The Vietnam-focused trust lagged its benchmark over the year but says its discipline is paying off as the country's market status upgrade opens the door to billions in fresh foreign capital.
Vietnam Holding (AIM: VNH) says it is positioning for a fresh wave of foreign capital after FTSE Russell upgraded Vietnam to emerging market status earlier this month, a move analysts reckon could draw between $5bn and $10bn into the country's equity market. The trust's net asset value per share rose 4.5% in the year to 30 June, trailing a 32.4% gain for the Vietnam All Share Index, but chairman Hiroshi Funaki used the annual report to frame the upgrade as validation of years of reform and a signal to global institutions about the maturity of Vietnam's capital markets.
The wide gap to the benchmark was driven almost entirely by a narrow rally concentrated in a single stock: conglomerate Vingroup surged 357% during the period, with its Vinhomes property arm doubling in value, together accounting for the bulk of the index's advance. Vietnam Holding does not hold Vingroup, and manager Dynam Capital said it deliberately avoided the stock, arguing its flow-driven valuation and loss-making, complex affiliates did not meet its criteria for buying well-governed, profitable businesses at sensible prices.
That discipline has started to show results more recently, with the trust's NAV rising 7.6% in August against a 6.6% gain for the benchmark, as gains broadened beyond Vingroup into the banks, retailers and industrials that make up the bulk of Vietnam Holding's portfolio. The manager says its holdings trade on around ten times forecast earnings, a discount to the wider market despite strong expected earnings growth, and points to a 15-year NAV compound annual growth rate of 10.3% against 8.9% for the benchmark as evidence of the long-term case.
The backdrop remains Vietnam's rapid economic expansion, with GDP growth of 8.2% in the first half of the year driven by foreign direct investment, a trend the manager expects to underpin returns in the years ahead. Yet foreign investors have been net sellers of Vietnamese equities throughout the trust's reporting period even as the wider economy attracts capital inflows, a disconnect Dynam Capital believes leaves its cheaper, higher-quality holdings well placed once that selling reverses.
Attention now turns to whether the FTSE Russell upgrade translates into actual index-tracking flows and whether foreign investors turn buyers of Vietnamese equities again, both of which would test the manager's bet on quality over momentum. Investors will also watch whether the broadening rally seen in August proves durable, or whether Vingroup-driven volatility continues to distort headline index returns relative to Vietnam Holding's more diversified approach.
This report is based on Vietnam Holding’s announcement and coverage by UK Investor Magazine. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full results calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Sean Pollock on Unsplash.
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