Tag Archives: vietnam

VinaCapital Vietnam Opportunity Fund: Invest In Vietnam’s Growth At A 23% Discount

Summary Vietnam trades at a substantial discount compared to other countries in Asia, and has a flurry of advantages ahead of it; now is a strategic time to consider investment. Vietnam stands out as a positive outlier among the current emerging market turmoil, as it has lower FX risks and higher growth, compared to its Asian peers. The recent initiation of the TPP and Vietnam’s removal of the FOL will both serve as major economic catalysts for the country. U.S. investors should strongly consider VinaCapital’s Vietnam Opportunity Fund as an outlet to gain exposure to Vietnam’s growth. Vietnam is poised to be one of the top winners from the newly initiated TPP, yet I argue that Vietnam was already good value before this, and the country has a flurry of advantages ahead of it that will also serve as a catalyst for increased economic growth. Trading at a 30-40% discount to Asian peers such as Malaysia and Thailand, Vietnam is a superior location for value investors. Although the country’s P/E has long remained near 12, the country’s soon to be transition to an emerging market should result in higher valuation in the future. Furthermore, Vietnam’s benefit from the TPP invitation will result in the country’s GDP growth increasing to 11% by 2025 , according to Eurasia Group. This article will focus on the benefits of profiting from Vietnam’s upside by investing in the VinaCapital Vietnam Opportunity Fund ( OTCPK:VCVOF ). (click to enlarge) Source: LSE VinaCapital’s Vietnam Opportunity Fund has strongly outperformed the IT Country Specialists Asia Pacific, reflecting Vietnam’s superiority and the benefit of considering locally managed funds. The fund has had a NAV return of 33% over the past five years, compared to the VN Index gain of 7.7%. Most impressive is the fund’s extremely high discount, which has also been higher in the past. Lower FX Risk With currencies in Asia facing strong devaluations, Vietnam stands out as a positive outlier, as its currency was only devalued by 1% last month , and the VND has only had a 4.5% YTD depreciation against the USD. While much of emerging Asia is struggling with FX risks, Vietnam has been able to cope relatively well with FX risks, and I argue that the other benefits of investment in Vietnam drastically offset this risk. Inflation recently fell below 1% , a drastic improvement from the beginning of 2014, when inflation was near 5%. The VN index has had a YTD return of 5.79% , compared to the 6.06% decline of Malaysia’s KLCI index , and the 7.23% decline of the SET index . Furthermore, FDI inflow growth into Vietnam has been substantial, with a YTD increase of 30%. Mark Mobius recently announced his plan to invest $3 billion into Vietnam, which is a shockingly high amount for Vietnam. Franklin Templeton has invested a similar amount into Thailand, yet the stock market is 10 times larger in Thailand. Economic Growth and FOL Removal Economic growth will serve as a further catalyst for the country’s stock market, and is a strong complement to the country’s low valuation: Retail sales YoY growth has consistently been high ; 26.7% in July, 10.3% in August, and 5.2% in September. Consumer spending has been consistently and rapidly increasing. Annual GDP growth expanded to 6.8% during the 3rd quarter of 2015. Infrastructure spending has risen drastically, and the country’s new 5-year plan projects 300% growth in road building. The country’s decision to relax the foreign ownership limit, in certain industries, will serve as a catalyst for an increased flow of FDI, and was one of the last items on the checklist for Vietnam to move forward as an emerging market. A recent report prepared by Edmond de Rothschild made the following comment regarding the impact of the FOL removal on Vietnam’s low valuation relative to its peers in Asia: “A major effect of the implementation of the foreign ownership limitation decree will be to narrow this discount, allow a re-rating of the market, and to improve liquidity.” Investing in funds on the ground that have pre-positioned themselves is a crucial step to buy into shares of these companies early, as stock prices of these companies are bound to rise with the new relaxation of FOL and a new inflow of FDI that is ahead. The VOF fund already has a large holding of Vinamilk, a company foreigners typically pay a 20% premium to invest in. The VOF fund has been a long holder of Vinamilk, and was able to invest in this company prior to its listing. The government has recently authorized the SCIC to sell its 45.1% stake in Vinamilk . VinaCapital VOF The VinaCapital Vietnam Opportunity Fund is an excellent means for investors to access Vietnam’s future upside. The VOF is the largest and most liquid closed end fund in its peer group, and its London listing is impressively trading at an 23% discount . The fund currently trades on London’s AIM board, and is in the process of moving to main board of the London Stock Exchange ; the shares will be migrated from the Cayman Islands to Guernsey to achieve the same efficient tax structure, while being under a superior compliance and regulatory environment. The company’s EGM held on October the 27th confirmed that the process has been approved, and the migration is expected to take place in mid-November. Its U.S. OTC listing is a very feasible and liquid option for investors, as its 3-month trading volume is currently 13,849 . This fund has a unique approach of investing in listed equity, private equity deals, and investing in companies and eventually taking them to the stock market. The company has invested in key players like Vinamilk and Hoa Phat Group prior to its listing, companies that now have the dominant market share in their respective industries, and are highly sought after by foreign investors. Source: VOF August Report The fund’s diversified approach is as follows: 49% of the fund’s assets are invested in listed equity. 