Fund Profile

Vietnam Enterprise Investments 25 October 2023

Disclaimer

This is a non-independent marketing communication commissioned by Dragon Capital. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
Significant political developments may be about to give Vietnamese equities a big boost...
Overview

Vietnam is one of the countries benefitting the most from the decoupling of US/China trade, all while it is continuing its long-term liberalisation of its economy and markets, undergoing a multi-year boom akin to that China experienced in the early 2000s. Vietnam Enterprise Investments (VEIL) sets out to benefit from these trends, using the deep knowledge and connections of a locally-based management team which has been present in the country since before its stock market launched. In fact, Dragon Capital, the management company, was the first overseas investor present in the country and is the largest by AUM.

VEIL has delivered strong long-term returns in both absolute and relative terms (see Performance). Returns in Vietnam tend to be volatile, and 2022 was a tough year, but 2023 has seen a decent recovery in the market already. The managers tell us they are growing increasingly bullish and have increased their weighting to cyclical, economically sensitive companies in anticipation of strong earnings growth over the next few quarters.

In particular, they cite government stimulus plans and new trade deals with the US as reasons for optimism, while the central bank has already cut rates substantially. The recent upgrade in diplomatic relations with the US to Vietnam’s highest level of Comprehensive Strategic Partnership (CSP) could be particularly significant over the long run (see Portfolio section), and has led to a rally in a number of sectors linked to technology and manufacturing, benefitting VEIL.

VEIL trades on a wide Discount of 19.7% at the time of writing, compared to a five-year average of 13.7%.

Kepler View

Where to invest for long-term capital growth? In our view, Vietnam has to be top of the list of candidates. There are a number of secular growth themes which have good visibility, having delivered excellent returns in other emerging markets – most notably China. Chief is the transition from a command economy to a more liberalised economy, with the rapid economic development that entails. Additionally, Vietnam’s labour costs are cheap enough for it to serve as a key site for manufacturing high-end electronics, with a good education system being boosted by foreign investment (one element of the recent CSP signed with the US). The growth of a new middle class is at a very early stage and provides obvious earnings potential for companies selling to it – notably financial services companies which have delivered exceptional returns in India as it travels along the same path a few years ahead.

All this growth potential is accompanied by risks. Vietnam is well-placed to trade with the US and China, and must maintain a strong relationship with both of these two superpowers. Domestic politics have witnessed a recent anti-corruption drive. Vietnamese equities are becoming more sensitive to global trade flows and risk appetite. All this has to be considered and makes us argue a position has to be for the long term. In our view, the 20% discount is excessive and unlikely to prove structural. We would expect this to narrow whenever global risk appetite increases, perhaps when developed world rates fall and investors look for returns in riskier assets. We note the market is currently over 25% off its all-time highs that were set last year, with earnings growth of 18–25% currently expected next year. Dragon Capital forecasts GDP growth of 6.0–6.5% in 2024.

Bull

  • Vietnam is an exciting structural growth story
  • Dragon Capital is the largest foreign investor in the country with connections and experience second to none
  • VEIL is trading on a double-digit discount, which could boost returns when market sentiment improves

Bear

  • High single stock risk which could hurt returns in certain circumstances
  • Single country funds bring currency risk and political risk
  • High OCF (like the other specialist Vietnam trusts)
Continue to Portfolio

Fund History

30 Apr 2024 Results analysis: Vietnam Enterprise Investments
VEIL delivers strong results in a rebound year…
06 Mar 2024 Gimme shelter
Growth opportunities to re-invest those magnificent profits into...
25 Oct 2023 Fund Analysis
Significant political developments may be about to give Vietnamese equities a big boost...
20 Sep 2023 Five questions about emerging markets
We track key developments in the diverse emerging markets universe…
14 Sep 2023 Results analysis: Vietnam Enterprise Investments
A rebound in H1 makes VEIL’s wide discount look attractive…
05 Jul 2023 Silk Road Strife
The Asian narrative has been dominated by the India vs China debate, but on which side of the line have investment trust managers fallen?
29 Jun 2023 Bear in a China Shop
All the speakers at our emerging markets-focussed event last week see battered valuations in emerging markets – with the exception of the largest of them all – as a big opportunity…
20 Jun 2023 Vietnam Enterprise Investments
Dominic Scriven
This webinar is part of our June online event 'Spotlight on emerging markets'...
Watch Recording
09 Jun 2023 Investing in Vietnam, with Dragon Capital Founder Dominic Scriven - Podcast: Trust Issues #18
We talk inflation, advances in tech and Vietnam's entry to EM indices...
27 Apr 2023 Results analysis: Vietnam Enterprise Investments
VEIL is trading on a wide discount, with the Vietnamese market also looking cheap…
30 Mar 2023 What I’m doing with my allowance this tax year
Two of our analysts debate whether to invest in punchier funds for the long term or take a more cautious view…
24 Mar 2023 ISA Event: Eastern promise
This week we heard from managers in Vietnam, India, China and more…
14 Mar 2023 Fund Analysis
VEIL offers access to an exciting growth market...
24 Mar 2023 Vietnam Enterprise Investments - Live from Saigon, a city of opportunity
Dominic Scriven & Thao Ngo
Rewatch this webinar from our month-long online series 'A feast of ideas for your ISA' hosted by the team at Kepler Trust Intelligence throughout March...
Watch Recording
21 Dec 2022 Reasons to be cheerful
We find reasons to be cheery this Christmas in the long-term trends which are going to transform society and generate returns…
20 Oct 2022 Fund Analysis
VEIL is managed by the largest foreign investor in the fast-growing Vietnamese market…
15 Sep 2022 Same same but different
We discuss the case for emerging markets at different stages of development…
13 Sep 2022 Results analysis: Vietnam Enterprise Investments
VEIL’s wide discount may provide an attractive entry point for investors…
13 Jun 2022 Podcast: Investing in Vietnam with Dragon Capital founder Dominic Scriven
We speak to the man behind one of London's leading closed-ended funds...
View all

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