The fund fell 3.1% (SEK) in November compared to the benchmark index which gained 1%. The fund’s underweight in the index heavy Real Estate sector (primarily Vingroup, Vinhomes, Vincom Retail) was the main reason for the relative underperformance. Our benchmark index (FTSE Vietnam) is tilted towards real estate stocks and constitutes almost 48% of the index where three of the Vingroup companies represent approximately 40% of the index. The three Vingroup stocks are trading at P/E ranging from 20x to 35x. We consider these valuations excessive, the fund is highly underweight in these names.
In addition, our off-benchmark bets in Hoa Sen Group did not perform well due to a poor quarterly result as steel margins declined significantly. There were also inventory losses. HD Bank, another off-benchmark bet also performed poorly as the bank announced its acquisition of a troubled government bank.
On the positive side, our overweights in the Industrial (Ho Chi Minh Infrastructure and Investment), Information Technology (FPT Corporation) and Brokerage (VN Direct and Saigon Securities) sectors added to the relative positive performance. The fund reduced its exposure in Materials and Energy during November. The fund remains overweight in fundamentally strong value stocks which are poised to benefit from Vietnam’s economic growth.
The market bounced back in November after a tough October. It went up by 1% net (SEK) compared to the MSCI Emerging Market and MSCI Frontier Market rising 3.1% and 1.1% respectively. We attribute the positive performance to recouping some of the previous month’s losses rather than positive investor confidence. Liquidity shrank by 16% month-on-month to USD 163m while foreign investors were buyers to an amount of USD 52m. However, excluding the strategic stake of SK group in Masan (USD 97m), foreign investors were net sellers across the board during November. A majority of market gains are represented by the VinGroup stocks (Vingroup, Vincom retail, Vinhomes), outside that we saw lacklustre interest in the market. Energy stocks followed declining global crude oil prices, which came down more than 20% during November.
The outcome of the US-China trade war remains a market concern; any escalation is likely to impact Vietnam’s global trade. However, a meeting between Trump and Xi in Buenos Aires on Dec 1st where they, potentially, agree to halt an escalation in tariffs should provide some relief to the market in December.
Despite these concerns, Vietnam’s economy is showing resilience towards external shocks. Exports grew by 14% Y/Y during 11M2018 to stand at USD 224bn, resulting in a trade surplus of USD 6.8bn. Disbursed FDI increased 3% Y/Y to reach USD 16.5bn in 11M2018. A decline in global oil price eased inflation pressures in November by 0.3% M/M, taking 11M2018 inflation to 3.5% against a target of 4% for 2018.
We feel that the market has priced in most of the negative events, and a probable resolution of the US-China trade war, the US Fed’s softer stance on increasing interest rates, and lower oil prices all could signal a better market ahead.
Capital invested in a fund may either increase or decrease in value and it is not certain that you will be able to recover all of your investment. Historical return is no guarantee of future return. The Full Prospectus, KIID etc. are available on our homepage. You can also contact us to receive the documents free of charge. Please contact us if you require any further information: +46 8-5511 4570.
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