14.9% of the fund’s assets are invested in the real estate industry, and the VOF is currently emphasizing an increased shift to listed real estate equity for higher liquidity. 11.1% is invested in private equity. 10.7% of the fund’s assets are invested in hospitality projects. The fund utilizes a diverse sector approach: 20.4% of the fund’s assets are invested in the food and beverages industry, a strategic approach for Vietnam’s consumption growth story. 14.9% of the fund’s assets are invested in real estate projects, and 12.1% are invested in real estate equities. 10.2% of the fund’s assets are invested in the construction industry, which is poised for further growth due to the increasing demand for construction and building materials . 6.5% of the fund’s assets are invested in the financials services industry, which is an appropriate low level due to the issues of bad debt with banks. Exim Bank is a positive outlier in this industry, and a company fully held by foreign investors. The fund also has smaller holdings in agriculture, pharmaceuticals, and other industries. Top 10 Holdings Vinamilk : 11.5% of the fund’s assets are invested in Vinamilk, which is Vietnam’s leading dairy company, with dominant market share in Vietnam. Foreign investors typically pay a premium of up to 20% for shares of this company, yet investors can indirectly access Vinamilk shares at a substantial discount through the VOF. Source: Vietstock Sofitel Legend Metropole Hotel : 10.1% of the fund’s assets are invested in Sofitel Legend Metropole Hotel in Hanoi. Hoa Phat Group : 8.4% of the fund’s assets are invested in Hoa Phat Group, which has a 22% market share for steel production in Vietnam, and whose growth is being driven by the rapid growth of Vietnam’s real estate industry. Apart from this core business, the company also operates in real estate, furniture, and agriculture. Source: Vietstock Eximbank : 5.3% of the fund’s assets are invested in this company. The State Bank of Vietnam has set a target of reducing to bad debt in banks to 3% , and Exim Bank has responded by selling $68.2 million worth of its bad debt during the first half of this year. Source: Vietstock International Dairy Product : 5.3% of the fund’s assets are invested in this company, which is one of Vietnam’s top five dairy companies. Petrovietnam Technical Services : 3.4% of the fund’s assets are invested in this company. ROE has averaged near 20% since 2012, and the company has increased revenue and earnings since 2012. The company is a valuation gem , as its P/E is 5.3 and its P/B in 0.85. The company has historically proven its ability to cope amidst low oil prices, as both its earnings and revenue increased in 2009. Source: Vietstock PetroVietnam Drilling and Well Services : 3% of the fund’s assets are invested in this company. Like PetroVietnam Technical Services, the company’s share price has fallen drastically due to the low oil price environment, creating its extremely low valuation; its P/E is 5.74 and its P/B is 1.03. The company’s revenue did not fall in 2009, while its earnings fell slightly, indicating its ability to cope in a low oil price environment. Source: Vietstock Au Giang Pharmaceuticals : 2.9% of the fund’s assets are invested in Au Giang Pharmaceuticals, a very strategic move since Vietnam’s pharmaceutical industry is projected to have CAGR of 15.4% until 2020. Century 21 : 3.1% of the fund’s assets are invested in Century 21 , a real estate company that operates resorts, and also has operations in the tourism industry. Khang Dien House : 3.7% of the fund’s assets are invested in Khang Dien House, a real estate and development company. The diverse portfolio approach, coupled with the low valuation created from irrational sell-offs, both greatly attribute to the fund’s upside potential. The VOF is successfully prepositioned for the growth ahead of Vietnam, and it is very reasonable to conclude that the discount of both Vietnam and the VOF will not be long lived. Conclusion VinaCapital’s Vietnam Opportunity Fund is an excellent vehicle to access Vietnam’s growth, and I would further argue that Vietnam is a superior site for investment in Asia. Vietnam’s superiority has been displayed by its relatively strong performing currency this August, its low valuation, extremely high economic growth, high FDI, and the newly emerging benefits of the TPP and FOL removal. Furthermore, actively managed funds in Vietnam are certainly superior to the Market Vectors Vietnam ETF (NYSEARCA: VNM ), and there are substantial benefits associated with investment in funds that have long been on the ground in Vietnam. Investors can take advantage of Vietnam’s discount, as well as the discount of this fund, and leverage from the growth that is certainly ahead for Vietnam. Vietnam is a bright spot in emerging markets in Asia, and the selloff has created extremely low valuation. An approach to Vietnam should be a long-term hold, with the willingness to utilize bottom-cost averaging, as the market is extremely volatile. A long-term hold of Vietnam will certainly be fruitful, which is clearly displayed by the country’s discount and flurry of economic advantages that are ahead. 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.

