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191. Bull, Bear & Beyond – Vantage: Strength of the Vietnamese economy with Khanh Vu and Michael Kokalari of VinaCapital
8 Plays6 days ago
In this interview, Khanh Vu, portfolio manager of VinaCapital Vietnam Opportunity Fund (VOF), and Michael Kokalari, chief economist at VinaCapital, discuss the drivers of the remarkable strength of the Vietnamese economy despite the tariff turmoil. They also provide an update on Vietnam’s progress towards an emerging market status and becoming an investment-grade country. They then comment on VOF’s positioning to benefit from these developments. They provide details of the company’s current holdings and transaction pipeline in the private equity portfolio and comment on valuations across Vietnamese equities and the fund.
VOF is a closed-end investment company that seeks to achieve medium- to long-term capital appreciation through investment in assets in Vietnam. The portfolio includes listed and unlisted equities, including private equity, covering a broad range of sectors, with a focus on Vietnamese companies that benefit from the country's rising domestic consumption and economic growth.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
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Transcript
Introduction to Emerging Markets 2026
00:00:06
Speaker
Welcome back to Vantage. Emerging markets were performing strongly through 2025 and that looks to have continued into 2026. I am delighted to bring two people from an economy that I think requires a lot of focus. ah Welcome back to Vantage, Khan, and welcome, Michael.
Roles at Vietnam Opportunity Fund
00:00:26
Speaker
Before we start, maybe you can just go over your respective roles and what you do for Vietnam Opportunity Fund. Well, thanks for having us back. Thanks for having me back and really great to have Mike join. um My name is Khan Vu. I'm the portfolio manager of the Vienna Capital Vietnam Opportunity Fund. This is a London listed FTSE 250 fund that focuses on investing in Vietnam.
00:00:49
Speaker
So my name is Michael Glorier. I've been at Feen Capital for almost 10 years, and I'm focused on the overall macro strategy. of course, emerging markets, we have to be very careful what happens with the macro cycle up and down. And I also get a little bit involved in um some of the stock stock market strategy for the Boff Fund, which is my background before I yeah before i joined the firm.
Vietnam's Economic Transition
00:01:08
Speaker
and And Michael, um first time I'm meeting you, so let me pick on you first. okay The ven vietnam Vietnamese economy has shown remarkable strength and particularly enduring through the all the tariff noise of 2025. Completely shrugged it off.
00:01:22
Speaker
I know. And Vienna Capital recently published an outlook for 2026. So give us give us the highlights. What are you trying to show to people? So the main point um as regards to 2026, especially in the investment context, is that um last year the economy was largely driven by a surge of exports to the US, particularly of high-tech products, laptops and things like that. um Those exports will still be there this this year.
00:01:47
Speaker
But what we see happening this year is a transition to more domestically driven growth, in particular consumption, which is almost two thirds of the economy. We expect to have a fairly big pickup in that. And that should really benefit your portfolio companies, I think, you know.
00:02:00
Speaker
Okay. And the i always you know there's always this sort of conversation about Vietnam progressing effectively from its emerging market status, et cetera, and becoming more
Market Status Upgrade
00:02:12
Speaker
investment grade. um What's the background to that? give me Give us an update in terms of how that's sort of progressing and what the impact of that is actually on stocks. Yeah. So an upgrade by FTSE from frontier market status to EM status is imminent. That will happen later this year. That's the first stepping stone towards an upgrade by the MSCI.
00:02:32
Speaker
FTSE upgrade alone probably will directly bring in something like a 2 billion worth of AUM that's just tracking the index. Probably be another sort of 4 or 5 billion that comes in just from getting that stamp of approval.
00:02:45
Speaker
One thing we think that is not really being discussed about that much, which is also very important, is an upgrade of the credit rating. ah Currently, Vietnam is one notch below investment grade. ah Getting an investment grade rating is well within Vietnam's reach. And we've seen from but you know examples in stock markets in other countries in the past that that can even even have an even bigger impact. you know Of course, it's mainly about the bond market, but that can even have a bigger impact in terms of attracting, you know you get that stamp of approval and a lot of investors. So we'll pile into the stock market, foreign
Fund Positioning for Growth
00:03:17
Speaker
investors. Okay, so Con, I mean, how are you translating? So, you know, you're hearing domestic demand, improving credit ratings, which suggests that you you're probably going to get more attractive cost of capital. How are positioning ah the portfolio to benefit from these developments? So we we manage a billion dollars in this fund. And if you think about how the portfolio focuses around the industry groups, about a quarter of it is financials, a quarter in real estate, a quarter in consumers, and a quarter in industrials. So if you you sort of extract what Mike says around the recovery in the consumer sector, then a quarter of the portfolio will see a very strong recovery this year.
00:03:53
Speaker
This consumption story has been going on for quite a long time. You know Vietnam fundamentally is moving from ah to to a middle class economy, rising wages, more opportunities. But within that, we've seen that post-COVID, the household savings has been building up quite significantly.
