Emerging Markets

Vietnam's Economic Ascent Deserves More Fans – Dragon Capital

Tom Burroughes, Group Editor, 13 June 2022

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Although unsurprisingly bullish on the country in which it has operated for nearly three decades, Dragon Capital goes into detail on why it thinks Vietnam, possibly soon to be an emerging market classified nation, is a good investment bet.

Valuations of Vietnamese companies are relatively cheap and the Southeast Asian nation is positioned to profit from positive domestic forces and from global supply chains having been upended, a specialist asset manager says.

Vietnam, ranked as a “frontier” market and possibly on the way to “emerging market” status from the likes of MSCI, the index provider, is officially a Communist state. But its embrace of a form of capitalism has been one of the successes of the region. The country has come a long way since the wars of the 1960s and 1970s. Many readers, for example, know it as a desirable travel spot. Private banks are taking notice. For example, Switzerland’s Bordier & Cie has a joint venture with a local partner.

Dragon Capital, a business that has invested in the Asian nation for almost three decades, unsurprisingly, is positive about Vietnam. Funds managed by Dragon Capital include Vietnam Enterprise Investment, a $2.6 billion closed-end fund listed on the London Stock Exchange. It also manages three actively managed public equity and debt funds as well as two exchange-traded funds, one of which is listed as a depositary receipt on the Thailand Stock Exchange. The business was formed in 1994, six years before the Ho Chi Minh City Stock Exchange got off the ground.

This news service recently chatted to Dominic Scriven, co-founder and executive chairman, about the business. 

“Recently, with the BRIC countries each having their own problems, Vietnam is getting more and more investor attention. [It has] a stable currency, strong economy (delivering growth in both years of the pandemic) along with high and sustainable corporate earnings growth and favourable long-term development trends,” he said. “We expect Vietnam to still be at the higher risk end of the spectrum but would like to think it has an attractive risk vs. reward analysis under most models. With so many compelling macro and corporate factors, we do quite often get asked 'what’s the catch?'”

“Vietnam is cheap, currently on a forward PER [price-earnings ratio] of 9.5 times, and with forecast 2022 EPS [earnings per share] growth of over 20 per cent. For context, in the first quarter [of 2022] the top 80 companies in Dragon’s research coverage achieved EPS growth of 27 per cent and in 2021 the overall average was around 38 per cent,” Scriven said. 

Scriven went on to say that with daily market turnover in Vietnam now routinely more than $1 billion, the country’s stock market is one of the most liquid in its category.

Dragon Capital employs a mix of bottom-up stock-picking approaches, based on analyses of qualities such as pricing power and boardroom talent, while also tracking top-down themes such as Vietnam’s youthful demographics, rapid urbanisation and rising middle class spending power.

“The main sectors we invest in here are banks, real estate, steel, retail and technology,” Scriven said. 

The firm’s top-five holdings in Vietnam are VP Bank; Hoa Phat Group (steelmaker); Mobile World Group, an online retailer; Asia Commercial Ban; and Vinhomes, the real estate business.

For example, on VP Bank, the line from Dragon is this: “With research suggesting approximately 60 per cent of the Vietnamese population don’t have bank accounts (a recent HSBC report says [that this applies to] 52 million Vietnamese over the age of 15), VPB are at the forefront of digital transformation, using modern technologies to maximise customer acquisition and retention at a low cost. This year, VPB have expanded their financial services offerings with the acquisition of a securities firm and non-life insurance company, as well as having Vietnam’s most lucrative bancassurance deal via a 19-year exclusive agreement with AIA Group.”

The firm had to invest in unquoted businesses when it got going in the mid-1990s and Dragon’s first fund was Vietnam Enterprise Investments Limited (VEIL), which launched in 1995 with $16 million. Today VEIL invests entirely in listed equities and the fund’s size was $2.4 billion at the end of April 2022. It has clocked up annualised returns of more than 13 per cent since the launch of the HOSE stock market (also to the end of April 2022). The fund is listed on the London Stock Exchange and is a FTSE 250 constituent. Dragon said it’s the biggest Vietnam-focused fund and also the biggest single-country fund in Asian emerging markets.

Since then, Dragon launched a domestic subsidiary, Vietnam’s first independent domestic asset management business, creating local equity funds designed for Vietnamese investors. This company launched Vietnam’s first exchange-traded fund in 2014 and now has two ETFs, with AuM of $1.1 billion, as at the end of April.

And then in 2013, Dragon launched the Vietnam Equity (UCITS) Fund, managed by Quynh Le Yen. The fund’s returns have averaged 17.5 per cent from launch until the end of April 2022. Quynh Le Yen also runs a mandate as part of a joint venture which Dragon established in 2020 with a Taiwanese bank. At the end of April the two strategies she manages had a total of $1 billion. 

Today, all this means that Dragon Capital boasts total AuM of $6.1 billion.

Emerging potential
Scriven added that Vietnam’s potential accession to full emerging market status from benchmark providers such as MSCI is an important talking point.

“The government has announced this is a target in the coming years and capital market reforms to accommodate this are currently being undertaken. Even before any decision is made by MSCI we expect the improvements being made to be beneficial to the market to support the excellent macro and micro outlooks,” he concluded.

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