Watching risk in Vietnam

Asset Class in Focus

The main risk is not from the US-China trade tension, which Vietnam could actually benefit from, according to Quynh Le Yen, Ho Chi Minh-based portfolio manager at Dragon Capital.

Quynh Le Yen, Dragon Capital

Foreign investors looking at Vietnamese equities should be concerned about two factors: currency risk and corporate governance.

“In any emerging market, currency depreciation is one of the major risks for investors,” Yen told FSA in a recent interview.

However, she believes that the Vietnamese dong is in a strong position and is expected to depreciate to a maximum of 3% relative to the US dollar. The country’s current account is also positive, backed by high exports and foreign direct investments.

Yen, who manages the Dragon Capital Vietnam Equity (Ucits) Fund, is based in Vietnam. She is supported by 12 local analysts who cover different sectors of the market.

She said local analysts are essential because corporate governance is another concern.

“We go to the factories to double check the information that the company provides us. We are willing to wait to see the management team in order to be confident in them before we finally make an investment,” she said.

She said that a number of companies have improved governance since the government has privatised the country’s state-owned enterprises.

“One of the main themes in Vietnam is the privatisation of SOEs because the government knew that it was the only way to improve the efficiency of SOEs and reduce corruption.”

Like Yen, Isaac Thong, JP Morgan Asset Management’s Singapore-based portfolio manager for Vietnam, said that good corporate governance is top of list when evaluating investments in the country.

Yen was less concerned about trade tensions between the US and China impacting her fund. She believes Vietnam has an advantages due to comparatively low labour costs, which has drawn foreign direct investment. In addition, because of the tariffs imposed on China, Vietnam has had an increase in orders from the US, particularly for textile and furniture goods, she added.

Pinebridge Investments also believes that Vietnam should benefit from the trade tension.

“There will be countries in the region which can benefit from [a negative outcome], as we believe that production will move away from China to other countries, including Malaysia, Thailand, Vietnam and the Philippines,” Arthur Lau, Pinebridge’s head of Asia ex-Japan fixed income, said recently.

High consumption

Vietnam’s GDP is expected to grow 6.8% annually over the next three years, which is more than double than the global average, according to Yen.

Domestic consumption has been driving the growth of Vietnam’s economy and accounts for at least 70% of GDP, she said.

She therefore finds investment opportunities in sectors that should benefit from consumption, such as food and beverage (F&B), retail and real estate, which together account for nearly 40% of her fund’s portfolio, according to the factsheet.

“In Vietnam, consumers traditionally buy goods from traditional wet markets. However, they are starting to buy affordable luxury products such as mobile phones, cars and jewellery. That’s why we like companies that have modern retail distribution networks and e-commerce,” she said, adding that retail sales increased 15% in 2018.

Turning to property, Yen said that more people have been buying their own apartments as a result of higher income. “There is solid demand for property and the supply and demand situation here is balanced,” she said.


The Dragon Capital Vietnam Equity (Ucits) Fund versus its benchmark

Source: FE. In US dollars

 

Like other markets in Asia, Vietnam equities had negative returns last year at -12.71%, according to FE data.

2019

2018

MSCI China GTR in US

16.79

-18.75

MSCI Vietnam GTR in US

15.61

-12.71

MSCI Hong Kong GTR in US

13.6

-7.83

MSCI AC Asia ex Japan GTR in US

10.39

-14.12

MSCI Thailand GTR in US

6.95

-5.26

MSCI Taiwan GTR in US

6.21

-8.16

MSCI Singapore GTR in US

5.71

-9.37

MSCI India GTR in US

5.7

-7.3

MSCI Korea GTR in US

5.44

-20.46

MSCI Philippines GTR in US

5.32

-16.13

MSCI Malaysia GTR in US

1.87

-6.03

Source: FE

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