Take Your PIIC – Philippines, Indonesia, India Or China

Summary Consider to invest in Asia. Within Asia I believe the best countries to invest in are the Philippines, Indonesia, India, China and Vietnam. All have high growth driven by domestic consumption. All except China have incredibly low household debt to GDP compared to their Asian peers, which will allow them to easily borrow more and build more. The “Asian Century” has arrived and if you fail to invest in it you are missing an enormous long-term opportunity to grow your wealth. In this article, I discuss what I believe to be the top five Asian destinations for investment and why. But first, why invest in Asia? The answer is simply because it is growing more rapidly than any other continent on the planet. By 2030, Asia Pacific is estimated to contribute a staggering 59% of global consumption , up from 23% in 2009. Some key points from DBS on where Asia is heading in the next 25 years: · Asia adds a Germany (in economic terms) every 3.5 years, and will add three Europe’s in 25 years (by 2040), or if Asian currencies appreciate one to two percent pa (as is the norm for developing economies), Asia will add 5 or 6 Euro zones by 2040. · The Asian middle class is set to triple (to 1.8b) in size between 2015 and 2020, and to have increased 615% (6.15 fold) between 2009 (525m) and 2030 (3,228m). · China (59%) and India (16%) will dominate the Asian middle class. · For every addition to the US population, Asia’s headcount will rise by seven. · China’s growth is moving inland, and also towards Central Asia. · Capital will flow to Asia like never before. Why? Businesses want to be where the growth is. Ever hear one say different? In 2039, when Asia has added three Euro zones, it will be creating a Germany every seven months. That’s a pretty big attraction. Inflows mean currency appreciation. Asian currencies will rise against the dollar, euro and yen. · China’s per-capita energy consumption is one-eighth what it is in the US, India’s is one-twentieth. Rising incomes mean Asia’s energy demand will continue to soar. Asian, not G3 demand, will drive the price of energy. Source The World’s largest economies in 2010 and 2050 Source You can read more about the rising Asian middle class in my previous article here . Why Philippines, Indonesia, India and China? I choose these as my top 4 Asian countries to invest because they have high growth (domestic driven), low household debts (see chart below), and a rising middle class (with jobs and wage growth). The best time to buy is ideally when valuations are good (PEs below 15), or dollar cost averaging. Source No1- Philippines The Philippines’ main advantage is their cheap, young and skilled labour force with excellent English skills. The BPO industry is growing around 20% pa (it grew 18.7% in 2014). The Philippines is currently growing around 5.6% pa (with a long term growth rate estimated at 7.3% pa), with the main growth drivers being overseas foreign worker’s remittances, and the BPO (call centre, back office administration) industry. Tourism, manufacturing (electronics, ship building), mining and farming also contribute. This money is being channeled into the property sector, combined with increased lending (household debt is a mere 6% of GDP). Demographics are excellent with around half the population below 25, and salaries are rising at least 6.5% pa, or higher in the BPO industry where staff are paid sign on bonuses. The property boom can run for many years as pent up demand for housing is huge and prices are still low at just USD 3,156 psqm or less in Manila. The banks are making good net interest margins around 3.02 %, and growing their loan books 20% pa, with non-performing loans at a very low 1.8% and double digit profits. Investors can buy iShares MSCI Philippines ETF (NYSEARCA: EPHE ), currently on a PE of 21.17 as of 30 September 2015. No 2 – Indonesia Indonesia has a huge population with strong demographics, a rising middle class, and improving Government. Indonesia GDP was 5.0% in 2014, however it is expected to average 6.8% pa in the long term (see table below). Along with Philippines and India, it has very low household debt, and rising employment and wages. The new Government seems focused to reduce debt and build infrastructure. In October 2015, they announced a USD 5 billion high speed railway from Jakarta to Bandung in a JV with China Railway Group (00390:xhkg) (PE 10.1). Property prices are low at just USD 2,766 psqm, and rising . Investors can buy iShares MSCI Indonesia ETF (NYSEARCA: EIDO ), currently on a PE of 18.19 as of 30 September 2015. No 3 – China