Vietnam Enterprise Investments 18 July 2024

Vietnam looks set for a year of recovery in 2024, with corporate earnings rebounding after two weak years, buoyed by notable recovery in export growth, domestic manufacturing and consumption. Vietnam Enterprise Investments’ (VEIL’s) new manager Tuan Le has positioned the portfolio for this recovery, leaning into positions in retail, banks, materials and real estate. Corporate earnings so far this year have been strong, with year-on-year earnings growth of 20–25% in the first quarter of the year delivered by strong growth in retail, materials and brokerage sectors. Tuan Le is sticking with his 18% earnings growth forecast for the overall market in 2024, and expects the recovery in earnings from the banking, retail and metals sectors to drive this double-digit growth.

Returns to the Vietnamese market were respectable in dollar terms last year, with c. 11% returned by the index and c. 10.5% by VEIL on a NAV basis (see Performance). This came despite corporate earnings falling in aggregate. This year has already seen a strong recovery in business activity, buoyed by a resurgence in exports and FDI. Valuations remain undemanding, despite this short-term pickup and despite the strong long-term secular drivers behind the market.

Key drivers are the young, well-educated and cheap workforce, a growing middle class and huge investment in urbanisation and infrastructure. The effect of each of these is being magnified by a flood of FDI led by US corporates seeking an alternative manufacturing partner to China. Vietnam has the advantage of strong trading links with both the US and China, creating opportunities for its corporate sector.

VEIL trades on a wide Discount of 18.1%, which arguably adds to the opportunity, particularly for a listed equity portfolio that is invested 12% in stocks at their full Foreign Ownership Limit that usually command a premium. The board has invested heavily in buying back shares over the past two years, materially adding to NAV per share (see Discount).

Vietnamese companies have delivered strong earnings growth in 2024 so far, buoyed by a recovering economy. Exports and domestic demand are both strong, and this is feeding through into good returns for local companies. The outlook looks positive for an acceleration later in the year, with the banking sector and the retail sector both looking set to do well. In our view this is an attractive time to be getting exposure to Vietnamese equities, which are poised to benefit from the global economy being healthier than it was feared it would be last year, and from rate cuts in the US when they come.

Over the long run Vietnam has enviable prospects when it comes to economic growth. In particular, its ability to conduct ‘bamboo diplomacy’ (a term which has come to describe its flexible but firm foreign policy) and maintain strong relations with the US and China puts it in an excellent position to see FDI continue to hit new highs, driving urbanisation and the growth of a prosperous middle class of consumers. After two difficult years for the market, in keeping with a difficult global environment, Vietnam is seeing a strong rebound and we think this could be a good time to be building a position. This is particularly the case when considering the double-digit discount, energetically supported by the board’s buyback programme.