Min Kupfer: Why is no-one paying Vietnam any attention?

Min Kupfer 700

The Vietnam stockmarket is one of the top performers in Asia since 2012.  Yet despite this commendable market performance, other than China, the Vietnam market still offers the lowest valuations among Asia’s larger emerging and frontier markets. So why has nobody paid any attention?

Regional stockmarket comparison in local currencies

  12 months performance 18 months performance 30 months performance Trailing P/E

Vietnam – VNI

11.6%

9.3%

32.0%

13.8

Vietnam – VNAS*

11.6%

11.8%

26.5%

12.8

China – SHNCOOP

20.8%

16.6%

13.1%

12.8

Indonesia -JCI

21.0%

1.6%

34.4%

19.9

Philippines -PSEi

17.5%

3.9%

43.3%

21.0

Thailand – SET

16.2%

2.0%

39.6%

17.9

Malaysia – FBMKLCI

-0.3%

1.3%

16.5%

16.1

India – SENSEX

38.0%

45.2%

76.9%

19.9

Source: Bloomberg. As at 30 November 2014. *Vietnam All Share Index (free float adjusted).     

The short answer is “once burned, twice shy”.  Vietnam’s shares were hot during 2006/07, a period of Vietnam investment hype.  Foreign investors played a dominant role in the market in those two years. Aside from the Vietnam equity funds, many banks’ proprietary traders and numerous hedge funds favoured the market. The index increased by 144.5 per cent in 2006 and stayed in the stratosphere throughout 2007, with a P/E market valuation for the VN-Index peaking at 46.08 times on 21 December 2006.

The domestic liquidity flood created by the strong investment inflows resulted in rapidly increasing inflation rates, which stayed above 15 per cent for 13 months (from Feb 2008 to Feb 2009 inclusive). The subsequent drastic monetary policy interventions resulted in a market decline by a cumulative 77.7 per cent from October 2007 until February 2009.  By early 2009, speculative short-term investors had fled the country.  Numerous long-term investors exited the Vietnamese equity markets too. 

At the beginning of 2011, the Vietnamese government announced it would focus on more sustainable economic growth policies.  The central bank governor was replaced and the monetary policy became increasingly effective in fighting inflation by means of more moderate fiscal policies.  The equity markets recovered slowly but foreign investors remained on the fringes and the stock market remained anaemic.

Inflation has consistently decreased since August 2011 to merely 2.1 per cent for the first 11 months of 2014. The World Bank recently revised its forecast on Vietnam’s 2014 GDP growth up to 5.6 per cent from its June projection of 5.4 per cent. Foreign direct investments are by far the highest in Asia relative to the countries’ GDP, the trade balance has turned positive, foreign reserves increased steadily, the currency has been among the strongest performers in Asia and the equity markets recovered.

Among the publicly traded closed-ended Vietnam funds, the London Aim-listed VietNam Holding Ltd. has consistently outperformed its peers by actively identifying value opportunities amongst mid-cap Vietnamese equities.

Since the middle of 2007, when the fund was over 80 per cent invested for the first time, to 30 June 2014, the net asset value per share of VNH has outperformed the Vietnam index VNI in US dollars by cumulative 50.1 per cent. Its next best peer’s out-performance was 22.4 per cent. In 2013 alone, the VNH’s NAV increased by 41.56 per cent and its share price by 40.2 per cent, compared with the VNI’s dollar-adjusted 20.5 per cent performance.

The VNH NAV per share as of 30 November 2014 was $2.08, yet its share price was only $1.75.  VNH has committed to its shareholders to reduce the share price discount through share buy-backs. So far this year, the company has bought back 2.6 million shares worth $4.1m.

As a sustainable value investor, VNH is quite different from the other Vietnam equity funds.  Since the fund’s inception it has promoted corporate governance standards in Vietnam.   After VNH adopted the UN Principles for Responsible Investments in 2009, it also stepped up the research and due diligence on environmental and corporate social responsibility issues.

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Min Kupfer is chairperson of VietNam Holding Limited