JaiMin
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Summary
Vietnam is poised to be a dominant player in Asia, as China's economy begins to slow down, and Vietnam continues to take key steps towards being an emerging country. The further devaluation of the dong this month has negatively affected listed equities in Vietnam, although it can consequently be viewed as a buy opportunity, given that it has created substantially low valuation for a large portion of listed equities in Vietnam.
Issues with the Market Vectors Vietnam ETF
VNM data by YCharts
The Market Vectors Vietnam ETF (NYSEARCA:VNM) has been substantially declining due to the dong's devaluation, although the downward trend in stock price and poor performance is not a new phenomenon for this fund. Although the fund invests more than 70% of its assets in listed equities in Vietnam, its portfolio's performance has been a poor reflection of Vietnam, as a value based/high dividend yield approach has been extremely successful for other investment funds. Moreover, the fund also suffers due to its inability to access shares of companies fully held by foreign investors. The FOL will be removed in some industries next month, serving as a major catalyst for the financial performance of funds in Vietnam that already have a large portfolio of companies fully held by foreign investors; this benefit will not transfer to the Market Vectors Vietnam ETF. Two closed-end funds, the Vinacapital Vietnam Opportunity Fund (OTCPK:VCVOF) and Vietnam Holdings (OTC:VNMHF), have substantially lower valuation, and also have shares of companies fully held by foreign investors, most notably Vinamilk. Therefore, the best means for U.S. investors to gain access to the growth that is ahead for Vietnam is through either one of these closed-end funds.
Now is a very strategic moment to invest in Vietnam due to the recent decline in stock prices, the upcoming removal of the FOL, and Vietnam's high economic growth and successful steps taken towards becoming an emerging market.
Vietnam's Macroeconomic Outlook
Vietnam has an overall substantially positive macroeconomic outlook:
I previously interviewed Vietnam Holdings regarding the removal of the FOL in Vietnam in some industries next month. The process is still very unclear, but this decision made for September certainly serves as a crucial step for increased FDI in Vietnam. The removal of the FOL will be company and industry specific, and based on the following factors:
Strength over China
As China experiences slowed growth in GDP and exports, Vietnam continues to emerge as a superior alternative for manufacturing, due to its relatively lower wages. A report from Standard Chartered Bank recently stated that relocating to Vietnam could reduce operating costs by 19%; wages in China are expected to continue to rise by 8.4% in 2016. Vietnam can also further benefit from the soon to be initiation of the Trans-Pacific Partnership Agreement. Vietnam also has the relative advantage of lower corporate taxes, which should be lowered from 22% to 20% in 2016, representing a 5% reduction to China's corporate taxes.
Vinacapital Vietnam Opportunity Fund
Vietnam Opportunity Fund is a closed-end investment company that invests its assets in listed and unlisted equity in Vietnam and surrounding countries in Asia. Some of these factors make it a strategic pick for the growth that is ahead for Vietnam:
Vietnam Holdings is a closed-end investment company that invests its assets exclusively in Vietnam, with a value-based investment approach that incorporates social, environmental, and corporate governance standards. The fund is extremely undervalued, although the liquidity risk should be noted, as its average 3-month trading volume has recently increased to 859; its listing on the London Stock Exchange has substantially higher valuation. Thefollowing factors make this fund stand out, and an appropriate means to leverage from Vietnam's future economic growth:
Now is a strategic time for investors to turn their attention to Vietnam, due to the strong benefits ahead, and the decline in the price of many funds due to the devaluation of the dong. The upcoming removal of the FOL in September will further serve as a catalyst for increased FDI and economic growth in Vietnam; this is also a crucial step towards Vietnam becoming an emerging market. Vietnam has a very favorable economic outlook, with a projected increase in annual GDP growth, consumer spending, and retail sales. Listed equity in Vietnam has the key advantages of having low valuation and high dividend yields, which can prove to be a valuable endeavor for value investors. Unfortunately, gaining access to this growth in not simple for U.S. investors, as the Market Vectors Vietnam ETF has historically been a poor reflection of Vietnam's potential. Therefore, U.S. investors should turn their attention towards closed-end funds, which include Vietnam Holdings and VinaCapital Vietnam Opportunities Fund.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Source: Vietnam's Transition From A Frontier Market To An Emerging Market | Seeking Alpha
@Viet, @Yorozuya, @xesy, @vtnsx, @Viva_Viet, @Soryu, @AViet
- Vietnam is on track to become an emerging country, with rapid economic growth ahead, and the removal of the FOL in some industries beginning next month.
- VinaCapital's Vietnam Opportunity Fund and Vietnam Holdings are attractive options for investors due to their low valuation, and access to shares of companies fully held by foreign investors.
- Investors should avoid the Market Vectors Vietnam ETF, and consider closed-end funds as the most appropriate means to gain exposure to Vietnam.
- The recent devaluation has created low valuation in listed equity in Vietnam; this has created a buy opportunity.
Vietnam is poised to be a dominant player in Asia, as China's economy begins to slow down, and Vietnam continues to take key steps towards being an emerging country. The further devaluation of the dong this month has negatively affected listed equities in Vietnam, although it can consequently be viewed as a buy opportunity, given that it has created substantially low valuation for a large portion of listed equities in Vietnam.
