Vietnam Enterprise Investments 20 December 2024

Vietnam Enterprise Investments (VEIL) has been reinvigorated since new manager Tuan Anh Le took over in February 2024, with a restructured portfolio more focussed on high-conviction areas and tilted towards retailers and the domestic consumption story. The initial results have been encouraging, with VEIL outperforming the index since February and delivering strong returns in a year of recovery for Vietnam (see Performance section).

Tuan Le and the Dragon Capital team had bullish expectations for corporate earnings growth in 2024 that have been more than met and have tilted the portfolio towards sectors that should benefit as booming credit growth and a healthy consumer have positive impacts across the economy. Other key themes in the portfolio include significant infrastructure spend, rapid urbanisation, and Vietnam’s increasing attraction for multinational companies diversifying their supply chains away from China.

Trump’s election has led to concerns about potential tariffs. Tuan Le expects targeted tariffs on certain export goods which should have a limited impact on Vietnam’s listed companies. Vietnam has been a key partner for the US in the region, signing a comprehensive strategic partnership agreement in 2023, and has seen heavy investment by US corporates including NVIDIA. This means Vietnam may be a potential beneficiary of a tough tariff regime on China.

VEIL trades on a wide Discount of 23%, at the time of writing, whilst the portfolio and the Vietnamese market trades on low valuations, particularly in comparison to emerging market peers. Cautiousness about the impact of Trump is likely playing a role in both cases, which we think adds to the outperformance potential once there is some clarity on US trade policy. Meanwhile, Vietnam is likely to be upgraded to emerging market status by FTSE next year, which offers another catalyst for inflows and multiple expansion. VEIL continues to invest in upgrading its ESG approach, adding enhancements in 2024.

We think Vietnam is one of the most exciting stories in the emerging and frontier markets universe. The country is seeing rapid growth as the authorities invest heavily in infrastructure while continuing to liberalise the economy and encourage investment. The local corporate sector is modernising and expanding, boosted by a well-educated and cheap workforce which is moving up the wealth scale and becoming globally middle class. We think there are obvious parallels to the trajectories taken by China and India in recent decades, and Vietnam looks likely to be a key competitor to both. Compared to China, Vietnam benefits from a much stronger trading relationship with the US which has seen it approved for a role in the strategically vital AI sphere and sign a comprehensive strategic partnership agreement. In the case of India, Vietnam’s FPT Corporation looks like a potential peer of global giants Infosys and Tata Consultancy Services, at a much earlier stage of growth.

Emerging market status has been discussed for many years and looks likely to be finally won in 2025. This should bring a wave of foreign inflows to the stock market from active and passive investors alike. We note that the equity markets’ good performance in 2024 has been achieved despite heavy foreign outflows, which speaks to the strength of domestic demand and the optimism of domestic investors. Dragon Capital also expects 2025 earnings growth to be in the high teens, particularly against a strong economic outlook. Whilst there is the potential for a Trump administration to put tariffs on Vietnam, in our view, Trump is likely to be discriminatory in how he imposes tariffs and blanket tariffs on Vietnamese exports seems unlikely. Given how cheap the market is and the wide discount on VEIL’s shares, we think there could be a set-up for some powerful performance once this uncertainty is relieved.