“There is a lack of high-quality, well-rounded companies [in Vietnam], and because of that, fund managers have to search through many companies to find some gems,” Isaac Thong, JP Morgan Asset Management’s Singapore-based portfolio manager of the JPMorgan Vietnam Opportunities Fund, told FSA.
Gems are hard to find in Vietnam, he admitted, and some companies even have a track record of misguiding investors. Therefore, he doesn’t give the benefit of the doubt to a company if the numbers don’t stack up, even if the story is convincing.
Thong said that partiuclarly in Vietnam, it is important to visit the company and meet with top management. He also makes use of research from local brokerage firms.
Kevin Snowball, PXP Vietnam Asset Management’s Ho Chi Minh-based CEO and chief investment officer, added that the key to investing in Vietnam is to assess potential investments for high standards of corporate governance.
Kevin Snowball, PXP Vietnam Asset Management
“We don’t invest in companies unless we have access to or are comfortable with the quality of management and their understanding of the rules of corporate governance, in particular, the protection of minority shareholders,” said Snowball.
“Companies with low corporate governance standards would eventually do something to prove that you shouldn’t have invested in them in the first place. You might make money in the short-term but you won’t make as much money in the long-term,” he said.
The next China – again
Around 2005, capital started to pour into Vietnam and the oft-repeated phrase was that Vietnam was “the next China”. It all ended badly as inflation soared, the currency plunged and the market collapsed around 2007. Many foreign investors remember how they were left with huge losses.
Things have changed since then. The government has implemented reforms, inflation is lower and economic stewardship in general has improved, though some frontier-type risks remain.
JP Morgan’s Thong describes Vietnam as a frontier market with emerging market characteristics. On one hand, it is a frontier market because a business contract may not be enforced.
“One mistake is trusting too much in contracts in Vietnam. When commodity prices collapsed in 2015, some contracts were adjusted down to save the parent company.”
Thong added that investors should also be aware that policy changes in Vietnam can have a substantial impact on business contracts.
Despite the risks, both fund managers are positive about the continual but gradual opening of the market. As another round of foreign capital enters Vietnam, the hope is that this time is different.
“The country has been raising foreign ownership limits and there are signs that Vietnam is becoming more business-friendly,” Thong said.
The government has had success in encouraging global manufacturers such as Samsung and Intel to set up large factories.
Foreign ownership limits were removed in publicly-listed companies in 2015, with the exception of banks, where foreign ownership is still capped at 30%.
PXP’s Snowball adds: “It looks like a lot like China 15 years ago, when it was opening up to foreigners to help modernise and industrialise the country, but it will be very long term,” he said.
The Vietnam stock market also continues to grow, Snowball said. It has nearly 1,000 listed stocks, with a total market capitalisation of $80bn and an average daily turnover of $200m.
Investor interest?
Snowball, who’s Vietnam-focused firm manages $158m in assets, acknowledged that it is difficult to promote Vietnam-focused products to private banks in Asia.
“Private banks tend to be pretty conservative, some of them only like selling their own branded products, and Vietnam is obviously a frontier market – an esoteric type of investment with high risks.”
Nevertheless, he believes there is increasing interest in Vietnam-focused products. Two months ago, the firm hired Cameron Joyce as its head of marketing and investor relations.
“We hadn’t had a head of marketing for a while because nobody cared for Vietnam. But in the last couple of years the level of interest has increased substantially,” he said.
The three-year performance of the PXP Vietnam Emerging Equity Fund and the JP Morgan Vietnam Opportunities Fund, versus the FTSE Vietnam Index All-Share Index. The index is for comparison purpose and is not the benchmark of either fund.
