Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
36. Uncovering Trusts – A closer look at Vietnam
88 Plays5 days ago
In this episode, our investment trusts analyst, Michal Mordel discusses the investment opportunities arising in Vietnam. He explores the country’s transformation and remarkable growth story, as well as its place in global supply chains and the current geopolitical landscape. He talks about Vietnam’s greatest advantage, which is its young, productive and well-educated population. Michal also presents a brief rundown of investment vehicles available to London-based investors that focus on Vietnam and can serve as a gateway to this market.
Recommended
Transcript
Introduction to Uncovering Trusts and Vietnam's Market
00:00:06
Speaker
Welcome to Uncovering Trusts, a podcast by The Edison Group. I'm your host, Will Manuel, and today I'm joined by Michal Mordel, the investment trust analyst at The Edison Group, for a special episode on our podcast covering the fascinating market of Vietnam.
00:00:21
Speaker
So thanks for joining us today. ah Thanks for having me. And so
Vietnam's Growth and Global Positioning
00:00:26
Speaker
could you introduce us to the market opportunity in Vietnam? ah Most certainly. ah Vietnam is indeed a fascinating market to invest in.
00:00:34
Speaker
It has been rapidly developing over the last few decades, benefiting from global trade and significant direct investments by big companies such as Samsung and Apple, which are establishing manufacturing bases in the country.
00:00:48
Speaker
ah Vietnam is yeah welcoming foreign investments, which has accelerated as China has become more expensive and US-China trade tensions have intensified.
00:00:59
Speaker
and This
The Vietnamese Stock Market and GDP Growth
00:01:00
Speaker
export-oriented country boasts an average almost 7% GDP growth since the beginning of the century. At the same time, the country welcomes public but market investments with the total capitalization of stocks listed in Ho Chi Minh reaching over $200 billion dollars while it was set up just 25 years ago.
00:01:22
Speaker
and This was due to the government listing state-owned enterprises and high participation rate of Vietnamese people. I need to highlight that around 90% of the trading on the stock exchange is made by ah local private investors.
00:01:37
Speaker
and Okay, interesting. So if we can now dig a little deeper, what are the main investment opportunities? um Manufacturing
Opportunities from Export Manufacturing
00:01:44
Speaker
for exports has created effects in Vietnam's economy and investment opportunity pool, starting with an entire ecosystem of smaller and larger companies that are servicing the factories.
00:01:58
Speaker
I mean, logistic companies such as ports, as well as ah materials producers, constructors and such. ah Looking further, the development of the manufacturing base has led to a rapid increase in disposable income of the Vietnamese people.
00:02:13
Speaker
and The GDP per capita increased more than tenfold since the year 2000. And naturally, yeah and this has created demand for convenience store chains, electronics, banks, and jewelers, among other services.
00:02:29
Speaker
Okay, interesting.
Demographics and Economic Potential
00:02:30
Speaker
um So tell me ah more about the demographics of Vietnam. Oh, the demographics are one of the most important advantages of Vietnam. There are ah over 100 million people there ah with 60% under the age of 35.
00:02:46
Speaker
So the people are young, are productive and are mobile. um This upward mobility fuels the urbanization as Vietnam started at the very low base of the urbanization before the transformation started.
00:03:02
Speaker
and Even now, despite the fact that the process is progressing rapidly and the real estate ah development market is booming, ah only around 40% of the people live in cities. and This leaves a lot of room for further growth. When we look at the other countries, ah for example, in the um in the US, the urbanization rate reaches 80%. Even China has reached around 70% already.
00:03:32
Speaker
Wow. So it's only 40% in Vietnam and it's 70% in China. ah Right. A lot of headroom. um So speaking of China, what is Vietnam's position in the current trade tensions?
Trade Negotiations and US-China Tensions
00:03:43
Speaker
Is it affected by President Trump's reciprocal tariffs? Yes, this is a very important topic for for Vietnam as the US is the largest export market by far. um At the same time, Vietnam's imports from the US are quite low, so the initial tariff announcement, which was based on the trade balance, ah was shockingly high, ah which naturally created some fear among the investors.
00:04:10
Speaker
As of today, ah Vietnam has agreed with the US to bring the tariffs to 20%, which isn't that much higher than the current US import tax in case of some of the products. For example, garment makers pay around 15 to 17%. So this should be easily absorbed by the by the economy, unlike the 46% that was stated in the first announcement. So and this deal was greeted with a relief by the markets.