00:04:11
Speaker
And I think ah the the concerns of 2025, whether it be tariffs or other concerns in the market, they're going to go away to a far more vibrant consumer market.
Sector Growth and Reforms
00:04:21
Speaker
So our portfolio, which has names in both consumer discretionary companies, consumer staples companies, in healthcare, care you for example, we are one of the largest healthcare care investors, private equity healthcare investors in the country. These are sectors that are very much going to benefit from this consumption story. Beyond that, last year, we saw a very strong recovery in real estate. So again, the some of the the points that Mike made in his paper around the outlook for 2026,
00:04:49
Speaker
lot of that has started from the reforms that have happened in 2025, whether it be to faster approvals of projects, getting you know removing barriers for governments, ah for businesses to to do business.
00:05:03
Speaker
So that's going to accelerate a lot of approvals and sectors like real estate are going to benefit from that as new projects go online. And then finally, if you think about sectors like industrials, um which within that we have things like ports or construction material companies, again, they're going to benefit from this very strong economic story that's really unfolding in in Vietnam.
Emerging Markets Investment Strategy
00:05:27
Speaker
And of course everything we're talking about is about this year, 2026. But you know when you invest in emerging markets, there's kind of a fairly well-known playbook. You know you invest in things that people want when they become middle class, want better housing, healthcare. care the kind These countries always build out the infrastructure. So it's both a 2026 story and also kind of fits into the long-term pattern for successful... i mean, a well-known pattern for successful investing and in EM countries. so
00:05:52
Speaker
Okay, so clearly, you know, people ah will look at you because you give them access to these kinds of opportunities. And i I run moving into the theoretical space. I love to turn these into real life. So walk us through some of the ah privately negotiated investments and where you see pockets of opportunity and maybe some examples of how you how you sort of move
Recent Investments and Gains
00:06:12
Speaker
things in the portfolio. Yeah, so if you think about um the activities in this port our portfolio, I look at the last 12, 18 months. you know We've put about $350 million dollars to work into new opportunities.
00:06:25
Speaker
ah we've We've seen recently a resurgence of the IPO and pre-IPO market. So, several transactions and opportunities we've taken advantage of in this portfolio, including investing one of the largest brokerages, security brokerages in the country. It plays to to the question you had earlier to Mike. As Vietnam goes from frontier to emerging, there's going to be a lot more participation in the market. So we we we took advantage of a really interesting opportunity where one of the banks decided to IPO the securities business. This is an opportunity that was perhaps three times oversubscribed. We were able to to access that. We were on the ground.
00:07:02
Speaker
um you know The company went to IPO in October. We're up 20% on the position. Another example is is an infrastructure company. This is an infrastructure company that's involved in many different sectors in the economy. They decided to IPO a subsidiary, which was in the industrial and residential space. That um opportunity came to us in December.
00:07:24
Speaker
And last Friday, yeah I was at the Jose Hojun and Stock Exchange with the company ringing the bell because they've fast-tracked their IPO process and listed on the stock exchange. That stock is up 20% on initial rising. So for us, you know those are some examples where within the economy, within the markets, we're seeing a lot more activity. And how we'd like to think about our portfolio and and our strategy is You you have some some funds that give you access to the market, to the benchmarks.
00:07:59
Speaker
The way we look at our portfolio is that it gives you access to the real economy. yeah And that's where we like to think how we differentiate ourselves. Okay.
Market Valuation and Opportunities
00:08:09
Speaker
um Then, so for investors who are taking a look at it, i mean, clearly valuation is going to be consideration. So let's take a step back. And firstly, how what are the valuation considerations in terms of Vietnam ah on a relative basis? But then also come and talk about you know what is prevalent for trusts. How do you think about your your discount to NAV, et cetera? And maybe walk us through your your views on that.
00:08:36
Speaker
So, look, um perhaps who on on the market valuation, I'll get Mike to cover that, and then we'll turn to the to the trust. But, i mean, the overall market's trading around 13 times PE and the earnest growth probably in the high teens. So, it's below one times on a PEG basis.
00:08:53
Speaker
Our portfolio, however, is is very different. And and I think you know when we talk to investors, our fund you know is trading at 20% discount to NAV, yet delivering a 20% earnings growth and trading at 10 times PE. So it's a very attractive opportunity for investors to to look at an opportunity like our fund.
00:09:12
Speaker
So thinking of what Mike said, if the market is trading at 13 times, we're giving a very attractive valuation, trading at 10 times. If the market is giving earnings growth to say 18 times in our portfolio for 2026, 2027, we expect between 20 to 22% earnings growth. And you're getting that at 20% discount at the moment. It gives a really interesting opportunity, we think, for investors to access this story.
Conclusion and Further Resources
00:09:36
Speaker
General, and it's been fascinating. Thank you, firstly, for both of you coming to the Vantage cameras. I think what I will do is also include a link effectively to your outlook, if that's available for investors to take a look at. Thanks again for being on Vantage.
00:09:52
Speaker
Great to be back on the show. Thank you.