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The case for long-term investing in Vietnam

Long-term investing in Vietnam
Ho Chi Minh City, the economic centre of Vietnam

Vietnam is among the top emerging economies of Southeast Asia and has garnered the attention of manufacturers trying to shift their base out of China. The countries economy is undergoing an overhaul as labour is shifting from agriculture to manufacturing and services, increase in private investments, an expanding tourism sector, and higher wages and urbanization.

In 2019, Vietnam’s GDP growth hit a 10-year high of 7.2%, but Covid-19 slowed down growth to 2.9% in 2020, and 3.8% in 2021. While most other Asian economies went into recession, Vietnam was able to stay in the black thanks to its wide array of exports of industrial production, textiles, electronica and seafood production, writes Credit Agricole Groupe.

Vietnam GDP in 2022 on recovery track

Vietnam is on track for recovery from the pandemic, with tourism reopening and export figures are on the rise. The Southeast Asian country posted a GDP growth of 5.03% in the first three months of 2022, slower than the previous quarter, said the General Statistics Office.

Exports in the country grew 14% to $88.58 bn during the first quarter of 2022 (January-March). The US was the largest export destination for Vietnamese goods.

While the fundamentals remain strong, Vietnam’s economy is expected to face headwinds from the Russia-Ukraine war, which has caused a spike in raw material prices as well as gasoline. Amid this, the Asian Development Bank expects Vietnam’s GDP to grow at 6.5% in 2022.

“Diversified trade structure, rising wages and domestic consumption are the backbone of the Vietnamese economic growth,” Credit Agricole Groupe said in a report. However, it also highlighted the weakness in infrastructure, business climate shortcomings, pending public sector reforms, growing inequality, and a weak banking system.

Top industries of Vietnam

Food, furniture, textiles, plastic, paper, telecommunication, and tourism are the most important sectors of Vietnam’s economy.

Agriculture employs 38% of the country’s labour but contributes 14.8% to the GDP. Some of the main crops include — rice, coffee, cashew nits, corn, pepper, sweet potatoes, peanuts, cotton, rubber and tea.

As per data from Credit Agricole, industries in Vietnam employed 27% of the total workforce in 2021 and contributed 33.7% to the GDP. Vietnam has become the third-largest producer of oil in the region, and the energy sector has received a boost in recent years. Additional investments by the country have been made for manufacturing cars, electronics and building software.

Lastly, the services sector represents 41.6% of the country’s GDP, while employing 35% of the total workforce. Tourism and telecommunications are the main service sectors of the country.

Vietnam has received hefty foreign investments in recent years, and foreign direct investment has been a key driver of economic growth. With Vietnam’s growth story also come more investment products. However, mutual funds and ETFs that invest in Vietnam are still quite rare. Let us look at one actively managed strategy, the Vietnam Equity (UCITS) Fund by Dragon Capital, which is registered for distribution in Belgium, Finland, France, Germany, Greece, Italy, Luxembourg, Norway, Singapore, Spain, Switzerland, and the UK.

Investing in Vietnam: Dragon Capital Vietnam Equity Fund

Incepted in 2013, this Dragon Capital fund covers Vietnam’s equity markets for medium- and long-term capital appreciation. The fund of the Vietnam-based investment and financial services provider invests in equity securities as well as debt securities of companies listed on the Ho Chi Minh Stock Exchange, the Hanoi Stock Exchange, and the Unlisted Public Company Market (UPCoM). The fund is pegged against the benchmark VN Index.

The Dragon Capital Vietnam Equity (UCITS) Fund is managed by Quynh Le Yen, who has over 15 years of experience in financial markets and has a master’s degree in finance from the University of Melbourne. The equity fund has assets under management of $332.19 m, as of April 28, 2022.

The fund has performed well over the years, with annualised returns of 17.58%, while the VN Index has given annualised returns of 15.77%. It has given absolute returns of 124.45% over five years, while the benchmark VN Index has returned 125.73%. Since its inception in 2013, the fund has risen 296.23%, as of March 31, 2022.

Year to date, the fund has declined 0.51%, whereas it returned 54.08% in 2021 alone, its best performing year.

The fund has the highest investment in equities at 85.90%, fixed income investment stands at 0.29%, whereas it has cash investments of 13.82%.*

The highest allocations is in bank stocks at 29.45%, followed by real estate (26.90%), brokers (11.32%), retailing (10.06%) steel (6.69%), technology (4.13%) and energy (1.59%), among other sectors.**

Mobile World was the largest holding of the fund with a portfolio allocation of 9.25%, followed by MB Bank (8.73%) and VNDirect Securities Corp (7.08%).**

 

*as of January 31, 2022
**as of March 31, 2022