REG - Vietnam Enterprise - Quarterly Update

Vietnam Enterprise InvestmentsAnnouncement

12/11/2024 07:15

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RNS Number : 8660L  Vietnam Enterprise Investments Ltd  12 November 2024

12 November 2024

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

Quarterly Insights

VEIL is a London listed investment company investing primarily in listed
equities in Vietnam and a FTSE 250 constituent.

Vietnam's Opportunities and Challenges in the Wake of Trump's Election Victory

Mr Tuan Le, Lead Portfolio Manager

The implications of Donald Trump's re-election for Vietnam's trade-driven
economy are complex, with a potentially accelerated shift in US economic
policy toward national competitiveness likely to inject volatility and
uncertainty into emerging markets.

Equity Market Outlook

In the years leading up to the pandemic under Trump's first term, Vietnam's
equity market delivered strong performance, with net profit growth reaching
19.1%. However, the unpredictability of Trump's policies and public statements
heightened market volatility, leading to a discount on valuations despite
underlying earnings growth. During this period, the VN Index achieved a
compounded return of around 15%, slightly trailing profit growth due to those
volatility concerns.

While Vietnam's economic and trade outlook remains relatively positive,
supported by pro-growth domestic policies, the potential strengthening of the
dollar could increase foreign selling in emerging markets in favour of US
equities. Emerging markets, including Vietnam, may continue to see valuation
discounts, as was the case during Trump's previous term.

Consequently, expected returns in Vietnam's equity market may lag earnings
growth. While this risk is notable, the valuation of our Top-80 universe of
stocks remains at 11.6x based on projected 2024 earnings, compared to the
five-year historical average of 13.9x, suggesting limited room for further
de-rating due to support from domestic investors seeking value. The extent to
which Vietnamese investors can offset the potential continuation of foreign
outflows, already over US$3 billion year-to-date, will be an important factor
in the medium term.

Domestic interest rates can also play an important role in supporting local
equity flows. Retail deposit rates for 12-month terms are at near all-time
lows of approximately 5.7%, making term deposits less attractive compared to
potential equity market gains, likely encouraging investors to favour
equities. While rates are expected to stay stable as the government supports
economic growth through a lower rate environment, potential shifts in Trump's
renewed agenda could introduce additional uncertainties.

Currency Concerns

Exchange rate stability has been a focal point of US monitoring in recent
years. In 2020, the US Treasury labelled Vietnam a currency manipulator,
citing Vietnam's high trade surplus, a strong current account, and foreign
exchange interventions. Although this designation was removed in 2021, Vietnam
remains on the US Treasury's monitoring list.

To counter concerns about competitive devaluation, the Vietnamese government
has taken clear steps to prevent excessive devaluation of the dong. Since
2022, the State Bank of Vietnam has deployed over US$20 billion in reserves to
stabilise the currency, signalling its commitment to exchange rate stability
and allay concerns over competitive devaluation.

Potential Impact of New Tariffs

Trump's election could reintroduce high tariffs and renegotiations of trade
agreements, thereby amplifying market volatility but simultaneously enhancing
Vietnam's role as an alternative manufacturing hub.

Trump's economic agenda, including tax cuts, deregulation, and increased
deficit spending, may strengthen the dollar, which presents a mixed scenario
for Vietnam's capital markets and export-oriented sectors. These sectors may
face heightened trade barriers but could also benefit from redirected trade
flows due to shifts in global manufacturing.

Among Trump's proposed policies are a 60% tariff on Chinese imports and an
additional 10-20% tariff on imports from other trade-surplus nations. While a
blanket tariff on all imports is unlikely given the potential impact on US
consumers, we believe targeted tariffs on sectors with high export volume to
the US may become a reality. Vietnam, with a strong presence in industries
like electronics and textiles, may be at risk of such targeted measures.

To offset potential trade restrictions, Vietnam could work toward narrowing
its trade surplus with the US by increasing imports of high-value goods such
as aircraft, energy, and technology, contributing to a more balanced trade
relationship. The government is also actively addressing transhipment risks,
particularly for goods suspected of being re-routed through Vietnam to bypass
US tariffs on Chinese products. For instance, Vietnam's Ministry of Industry
and Trade has launched investigations into steel imports from China and South
Korea to deter illegal re-export practices and reinforce its commitment to
legitimate trade.

Implications for the Road Ahead

With China accounting for 32% of global manufacturing and Vietnam at 2-3%,
Trump's re-election may prompt further shifts in supply chains away from
China. As new trade barriers pressure Chinese exports, countries like Vietnam
are positioned to benefit, much as they did during Trump's first term.
However, this opportunity comes with a likely increase in scrutiny of
Vietnamese goods, particularly in sectors with strong FDI links to China or
those at risk of transhipment issues.

On balance, the outlook appears positive for Vietnam, with opportunities to
capture a larger share of the global supply chain as production diversifies.
Vietnam's government is expected to take proactive steps, drawing on
experience to implement pre-emptive measures. This environment could provide
momentum for key policy shifts, such as formal agreements with the US to
clarify rules of origin, address transhipment concerns, and promote
accelerated localisation within Vietnamese industries. Greater localisation
would strengthen supply chain resilience and create the potential for domestic
firms to move beyond OEM manufacturing toward capturing more value in
direct-to-consumer markets.

      Company                 Sector                   NAV Weight %  VNI Weight %  Weight vs Index %  Q3 2024    1-Year Rolling Return %

                                                                                                      Return %
 1    Mobile World            Consumer Discretionary   9.0           1.9           +7.1               13.1       29.3
 2    FPT Corporation         IT                       8.2           3.7           +4.5               6.8        66.2
 3    VP Bank                 Financials (Banks)       7.3           3.0           +4.3               11.7       1.6
 4    Vietcombank             Financials (Banks)       6.9           9.7           -2.8               11.9       4.2
 5    Asia Commercial Bank    Financials (Banks)       6.1           2.2           +3.9               12.1       39.0
 6    Hoa Phat Group          Materials                5.6           3.2           +2.4               -3.5       9.2
 7    Techcombank             Financials (Banks)       5.1           3.2           +1.9               7.4        47.0
 8    Vinhomes                Real Estate              3.9           3.5           +0.4               17.8       -6.8
 9    Vietinbank              Financials (Banks)       3.7           3.8           -0.1               23.5       36.1
 10   Khang Dien House        Real Estate              3.7           0.7           +3.0               9.2        29.8

      VEIL NAV               -                         -             -             -                  9.3        13.5
      Vietnam Index          -                         -             -             -                  7.9        12.8

Top Ten Holdings (59.4% of NAV)

Source: Bloomberg, Dragon Capital

NB: All returns are given in total return USD terms as of 30 September 2024

 

For further information, please contact:

Vietnam Enterprise Investments Limited

Rachel Hill

+44 122 561 8150

+44 797 121 4852

rachelhill@dragoncapital.com (mailto:rachelhill@dragoncapital.com)
 

 

Jefferies International Limited

Stuart
Klein

+44 207 029 8703

stuart.klein@jefferies.com (mailto:stuart.klein@jefferies.com)

 

h2Radnor

Iain Daly

+44 20 3897 1830

idaly@h2radnor.com (mailto:idaly@h2radnor.com)

 

LEI: 213800SYT3T4AGEVW864

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