Why Vietnam is proving the jewel in the crown of frontier markets
IT IS more than 50 years since the start of the Vietnam War when the north of the country was pitted against the south. The war and its aftermath has just been the subject of a fascinating documentary series on BBC4 which took ten years to make.
Although it is difficult for visitors to Vietnam today not to be reminded of the conflict – with tours to the Cu Chi Tunnels used by the Viet Cong as popular as ever – the country is in the middle of an economic boom. A young labour force, low inflation and strong foreign investment are generating economic growth of between 6 and 6.5 per cent per annum and making it one of South East Asia’s success stories.
It is a backdrop that excites Andy Ho, lead manager of VinaCapital Vietnam Opportunity, an investment fund listed on the London Stock Exchange. VinaCapital is one of Vietnam’s leading asset managers and Vietnam Opportunity has enjoyed bumper returns over the past one, three and five years.
In London over the last few days to speak to potential institutional investors about the fund, Ho was in buoyant mood.
‘The investment case for Vietnam is a powerful one,’ he said: ‘The likes of Samsung, Microsoft and Intel are pouring money into the country. They love the fact that labour costs are a third of those in China and that the workforce continues to grow. Some 40 to 50 per cent of all smartphones are now manufactured in Vietnam.
‘Despite the migration to the cities, the country’s agricultural base remains robust, resulting in it being a big exporter of rice, coffee and fish.’
Vietnam has embraced fullblown capitalism. Its two stock markets, the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange, now comprise some 700 companies with a combined market capitalisation in excess of £75 billion.
A stream of companies are also looking to list on its markets, spurred on by a fervent privatisation programme – known locally as ‘equitisations’.
In recent years, the government has sold stakes in a number of companies including Vietnam Airlines, Airport Corporation of Vietnam and meat processor Vissan. This programme continues apace with stakes to be sold off in tobacco manufacturer Vinataba and mobile giant Mobifone. Investing in a mix of private equity and privatisations is VinaCapital’s speciality. With regards to private equity, it invests early and then looks to make a return once the company lists on the stock exchange or is bought by a rival. It does not buy shares in companies already listed.
‘It requires us to know the companies we are investing in inside out,’ says Ho. ‘We get close to management and try to understand their motivations. Sometimes it means us having representation on the company’s board. When you are investing in a frontier market such as Vietnam, getting to know companies is essential.’ Currently, the fund’s main focus is on consumer-orientated stocks. ‘Wealth is being created in Vietnam left, right and centre,’ says Ho. As a result, among its top 10 holdings are food manufacturers Vinamilk and Quang Ngai Sugar and jeweller Phu Nhuan Jewelry. Despite the trust’s strong performance, its shares trade at a double-digit discount to the fund’s underlying assets. Trusts with big holdings in Vietnam but with exposure in other countries include Aberdeen Frontier Markets (11 per cent) and BlackRock Frontier (also 11 per cent).