Armchair Trader Pick: Long Term Buy & Hold (sold in May 2024)
- VinaCapital Vietnam Opportunity (LSE:VOF)
- Sector: Investment Trusts (Emerging Markets)
- Market cap: GBP 828m
- Entry price: 498p
- Target price: 600p
- Stop loss: 20% (trailing)
Vietnam’s local market has continued to impress. As emerging markets go, it seems to have been one of the more stable emerging growth plays over the last couple of years. But with niche markets like this, it pays to outsource to specialists with local knowledge, including fund managers who are on the ground.
There are several good investments trusts offering Vietnam exposure listed in London at the moment, but we reckon VinaCapital Vietnam Opportunity (LSE:VOF) to be one of the best. In this article we’ll look at why that is.
Vietnam had one of the best performing stock markets in the world during the pandemic. But it is also home to a number of unlisted investment opportunities. VOF provides investors with exposure to both of these, which is particularly important for a market where real estate, for example, still offers spectacular growth.
What is driving Vietnam’s growth story?
There are a number of factors supporting some Vietnam exposure as a single country emerging market play: its government remains very stable and it is not facing any serious political issues. It has a young, well educated labour force, and with China still largely closed off to the world, Vietnam has been able to attract a lot of manufacturing business which might otherwise have gone to China over the last few years.
VOF’s private assets portfolio has played a big role in supporting the consistent growth of the investment trust’s NAV. It is the only UK-listed Vietnam fund with significant and long-standing allocation to private equity. It is overseen by a large and well-resourced team based in Vietnam. It has also attracted investors because it pays out a regular dividend, which is not frequently the case with emerging markets investment trusts.
The manufacturing story in Vietnam is a big one. With tourism still on the ropes, this area of the economy has come to the fore. It makes a lot of the stay at home goods we have used during lockdown – e.g. PCs, audio-visual equipment and furniture. There has been a 23% increased in Vietnam’s exports to the US during the pandemic, that’s 26% if you focus on electronics.
Top five holdings in VOF:
- Hoa Phat Group (15.4%)
- Khang Dien House (11.2%)
- Vinhomes (5.9%)
- Asia Commercial Bank (5.9%)
- Airports Corporation of Vietnam (5.7%)
Vietnam expected to have another bumper year in 2022
Vietnam’s stock market is expected to see another good year, having grown 37% in 2021. According to VinaCapital’s Chief Economist, Michael Kokalari, Vietnam’s GDP growth is anticipated to pick up pace from 2.6% in 2021 t0 around 7-7.5% this year. Part of the driver for this is the rebound in the local domestic consumption and construction activity.
In October, Vietnam’s government pivoted from a “Zero COVID” approach to a “Living with COVID” approach, which drove a reopening boom. The government’s aggressive vaccination campaign raised the proportion of the country’s population who have received two COVID shots from 4% in September to over 90% of adults as of 5 January 2022, giving most Vietnamese people the confidence to return to work and paving the way for a resumption of foreign tourism – which directly accounted for about 8% of Vietnam’s GDP, pre-COVID.
Vietnam’s long-term growth drivers remain intact despite COVID. The country’s most important growth driver is foreign direct investment (FDI), and FDI inflows remained remarkably resilient over the last two years, despite COVID. “We expect continued strong inflows in 2022 – especially as travel restrictions are eased – which will make it easier for executives from Japan, Korea, and elsewhere to travel to Vietnam,” said Kokalari.
Note that we exited our position in this company in May 2024.
