Accessing Vietnam – Sustainable value investing in one of Asia’s most dynamic regions

Despite some dramatic challenges over the years, Vietnam’s economy and business landscape has changed dramatically for the better. 

The Southeast Asian country may be best known for its beaches, rivers, Buddhist pagodas and bustling cities, but it’s also gaining an incredibly robust reputation for foreign and domestic investment across a wide variety of sectors and industries. 

Here, Mario Timpanaro, director and fund manager, and Nga Nguyen, head of portfolio advisory at specialised asset management boutique AQUIS Capital, discuss the opportunities and possibilities of the soon-to-be upgraded to emerging market.

Can you talk a little about the macro picture of Vietnam in this time of global uncertainty?
Nga Nguyen: Vietnam has an open economy, so we are not immune to the effects of the up and downs of the global economy. However, we do have good fundamentals that contribute to a stable growth pattern. To be specific, Vietnam has quite a low consumer price index (CPI) inflation number which fell faster than expected in first half of 2023. In addition, we enjoy robust net foreign inflow (USD 13.4bn in 1H2023), with a trade surplus of USD 12.2bn (compared to only USD 1.2bn in 1H2022) – that contribute to stabilize the exchange rate market. With such foundation, the Vietnam economy expected to continue to grow at a pace from 6% to 7%.

Foreign inbound tourism also gives us positive signals, and we have a new immigration law that takes effect from August 2023 that will allow Visa-free entry from some countries to be extended to 45 days, while e-Visa holders can enter multiple times. I think that could be a very good catalyst for the tourism industry to rebound in the second half of 2023.

Mario Timpanaro: The world is still struggling with inflation, but it’s coming down. America is currently sitting at around 3%. Europe is still high and the UK at 8.3% is still far too high. But, in general, Asia doesn't have issues with high inflation, in Vietnam particularly. If you have a strong currency, you don't import inflation. The local economy is also so large that most of the products are produced in the US. So, this is the big advantage of why Vietnam is doing so well.

How has Vietnam, with its close links and shared boundary, benefitted from China having reopened its borders at the end of last year?
Nga Nguyen: Thanks to the reopening of China’s economy, the number of foreign direct investment (FDI) projects from China to Vietnam have nearly doubled year on year, making them to become foreign investor with the most newly licensed FDI projects in Vietnam at 18% of total. We have some big names from across various industries making their presence known in Vietnam, and we’re also benefitting from a rise in the consumer and tourism sectors.

For a number of years, there has been talk about Vietnam being upgraded from a frontier market to an emerging market. Do you expect this to happen? If so, when?
Mario Timpanaro: It will happen. If you look at the market capitalisation of Vietnam, it's almost $245 billion, which is much higher than other countries that are in the emerging markets already such as Poland or Pakistan. We think that Vietnam will be added on the emerging market shortlist by 2024 and will be upgraded in 2025.

Nga Nguyen: At the moment, the Vietnamese government is trying to make the market upgrade possible by this deadline with some specific solutions. For example, putting the KRX trading system into operation, which would allow brokerage companies to offer new products and services to the market. Listed companies are also encouraged to also provide reports in English, creating a more transparent way to make the Vietnamese market accessible to foreign investors. 

The Vietnamese stock market has thrived in the wake of the Covid-19 pandemic. What were the reasons for this and how will it affect future growth?
Nga Nguyen: During the pandemic, we had only three months of strict lockdown and then we reopened the economy very soon. The Vietnamese government controlled the COVID situation quite well, compared to other countries. Recently, we worked on a new legal framework, together with the acceleration of government infrastructure spending, that help to fuel the sentiment among domestic investors. Also, the improvement in business environment makes Vietnam an attractive destination for foreign investors through both direct and indirect investment channels. According to the most recent World Economic Forum report just released, we have moved up 12 places in global competitiveness. This is the largest change compared to other countries

Mario Timpanaro: Vietnam didn't make the same mistakes as China with a hard lockdown over a long time period. As Vietnam reopened after three months of hard lockdown, the economy grew in a heavy way - in Q4 2022, GDP grew by 13.7%. 

The Lumen Vietnam Fund was primarily set up to achieve long-term capital gain with sustainable economic growth. What is the appeal of the fund for investors who have access to Vietnam?
Mario Timpanaro: The Lumen Vietnam fund is a daily liquidity fund where we have retail and institutional tranches. We don't have any performance fees or redemption fees; it is the simplest fund worldwide. You can buy and sell on a daily basis, which makes it really unique.

Over the past few years, we have grown to $318 million USD, which makes it the largest UCITS fund worldwide. When I started in March 2012, the fund was $2.5 million, so the long journey and success is down to our entire team. In the time I have been working with the fund, we have doubled the number of analysts working exclusively and without any conflict of interest. 

On top of that, we introduced environmental, social, and corporate governance (ESG) in the investment process since March 2013. To see the performance over the past 11 years is just amazing. 

With regards to investing in Vietnam, what sectors would you favour going into the future?
Nga Nguyen: Maintaining a diversified and balanced portfolio is our strategy. We think the following sectors would continue to perform well in the mid and long run including Consumer, Industrial Park, Energy, and some names in the banking and Industrials sectors… However, in a world of uncertainty like this, our strategy would be flexible with movements in the market in short term.

Mario Timpanaro: I think the important mix is to change the weight from sector to sector. You have to see the money flow, where the money is going in and where it’s going out. 

We’ve seen over the past few years that foreign investors are back and buying in the Vietnamese equity market. Over the last few weeks, we saw that domestic investors are also back because now the Vietnamese market is in a comparable situation to China during 2008 to 2014 when what they did was always right. This makes Vietnam very attractive right now. 

The Vietnamese stock market outperformed most Asian Markets in the first six months of 2023, with the Lumen Vietnam Fund up +14.47% vs. the Vietnam All Shares (VNAS) Index at 11.2%. How do you see the potential going forward and is now a good entry point?
Nga Nguyen: In the second half of 2022, the Vietnamese stock market had a correction driven by liquidity issues. During the first half of 2023, liquidity has improved a lot. The market had a strong rebound and, looking ahead, Vietnam is expected to have a stronger earnings per share (EPS) growth in the next 12 months. We think the current valuation is not over valued and is a good opportunity for long-term investors.

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