00:04:39
Speaker
Right. Yeah, I'm sure that's right. um And how about the impact on Vietnam of the US-China trade tensions?
Diplomacy and Manufacturing Shifts
00:04:47
Speaker
So um looking broader, overall, Vietnam is a great beneficiary of the trade tensions between the US and China so far, ah dating back to the previous Trump state tenure, as these tensions have accelerated the process of moving manufacturing away from China and to to to Vietnam, among others.
00:05:08
Speaker
ah Vietnam's government tries to maintain good relationships so with both countries through its diplomatic and economic efforts, dubbed the bamboo diplomacy.
00:05:20
Speaker
um Vietnam was actually one of the first countries to strike a deal with the US concerning tariffs as they started the legwork even before the announcement. um Vietnam has welcomed starling investments in the country. They negotiate import agreements with the US to balance the trade deficit, ah which includes ah food and fuel.
00:05:43
Speaker
um One should also note that a huge riverside resort with two golf courses that is currently being built in Vietnam by the Trump Organization. Oh, interesting. Maybe I'll go there.
00:05:55
Speaker
Big golfer. So this all sounds really positive, um but you know obviously nothing's always all positive. So anything else we should be aware of? ah
Challenges with Tariff Agreements
00:06:06
Speaker
Yeah, the the only wrinkle that is yet to be smoothed on the in the tariff deal ah with the US is the transshipment clause um that was stated in the deal announcement.
00:06:17
Speaker
ah which is a bit ambiguous and yet hard to assess, despite the fact that the tariffs are planned to come into force as soon 1st of August. um The clause states that there will be as much as 40% tariff on goods transshipped through Vietnam.
00:06:35
Speaker
ah While this is understandable, as we can assume that President Trump is mainly targeting imports from China with its policies, ah so he tries to avoid products being simply repackaged elsewhere. and But we need to see the bigger picture. and We we need need more details. and For example, then the manufacturers um are part of a bigger global supply chains and they use materials or or parts imported from other countries.
00:07:02
Speaker
and a lot of them are imported from China. So ah we don't have any details yet how tariff rate will be calculated for such products. I see. And is there a risk that global supply chains would just simply move um to the lowest tariff countries, you know, once all this is, once the dust is settled um on the tariffs?
00:07:25
Speaker
I understand that question. the The situation is highly political and it's changing rapidly, so I don't think we can say anything with 100% certainty yet. ah But having said that, I'm fairly confident about Vietnam's position in the aftermath.
00:07:41
Speaker
ah Firstly, I think that Vietnam is unlikely to be put on any additional pressure as it does not pose threats to the US in terms of, for example, my migration or drug trafficking.
00:07:53
Speaker
And so far, its diplomacy has proved successful in keeping good terms with both global powers. Secondly, Vietnam remains very cheap in terms of salaries, so there is little incentive to move the manufacturing plants yet.
00:08:10
Speaker
and The cost of labor for factory workers is about a third of that in coastal China. And thirdly, maybe the most important factor of all, the aforementioned demographics.
00:08:21
Speaker
and Not only there are millions of productive people there, but the Vietnam has put a lot of emphasis on education, so they are highly skilled. ah The manufacturing of electronics becomes ever more sophisticated. So finding a suitable place for manufacturing ah with cheap and skilled workforce is not an easy task.
00:08:44
Speaker
Right. So, you know, given all of all of this, what we've been talking about, the tariffs, etc. What's been the impact on the near term economic outlook?
Vietnam's Economic Outlook and Challenges
00:08:55
Speaker
ah So in the short term, there could be some impact on profitability as the company suggests the new normal.
00:09:01
Speaker
ah But the government maintains its target of a high 8% GDP growth in 2025, although they admit that it will be a bit challenging. and But the economy already showed 8% growth in the first half of 2025, economists globally share the view that Vietnam is ah poised to continue its solid growth.
00:09:24
Speaker
and They are a bit ah less optimistic than the government, as the forecasts average around 6% for the coming three years annually, according to the consensus provided by Refinitiv.
00:09:36
Speaker
And 6% is still very good growth.
Vietnam-focused Investment Funds
00:09:38
Speaker
um So how can UK investors participate in this growth story? um There are three investment vehicles ah listed on London Stock Exchange that invests wholly in Vietnam, ah which are Vina Capital ah Vietnam Opportunity Fund.