China is off course the booming manufacturing hub of the World, but is changing to be a more consumer led economy. This is causing a slowdown in fixed asset investment, and the so called “China slowdown” and “commodities rout”. Their GDP is currently 7.0% and slowing. Demographics and household debt levels are not so good; however, the rising middle class is still huge. The best way to play China is to buy into the consumer sector via a fund or individual stocks. A suitable fund would be db x-trackers CSI300 Consumer Discretionary 1D ETF. Chinese (Shanghai, Beijing) property is not as expensive as India (Mumbai), and is priced at USD 6,392 psqm. Investors can buy iShares MSCI China ETF (NYSEARCA: MCHI ), currently on a PE of 14.56 as of 30 September 2015. Another good choice is db X-trackers Harvest CSI 300 CHINA A-Sh ETF (NYSEARCA: ASHR ). No 4 – India India has perhaps the best growth potential but is expensive on current valuations (PE around 30), so best to wait for opportunity to buy in or average into the market over time. Current GDP is around 7.3% pa, and the long term average is expected to be around 8.0% pa. Indian labour is cheap with strong English and IT skills. Property is growing but expensive in the major cities such as Mumbai at USD 11,455 psqm, which may be a drag on the short term growth (as in China). By 2050, India is expected to be the World’s largest economy (see earlier table). Investors can buy iShares MSCI India ETF (BATS: INDA ), currently on a PE of 30.75 as of 30 September 2015. No 5 – Vietnam Vietnam is my preferred short-term pick as PEs are around 13, so great value now. Long term its prospects are also good, as it is a cheaper manufacturing hub to China and jobs are booming as a result. Household debt is low at around 20% to GDP. Investors can buy db x-trackers FTSE Vietnam ETF (GR). I would avoid Malaysia (household debt to income of 146% ) and Thailand (debt 121% ), based on high personal debts and economies that are heavily dependent on exports. Many frontier markets will also offer good returns for investors but perhaps at greater risk, so invest accordingly. Other high growth countries (listed below) to consider are Nigeria, Iraq, Bangladesh, Vietnam, Mongolia, Sri Lanka and Egypt. Source : Finally, for those that want something different, then consider to invest in either Pakistan (PE 9.2) via db x-trackers Pakistan (03106:xhkg), or Central Asia and Kazakhstan via Global X Central Asia & Mongolia Index ETF (NYSEARCA: AZIA ) (PE of 16.7), as China is pushing infrastructure and growth in that direction.

3 Southeast Asian Country ETFs Surging In October

The economic slowdown in China may be appalling for the Southeast Asian economies, but there is a flip side to it that actually spells opportunity. Years ago, leading manufacturing companies across the world had turned to China as a production base in order to take advantage of low-cost facilities and inexpensive labor. However, the trend seems to be changing at a fast pace due to the economic turmoil in the world’s second largest economy (read: Asia-Pacific ETFs to Watch on a Surprise Rebound ). Due to the massive growth that China has experienced in the past, its wages and manufacturing costs have grown sharply. Further, the country’s huge population base and rising disposable income of middle class have slowly turned the economy from production-based to consumer-based. It is for these reasons that international companies are becoming more inclined toward taking their labor-intensive manufacturing projects to Southeast Asian nations due to lower labor costs and their ability to handle sophisticated production on a large scale. With this, the companies will be able to cater to an increasing consumer base in China as well as to conventional markets such as Europe and the U.S. The industrial relocation is expected to result in huge foreign direct investment (“FDI”) inflow into these emerging economies. Asian Development Bank expects Southeast Asia to record a GDP growth of 4.6% in 2015 and 5.1% in 2016. This compares with a GDP growth of 2.7% in 2015 and 2.8% in 2016 for the U.S., and 1.5% in 2015 and 1.8% in 2016 for the Eurozone, per forecast of World Bank . Based on these strong economic fundamentals and recent developments, we turn our focus to three Southeast Asian country ETFs that have experienced double-digit gains since the beginning of this month (read: 4 Safe Ways to Invest in Emerging Market ETFs ). iShares MSCI Indonesia ETF (NYSEARCA: EIDO ) Indonesia is struggling with weakening demand from China and low prices of commodities such as palm oil and coal. However, a set of