The fund increased 8.1% (SEK) in January compared to FTSE Vietnam TR (SEK) that gained 8.8%. Substantial foreign inflows kept interest in blue chips upbeat where the fund had a natural underweight such as Hoa Phat Group, Masan Group, Vingroup. These were the major negative contributors to the relative performance. The strengthening of the Swedish Krona by 4.5% against USD affected absolute performance negatively. On the positive side, our off-benchmark bets such as Vietnam Electrical Equipment, Dat Xanh Group, Vincom Retail, and Lien Viet Post Bank performed well on better earnings prospects and attractive valuations.
During the month, increased interest by foreign investors led to stretched valuations in selective stocks and represented most of the market gains. As a result, the valuation gap between the mid and large caps widened. The fund increased exposure to mid-caps (e.g. Dat Xanh Group, Hoa Sen Group, Kinh Bac City) as we strongly believe that fundamentals should narrow down the valuations gap once foreign inflows cool. Even though we do not manage cash, the fund maintained a high cash position towards the end of the month ahead of the lunar year holidays and with the impressive market performance, we should see some profit taking from local investors ahead of the celebrations. The fund added new Real Estate stock, Long Dien Group (LDG), in January. LDG is a mid-sized property developer with expertise in affordable and mid-end housing segment in Ho Chi Minh City. Improvements in the economy and increases in per capita income has the company poised for better demand growth ahead. The company has a sizable land bank in remote districts of the city and a healthy balance sheet will allow it to increase construction activities in the next 1-3 years. LDG envisions becoming a dominant player in this segment. Most of its competitors are small and fragmented.
Vietnam continued last year’s rising trend driven by strong macros, foreign buying, and local liquidity. FTSE Vietnam Net (SEK) increased 8.8%, far outperforming MSCI Emerging Markets Net (SEK) and MSCI Frontier Markets xGCC Net TR (SEK) which increased 3.5% and 1.7% respectively. Vietnam remained a foreign investor favourite. This sentiment has spilled over foreign flows in 2018 as well. Net foreign inflows stood at USD 400mn while liquidity surged to USD 385mn in average daily trading value during January. The government is optimistic that it will beat 2017’s macro results where GDP grew by 6.7%, credit growth was at 18% and exports increased by ~10%. Increased focus on policy reforms has improved Vietnam’s chances of being included in the MSCI Emerging Markets watch list by 2019. To finance the budget deficit as the economy grows at ~7% and need for infrastructure investment remains high, the government’s IPO timeline has been clarified with 3 sizable companies going public in January: (1) PV Oil – Vietnam’s 2nd largest petroleum retailer with a market cap of USD 920mn; (2) PV Power – Vietnam’s 2nd largest energy producer with a market cap of USD 1.5bn; and (3) Binh Son Oil Refinery – a leading oil refinery with a market cap of USD 2.8bn. Immense foreign interest and increased local liquidity led to oversubscription of these IPOs at a premium to regional peers. The pipeline of future state-owned divestments during 2018 includes Vietnam Rubber Group, Ben Thanh Group, Genco 3, etc. These IPOS are likely to fetch billions of dollars for the government.