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Fund Profile

Vietnam Enterprise Investments 20 October 2022

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
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Overview

Vietnam is a fast-developing market which arguably offers some of the most exciting investment opportunities in Asia. The country falls outside the mainstream emerging market indices, which means it is unlikely to feature in most EM or Asian funds and therefore most investors will have little exposure. However, it is benefitting from some well-entrenched secular growth themes which look set to continue for many years: as the economy opens up, foreign direct investment has rocketed, exports have boomed and a middle class has emerged with all that that means for demand for consumer goods and services.

Against this backdrop, Vietnam Enterprise Investments (VEIL) could offer an interesting opportunity. VEIL is the largest and longest established investment company that focusses on Vietnam, having launched in 1995, although it wasn’t listed on the London Stock Exchange until 2016. The management team therefore have knowledge and experience second-to-none, spanning the whole period of Vietnam’s liberalisation – and Dragon Capital is the largest foreign investor in the country. VEIL can also invest in unlisted pre-IPO companies, as Vietnam’s biggest investment fund it is often able to negotiate favourable terms on both IPOs and structured deals, allowing it to benefit from the rapidly growing and developing investment opportunity set.

The strategy focuses on identifying companies benefitting from key secular drivers such as urbanization, consumption growth and the shift of exports up the value chain. Vietnam has a highly educated workforce and cheap labour costs, which means it is increasingly winning market share from high end manufacturing from established players such as China. These favourable tailwinds are supported by a government which is committed to funding the transformation of Vietnam from an agrarian to an industrial economy, putting the country in a position which observers in the region are quick to compare to Thailand or Malaysia two decades ago, before their transformation to regional industrial powerhouses.

With the market looking cheap after a sell-off this year, VEIL also trades on a significant discount of 14.8%, making it an interesting option for those with an eye on the long-term potential it could deliver.

Analyst's View

Vietnam looks exciting on a multi-year view. The country is at a relatively early stage of economic development compared to some Asian peers, which means there is an obvious runway of growth ahead for companies which can tap into rocketing domestic demand for investment and consumer goods. With a highly educated workforce and strong support from the government, which is spending big on the infrastructure required to encourage foreign companies to choose it as a base for manufacturing, the case for Vietnam as a destination for FDI is also strong – as evidenced by the recent creation of major industrial hubs by Apple and Samsung.

We think VEIL is a highly attractive vehicle for access to this market. The management team’s deep knowledge and experience put them in a great position to identify the winning companies. The ability to buy pre-IPO companies adds to the opportunity set – and is something open-ended funds can’t do as easily. Meanwhile, at the present moment the trust trades on a double-digit discount to NAV, offering considerable downside protection and the potential for extra returns should the discount narrow.

Vietnam has sold off and VEIL’s discount has widened as risk aversion has risen during 2022, while two local scandals have played out (see Performance). The country is not immune to the global slowdown, with export growth falling this year and the central banks having to raise rates to defend the currency. However, in May of this year S&P upgraded Vietnam to one notch below investment grade, citing solid GDP growth and continued FDI inflows as two of the main reasons. Moody’s (who upgraded Vietnam’s outlook in September) forecast GDP will hit 8.5% this year, boosting corporate profits. The country is also embarking on an infrastructure spending spree which should boost the economy and counteract any global cyclical slowdown, while its self-sufficiency in food means domestic inflation is likely to remain lower than many peers.

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, evidenced by recent fraud charges in Vietnam
  • High OCF (like the other specialist Vietnam trusts)
Continue to Portfolio

Fund History

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…
11 Aug 2023 Calling emerging markets
The rapid rate of smartphone adoption in emerging markets has improved lives and presents interesting opportunities to investors...
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...
28 Apr 2023 Will we see a resurgence in emerging markets?
We may be at the start of a new cycle…
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
24 Feb 2023 Piece by piece
Diversification is beneficial, but that doesn’t mean a country-specific allocation should always be avoided…
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…
18 Nov 2022 The end of globalisation?
A change in the pattern of global trade seems more likely than a dramatic reversal of offshoring...
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...
01 Jun 2022 Are emerging markets doomed?
Bunching together different parts of the world leads to an unnuanced view of the opportunities in emerging markets…
View all

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