stimulus packages announced by its President Joko Widodo recently is expected to spur growth in this largest Southeast Asian economy. The stimulus measures range from cutting energy prices for companies and giving insurance to farmers against crop failures to giving access to subsidized loans to salaried workers for small business enterprises. Before this, the government has already tried to revive the economy by easing permit processing and stabilizing a weak rupiah. The government aims to achieve a GDP growth of 7% in 2017 through enhanced infrastructure spending and accelerated FDI inflow compared to its six-year low GDP growth of 4.7% for the first quarter of the year. EIDO tracks the MSCI Indonesia Investable Market Index, measuring the performance of Indonesian-listed equity securities in the top 99% by market capitalization. The fund is heavily biased towards financials, accounting for nearly 40% of its assets. It has gathered about $298 million in assets and trades in an average volume of 687,000 shares. The ETF charges 62 bps in investor fees per year and was up more than 25% since the beginning of this month (till October 13, 2015). It carries a Zacks ETF Rank #3 (Hold) with a High risk outlook. Notably, two other Indonesian ETFs also recorded double-digit gains (more than 20%) in the same time frame. They include the Market Vectors Indonesia Index ETF (NYSEARCA: IDX ) and the Market Vectors Indonesia Small Cap ETF (NYSEARCA: IDXJ ) . iShares MSCI Malaysia ETF (NYSEARCA: EWM ) Malaysia is another Southeast Asian economy falling prey to the commodity rout and slowdown in China (its largest trading partner). However, the recent trading data from the country spurred investors’ interest. According to data released by the Ministry of International Trade and Industry, the country’s trade surplus increased to 10.2 billion ringgit ($2.4 billion) in August from 2.4 billion ringgit ($0.6 billion) a month earlier. Exports rose 4.1% year over year while imports fell 6.1% from the year-ago level. Despite the China slowdown, exports to the country soared 32.4% year over year. Meanwhile, exports to the U.S. and the European Union escalated 12% and 13.5% year over year, respectively. The surge in exports can be attributed to its weakening currency. According to Datuk Seri Abdul Wahid Omar , Minister in the Prime Minister’s Department, Malaysia has compensated the loss in oil and gas revenues from the slumping crude oil prices to some extent by implementing the Good and Services Tax in April. Further, its debt level (currently 54% of GDP) is expected to decline given the rising investments from the private sector. EWM follows the MSCI Malaysia Index, which is highly focused on the country’s financials, industrials and consumer staples sectors. The fund has garnered roughly $320 million in assets and trades in a hefty volume of 1.7 million shares per day. It charges 49 bps in annual fees and was up 19.1% so far this month. The fund carries a Zacks ETF Rank #3 with a Medium risk outlook Market Vectors Vietnam ETF (NYSEARCA: VNM ) Vietnam’s economy has been benefiting from low energy costs and very low inflation. Last month, inflation dipped to zero for the first time ever, as per General Statistics Office. Inexpensive labor and devaluation of the Vietnamese dong for the third time in a year by the country’s central bank have also been boosting the country’s exports and attracting foreign investments. The recently enacted Trans-Pacific Partnership (TPP) deal is further expected to boost export demand for Vietnamese goods. Bloomberg data showed that the country’s exports went up 9.6% year over year to $120.7 billion in the first nine months of the year. In the same period, pledged foreign investment soared 53.4% while disbursed foreign investment rose 8.4% from the year-ago levels. According to Asian Development Bank, Vietnam is likely to record the fastest growth in 2015 among the five major Southeast Asian countries tracked by the bank. The growth would be driven by burgeoning private spending, rising exports and increasing flow of FDI. VNM tracks the Market Vectors Vietnam Index, measuring the performance of stocks listed in the Vietnamese stock index, which generates at least 50% of its revenues from within the local economy. The ETF’s holdings are mostly from the financial sector (44%). The fund has amassed nearly $467 million in assets and trades in a volume of 457,000 shares per day. It charges 76 bps in fees and has returned about 13.3% since the beginning of October. The fund carries a Zacks ETF Rank #4 (Sell) with a High risk outlook. Link to the original post on Zacks.com