00:09:54
Speaker
and The second one is Vietnam Holding and the third one in Vietnam Enterprise Investments. ah which over the long run ah tend to follow the performance of the Vietnamese market, ah while providing additional upside to the performance through their expertise.
00:10:11
Speaker
ah Other than that, investors can invest in funds with broader Asian mandate, although these tend to keep only a very minor direct exposure to to Vietnam. Sure. So um could you tell us a bit more about these Vietnam-focused funds?
00:10:26
Speaker
ah Most certainly. and The funds follow differentiated investment approaches, ah but all of them invest solely in Vietnam and all three of them have proved their capabilities by delivering returns above the broad Vietnamese equity market over the long term.
00:10:43
Speaker
um The largest and the oldest among the three is Vietnam Enterprise Investments with total assets so well above £1 billion. pounds ah It is invested in public equities and is a bit more diversified than the other two, being invested in close to 50 companies compared to around 20 to 30, usually held by the other two.
00:11:07
Speaker
and The fund follows a bottom-up investment approach, a while its policy allows for private equity, debt investments, um and other. um One can still consider it a pure listed equity play as those represent a very minor part of their portfolio. um Since the new lead manager took over in early 2024, the portfolio was rotated more toward high growth, small, and mid-cap names.
00:11:37
Speaker
Okay, interesting. And am right in thinking there's a question mark around the continuity of the fund? ah Yeah, there were some shareholders that voted in favor of widening down the fund on the on the recent during the recent AGM, but the fund has passed the continuation of vote. ah There are currently discussions to find out the reasons of that for this satisfaction and to show proposed solutions, but we are still awaiting commentary on that.
00:12:05
Speaker
Okay. And
Investment Strategies of Vina Capital and Vietnam Holding
00:12:07
Speaker
so what about the other two funds? ah So the second one is Vina Capital Vietnam Opportunity Fund with around £700 million pounds in assets um or VOV.
00:12:19
Speaker
VOV investment philosophy recognizes that Vietnam is inherently illiquid for their ticket size and they adapt a private equity like approach.
00:12:31
Speaker
ah Most of its portfolio represents companies that it invested on private terms, either by taking up stake in private companies or negotiating private terms with publicly listed companies. and These include downside protections such as quasi-debt investments or ah securing the investment on tangible assets that the investee company owns.
00:12:57
Speaker
um At the first glance, one may miss that, looking at their portfolio, as their are they their investments turn into plain equity after reaching certain milestones or completing an IPO.
00:13:08
Speaker
So at any given moment, most of the portfolio seems to be allocated to standard public equity investment. Given Voff's approach of investing for the long term and negotiating deals with actual influence on investing companies, and in the result, the rotation of the portfolio is relatively slow, so it may not react to every market fluctuations.
00:13:28
Speaker
and On the other hand, it gives access to investment opportunities outside the public list universe. and for For example, healthcare investments are virtually non-existent on Vietnamese public market.
00:13:40
Speaker
Right. And just to jump in, the Vietnam Opportunity Fund, WOFF, is a client of Edison and our research and other materials can be found on the website. ah cor Correct.
00:13:50
Speaker
ah Similarly, the Verte Fund, ah so Vietnam Holding or VNH, is also a client of Edison and their investment approach is on the other side of the spectrum.
00:14:05
Speaker
ah It is the smallest among the three and it's a relatively small ticket size allows it to quickly liquidate and reposition its portfolio of public equities, ah which allows it to capture the rising trends as well as quickly exit investments amid an unfavorable news flow.
00:14:23
Speaker
and The manager estimates that it is able to sell the whole portfolio within a month ah without a significant discount, which is confirmed ah through VNH's share reduction facility.
00:14:38
Speaker
ah Each year, an investor can redeem older their shares at their net asset value without any constraints. And this is likely the reason why a VNH tends to trade to without a meaningful discount to to own net asset value, unlike the other two funds, which are usually available at low double-digit discount.
00:15:00
Speaker
Great. So thank you very much, Michal. This has been a really interesting rundown of the theme of of Vietnam and how and how to invest in it. um So you've been listening to Uncovering Trust, a podcast by the Edison Group.
00:15:13
Speaker
you'd like to find out more about these vi Vietnamese trusts we've mentioned, please visit www.edisongroup.com. Thank you.