This article first appeared in Wealth, The Edge Malaysia Weekly on August 28, 2023 - September 3, 2023

Investors who want to tap the economic growth of Vietnam now have a choice to invest in the United Vietnam Equity Fund (UVEF). As at July 6, it was the only local unit trust fund dedicated to investing in the country, says Lim Suet Ling, CEO of UOB Asset Management Malaysia.

There are good reasons why investors should consider putting their money in Vietnam. Asean as a region is emerging as the world’s fourth-largest economy in the coming decade, with 70% of its population joining the middle class with a consumer market worth US$4 trillion (RM18 billion), according to the World Economic Forum’s forecast. Vietnam will be one of the main beneficiaries riding this trend.

The China Plus One strategy, which sees multinational companies moving parts of their supply chain from China to other countries due to its geopolitical tension with the US, is another factor that could benefit Asean in the years to come.

Market players are already seeing foreign direct investments (FDI) flowing into Asean. And Vietnam is one of the largest recipients. “Vietnam stands out in Asean, thanks to its strong economic growth and improvement in business environment in recent years,” says Lim.

She points out that Vietnam received the second highest absolute inflows of FDI among Asean countries in 2022 at US$22.4 billion. In terms of FDI percentage against gross domestic product (GDP), it is the highest at 22.4%.

The country that received the largest FDI inflows in absolute terms was Indonesia (US$45.6 billion), followed by Vietnam, Malaysia (US$16.2 billion) and Thailand (US$12.3 billion).

Vietnam is well positioned as it shares long borders with China and is relatively close in distance to Japan, South Korea and Taiwan. Its location is convenient for suppliers — based in their respective home countries — to provide manufacturers located in Vietnam with the necessary products and services.

The country has a long coastline with several seaports and it has signed 15 Free Trade Agreements (FTAs) with its major trading partners to facilitate import and export activities.

Demographically, 58% of Vietnam’s population is of working age, which provides the country with an abundant skilled workforce associated with low labour cost. It has also moved up 12 places in the Economist Intelligence Unit’s (EIU) business environment ranking recently and seen improving infrastructure and business innovation, she adds.

As at July 6, the Vietnam Ho Chi Minh 30 Index had risen 12.14% year to date, according to Bloomberg. The index is a market cap-weighted index of the 30 stocks with the highest market cap and liquidity on the Vietnam Ho Chi Minh Index.

As at Aug 23, the UVEF is up 1.66% in the past three months, according to UOB Asset Management’s official website. The fund was officially launched on May 22.

Lim says the fund is managed by professional fund managers with a solid track record of investing in Vietnam.

The key investment decision-maker for the fund is Le Thanh Hung, investment director at UOBAM Vietnam Co.

Earlier, Hung was the CEO and investment director of CNAV, a joint venture between the National Bank of Canada (NBC) and Montreal-based financial institution CTI Capital. He managed the CNAV’s Vietnam Focus Fund (which belongs to NBC) from April 2008 to January 2015.

As at January 2015, when the Vietnam market had yet to experience an economic boom, which it is going through today, the CNAV Vietnam Focus generated a total return of 10.58%, outperforming the Vietnam Ho Chi Minh Index of -32.82%.

Its annualised return since inception was 1.47% while the Vietnam Ho Chi Minh Index did -5.6% on an annualised basis.   

On Hung’s watch, UVEF pursues a “flexible investment style” that swings between small- and mid-cap growth stocks and large-cap value stocks, depending on the stock market cycle and movement, says Lim.

“During a bull market, we tilt towards small- and mid-cap growth sectors and stocks to capture the strong growth momentum. During a bearish market, we overweight large-cap and value stocks to protect portfolio value,” says Lim.

So, how is the UVEF positioning itself to reap potential returns from the Vietnam market going forward?

Lim says the State Bank of Vietnam, the country’s central bank, has cut interest rates and eased monetary policy, while the Vietnam government is speeding up public investment and spending. The country’s stock market has recovered strongly as a result, with more retail investors returning to the market.

Recently, the Vietnam government also approved the Power Development Plan 8 (PDP 8), signalling that the country is committed to transition into cleaner power sources.  

Against such a backdrop, the fund prioritises sectors and stocks with strong earnings growth this year, which include telecommunication services, pharmaceutical and sugar companies. It also invests in brokerage firms that would benefit from a strong stock market recovery. The energy and energy infrastructure stocks that would benefit from the PDP 8 are also on its radar screen.

UVEF also favours the banking sector and companies involved in capital goods, which are tangible assets such as buildings, machinery and equipment.

Meanwhile, UVEF underweights the export sector that would suffer from weak global demand, such as furniture and textile companies, as the global economy is expected to slow down moving forward.

As at July 6, the top five holdings of UVEF are: Bank of Foreign Trade of Vietnam (9.19%), Saigon Thuong Tin Commercial Joint Stock Bank (5.64%), Viettel Construction JSC (5.37%), PetroVietnam Gas JSC (5.35%) and Bank for Investment and Development of Vietnam (5.19%).

However, Lim says UVEF investors should be prepared for volatility as the Vietnam market is dominated by retail investors, with their transactions accounting for 85% to 90% of the Vietnam market’s daily transaction value. The sentiments of retail investors can be easily swayed by news and rumours.

Foreign exchange volatility is another factor that investors should watch out for. Although the dong (VND) has been quite stable against the US dollar in the recent decade, investors cannot rule out the possibility that the situation might change as the US Federal Reserve raises interest rates further, says Lim.

Adding to that, Vietnam’s real estate sector is still struggling from oversupply in certain segments of the market, she says.

UVEF manages the risk via diversification by investing in a minimum of 40 stocks across sectors and adopting a flexible investment style that swings between smaller-cap and large-cap stocks, depending on the market cycle.

As for foreign exchange rate fluctuation, there isn’t any hedging tool available in the Vietnam market. “Yet, as we mentioned, the VND has been quite stable against the USD in the recent decade. And we do not see any event that will make such a situation change.

“Maintaining foreign currency exchange rate stability is one of the essential targets of the State Bank of Vietnam and its government to support the economy. It is vital in attracting FDI inflows. And FDI plays an important role in Vietnam’s economy as it contributes about 20% to Vietnam’s GDP and 75% of its export turnover,” says Lim.

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