Buy cheap as Vietnam tiger is set for big leap
VIETNAM is one of the world’s economic success stories. In the space of 30 years, the country has embraced the private sector, launched a stock market, benefited from massive inward investment by big multi-national companies, and enjoyed annual economic growth of between seven and eight per cent.
Such success has increasingly caused fund managers – and some brave UK investors – to look at Vietnam as an exciting investment opportunity. As a result, a raft of Asian investment funds now hold Vietnamese companies in their portfolios while three specialist – and risky – trusts invest exclusively in listed and unlisted Vietnamese businesses. Shares in these trusts trade on the London Stock Exchange.
Although the economy – like all worldwide – has been stymied by Covid and lockdown, it’s getting back on track as restrictions have been lifted. While subdued growth of 1.5 per cent is predicted for this year, a return to pre-pandemic high growth is forecast for next year.
Its stock market is also among the best performing across Asia, up more than 30 per cent this year despite the challenging economic backdrop. Only Indian stocks have performed better. More of the same, say experts, is likely next year as corporate earnings in Vietnam recover strongly.
The country’s growing stock market is also expected to benefit from it being reclassified next year – from an embryonic ‘frontiers’ market to a fully-fledged emerging market. If this happens, it will attract the interest of big international investors, driving prices higher.
Investment house Waverton is a big fan. Brook Tellwright, a fund manager with Waverton based in Thailand, says Vietnam is currently one of its favourite stock markets across South East Asia – alongside Indonesia and the Philippines. He says: ‘Yes, the country is only just coming out of lockdown and the government was slow in terms of getting its vaccination programme moving. But my hope is that we will see a strong economic recovery next year. This in turn will result in improved corporate earnings, which should help drive the stock market forward.’
Emily Fletcher, co-manager of investment trust BlackRock Frontiers, agrees. She says Vietnam’s ‘explosive’ economic growth in the run up to the pandemic created huge opportunities for businesses in Vietnam. She believes this will continue as the country enjoys ‘substantial economic acceleration’ after the lifting of Covid restrictions.
Some 10 per cent of the trust’s assets are invested in Vietnam with key holdings being mobile phone retailer Mobile World and IT company FPT. She adds: ‘We continue to find opportunities to invest in companies where their stock market valuations are not reflective of their prospective earnings growth.’ Although labelled a frontiers trust, the BlackRock fund will be able to continue to hold stakes in Vietnamese companies if the country’s stock market gets emerging markets status. This is because only the eight largest emerging markets are off limits.
Vietnam’s emergence as a key Asian stock market prompted the investment team running VinaCapital Vietnam Opportunity to visit London last week on a flag waving mission. The £862 million trust, a constituent of the FTSE250 Index, has generated a total return over the past year of 50 per cent.
Ismael Pili, head of research at VinaCapital, says domestic investors are the biggest participants in the Vietnamese stock market. But he believes this will change next year as foreign investors start to invest again after the country’s emergence from lockdown. ‘The market is cheap,’ he says. ‘There is value to be had.’
Other Vietnam funds, listed in London, are Vietnam Holding (managed by Dynam Capital) and Vietnam Enterprise, run by Dragon Capital. Brian Dennehy, managing director of investment scrutineer FundExpert, says Vietnam represents an ‘interesting’ investment opportunity. But he cautions: ‘Singling it out as a sole destination for an investor is not something we would encourage.’ Dennehy believes a better approach for investors is to consider a fund broadly invested across Asia such as Barings ASEAN Frontiers. This £470million fund has 2.5 per cent of its assets in Vietnam.
Jason Hollands, a director of wealth manager Tilney, agrees. Although he admits the big picture economic story for Vietnam is enticing, he says the range of companies available to invest in is pretty narrow. This means Vietnam-only trusts have heavily concentrated portfolios. For example, VinaCapital Vietnam and Vietnam Enterprise have 18 per cent and 15 per cent of their assets invested in just one stock – steel maker Hoa Phat.
Dzimtry Lipski, head of funds research at Interactive Investor, says investors should only allocate a ‘very tiny amount of their portfolio to Vietnam’. But he also points out that despite VinaCapital Vietnam’s strong investment performance over the past year, its shares still stand at an 18 per cent discount to the value of the trust’s underlying assets.
An opportunity to buy ‘cheap’ shares in a market experts believe is undervalued. For bravehearts only.