Dragon Capital: Vietnamese stock market double-digit returns see it outplace Asian rivals

July 6, 2023

Market analysis from Vietnam’s largest and oldest fund manager Dragon Capital, places the country as one of Asia’s frontrunners so far in 2023, with performance buoyed by interest rate cuts, the Government’s expansionary fiscal policy and an influx of foreign direct investment.

The Government and State Bank of Vietnam (SBV) have tempered strong external and domestic headwinds, including exchange rate volatility following increases in global interest rates and falling exports to key markets such as the United States and the European Union. This has allowed Vietnam to contain price and liquidity pressures during a particularly challenging environment.

In addition, despite being classified as a frontier market, Dragon’s analysis reveals that Vietnam has stronger equity market liquidity than many emerging markets with average daily turnover of $ 843 mln in June 2023. This compares to $ 561 mln for Indonesia; $ 262 mln for Malaysia and $ 69 mln for the Philippines which all have emerging market status.

Vietnam’s market cap of $ 246 bln as at 30 June 2023 also exceeds that of other emerging markets including the Philippines ($ 188 bln), Poland ($ 176 bln) and Kuwait ($ 132 bln). Dragon Capital says Vietnam’s core growth drivers include the expanding middle class and urbanisation, which against a stable economic backdrop have seen the country upgraded to one notch below investment grade status for its fixed income market.

Accelerating GDP

Vietnam’s prospects remain strong for the upcoming decade; GDP growth is on the rise again—with year-on-year increases of between 5 to 7% expected between 2023 and 2030 ¹ .

This is driven by the country’s political stability and strong demographics which have seen some of the world’s largest companies set up factories and operations in Vietnam, including Apple, Lego and Nike. Indeed, FDI disbursement in Vietnam over the five years to 2022 reached $ 101.5 bln Dragon Capital’s Vietnam Equity (UCITS) Fund (VEF), which offers investors broad exposure to Vietnam’s public equity markets and seeks medium to long term capital appreciation through investing primarily in the VNI, has returned 9.56% year to date.

Meanwhile Dragon Capital’s Vietnamese Enterprise Investments Limited (VEIL), a FTSE 250 company with AUM of $ 1.8 bln focused on long-term capital appreciation through strategic holdings in listed and pre-IPO companies offering attractive growth and value metrics, has delivered 10.34% over the six months to end June 2023.

Positive momentum

Dien Vu, Portfolio Manager for VEIL, said: 'Vietnam is entering the second half of 2023 with positive momentum, emerging as the region's frontrunner with the VNI delivering 12.2% in the first half of the year. This can be attributed to Government’s aggressive initiatives in the second quarter, bolstered by the support of the SBV aimed at revitalising the economy and stimulating growth.

'At the forefront of this resurgence, the SBV took early strides in easing monetary policy in mid-March, while the issuance of targeted directives has effectively cut through bureaucratic complexities, streamlining operations in both the public and private sectors. Simultaneously, the Government issued decrees designed to breathe renewed vitality into the bond market.'

Dien added: 'Against this backdrop, VEIL has positioned itself in sectors that are poised to benefit as the full impact of these policies unfolds in the in the latter half of the year. In light of the SBV's rates cuts and the impetus behind the forthcoming infrastructure plan, our strategic focus on banking, real estate and materials is anticipated to yield steady growth for the portfolio. The prospects for companies in these sectors will see a significant further enhancement if Vietnam gets a ratings upgrade to investment grade at its next review in two years’ time, which will provide wider access to a lower cost of capital, thus enabling a strong uplift in earnings and valuations.'

Resurgence in consumer confidence

Quynh Le, Portfolio Manager for VEF, said: 'