term deposit rates in Uzbekistan are 20 to 22 percent in local currency and 6 to 7 percent in dollars
Dividend yields on the Uzbek stock market range between 5 and 15 percent
roughly 14 companies are scheduled for privatization over the next few years, subject to change either up or down
the largest auto manufacturer in the country which is state-owned called uzovto is going to ipo this year
the Uzavto IPO size should be well north of 10 million dollars and could be 50 or 100 million
usmet is the largest steel company and has a monopoly position in uzbekistan; the government owns roughly 81% of the company and is going to sell that down
alma leake is one of the five biggest copper mines in the world
al malik is undergoing a six billion dollar expansion to merge two super pits which when completed roughly in 2028 is going to be 10 kilometers wide
al malik IPO is expected later this year in the third or fourth quarter at somewhere in the 50 to 100 million range
uzbekistan is 93% self-sufficient in protein, importing only 7% of protein demand
uzbekistan has a GDP of 1700 per person and a growing population
uzbekistan already has a very diversified economy and a lot of value-added services
only one out of a hundred americans maybe less have even heard about uzbekistan
is there any chance that this has happened in so many countries around the world seemed to be going in the right direction and became very prosperous very quickly and after 10 or 15 years they figure they're rich enough now that they can vote out free market policies and go back to the good old days
When Osheroff first came in 2018, there were so many decrees being signed weekly that a southern governor said he couldn't implement half of them even if he wanted to due to lack of manpower and intellectual capacity
access to the Uzbek president is a challenge for foreign investors
i like to call this region the new fertile crescent from an economic standpoint because of the low debt the young population and the investment opportunities but also the protectionist policies that have been in place
Asian Frontiers Capital is headquartered in Hong Kong, licensed there, with the Uzbekistan fund domiciled in Cayman with a feeder fund accepting US investors and an administrator in Singapore
the fund requires a 50,000 dollar minimum for US investors and 10,000 dollar minimum for non-US investors, with monthly redemptions on three-month notice and no lock-up
the world is entering a period of deglobalization with increasing resource nationalism and increasing protectionism
they launched a dedicated Uzbekistan fund in March of 2019 through Asia Frontier Capital
The Uzbek government eliminated traffic police bribery by requiring all traffic police to work with cameras
Uzbekistan is digitizing license applications including driver's licenses to prevent bribery in the licensing process
Matthew Smith commits to setting up an account with a 50,000 dollar minimum investment in the fund
a link to the Asian Friendship Capital Uzbekistan fund page will be placed in the video description for viewers to reach out directly to Scott
“i like to call uzbekistan the united nations of of nationalities”
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