Issues with the Market Vectors Vietnam ETF
VNM data by YCharts
The Market Vectors Vietnam ETF (NYSEARCA:VNM) has been substantially declining due to the dong's devaluation, although the downward trend in stock price and poor performance is not a new phenomenon for this fund. Although the fund invests more than 70% of its assets in listed equities in Vietnam, its portfolio's performance has been a poor reflection of Vietnam, as a value based/high dividend yield approach has been extremely successful for other investment funds. Moreover, the fund also suffers due to its inability to access shares of companies fully held by foreign investors. The FOL will be removed in some industries next month, serving as a major catalyst for the financial performance of funds in Vietnam that already have a large portfolio of companies fully held by foreign investors; this benefit will not transfer to the Market Vectors Vietnam ETF. Two closed-end funds, the Vinacapital Vietnam Opportunity Fund (OTCPK:VCVOF) and Vietnam Holdings (OTC:VNMHF), have substantially lower valuation, and also have shares of companies fully held by foreign investors, most notably Vinamilk. Therefore, the best means for U.S. investors to gain access to the growth that is ahead for Vietnam is through either one of these closed-end funds.
Now is a very strategic moment to invest in Vietnam due to the recent decline in stock prices, the upcoming removal of the FOL, and Vietnam's high economic growth and successful steps taken towards becoming an emerging market.
Vietnam's Macroeconomic Outlook
Vietnam has an overall substantially positive macroeconomic outlook:
- Annual GDP growth was most recently 6.44%, and is projected to increase to 7% by the end of this year.
- High level of exports, due to the relative advantage of cheap labor, although Vietnam has most recently had a trade deficit of $329 million; exports in Vietnam have, however, doubled in the past five years.
- Consumer spending has nearly doubled since 2010, and is projected to increase by 26.8% YoY during the 2nd quarter of 2016; this growth trend is clearly not over.
- Retail sales are projected to increase by 19.6% YoY during the second quarter of 2016; retail sales most recently increased by 26.7%
- The Vietnamese dong has been a relatively stable currency in Asia, and the FX risk is well worth taking, considering the collective low valuation and high dividend yield of listed equity in Vietnam.
I previously interviewed Vietnam Holdings regarding the removal of the FOL in Vietnam in some industries next month. The process is still very unclear, but this decision made for September certainly serves as a crucial step for increased FDI in Vietnam. The removal of the FOL will be company and industry specific, and based on the following factors:
- Some industries, such as the banking industry, will choose not to remove the FOL, keeping foreign ownership at 10-30%.
- The decision to increase the FOL also requires approval from the company.
- Companies with large SCIC stakes will also be less likely to increase the FOL.
Strength over China
As China experiences slowed growth in GDP and exports, Vietnam continues to emerge as a superior alternative for manufacturing, due to its relatively lower wages. A report from Standard Chartered Bank recently stated that relocating to Vietnam could reduce operating costs by 19%; wages in China are expected to continue to rise by 8.4% in 2016. Vietnam can also further benefit from the soon to be initiation of the Trans-Pacific Partnership Agreement. Vietnam also has the relative advantage of lower corporate taxes, which should be lowered from 22% to 20% in 2016, representing a 5% reduction to China's corporate taxes.
Vinacapital Vietnam Opportunity Fund
Vietnam Opportunity Fund is a closed-end investment company that invests its assets in listed and unlisted equity in Vietnam and surrounding countries in Asia. Some of these factors make it a strategic pick for the growth that is ahead for Vietnam:
- High discount: Its London listing trades at an 18.35% discount.
- Low valuation: The fund has a P/E 10.54, and is trading substantially below its book value, with a P/B of 0.68.
- The fund invests 15.1% of its assets in Vinamilk and DHG Pharmaceutical, two companies fully held by foreign investors.
- The 52-week change of -16.6% should be seen as a buy opportunity, as it has created substantially lower valuation. The fund has previously had a higher P/E, and its valuation is lower than the average valuation in Vietnam.
- High upside potential and low valuation of other listed equity, including Hoa Phat Group (8%) and Petrovietnam Drilling and Well Services (3.8%).
- Acceptable liquidity: The fund has an average 3-month trading volume of 13,650.
Vietnam Holdings is a closed-end investment company that invests its assets exclusively in Vietnam, with a value-based investment approach that incorporates social, environmental, and corporate governance standards. The fund is extremely undervalued, although the liquidity risk should be noted, as its average 3-month trading volume has recently increased to 859; its listing on the London Stock Exchange has substantially higher valuation. Thefollowing factors make this fund stand out, and an appropriate means to leverage from Vietnam's future economic growth:
- Extremely low valuation: The fund has a P/E of 6.03, and is trading below its book value with a P/B of 0.92.
- The fund invests approximately 20% of its assets in companies fully held by foreign investors, including Vinamilk, DHG Pharmaceutical, FPT Corporation, and Viconship.
- The fund has had an impressive 52-week change of 16.92%, yet the valuation is still extremely low.
- In addition to strategically investing in companies fully held by foreign investors, the fund also has a very successful portfolio of companies with low valuation, including Hoa Phat Group, Petrovietnam Drilling and Well Services, and Binh Minh Plastic.
Now is a strategic time for investors to turn their attention to Vietnam, due to the strong benefits ahead, and the decline in the price of many funds due to the devaluation of the dong. The upcoming removal of the FOL in September will further serve as a catalyst for increased FDI and economic growth in Vietnam; this is also a crucial step towards Vietnam becoming an emerging market. Vietnam has a very favorable economic outlook, with a projected increase in annual GDP growth, consumer spending, and retail sales. Listed equity in Vietnam has the key advantages of having low valuation and high dividend yields, which can prove to be a valuable endeavor for value investors. Unfortunately, gaining access to this growth in not simple for U.S. investors, as the Market Vectors Vietnam ETF has historically been a poor reflection of Vietnam's potential. Therefore, U.S. investors should turn their attention towards closed-end funds, which include Vietnam Holdings and VinaCapital Vietnam Opportunities Fund.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Source: Vietnam's Transition From A Frontier Market To An Emerging Market | Seeking Alpha
@Viet, @Yorozuya, @xesy, @vtnsx, @Viva_Viet, @Soryu, @AViet
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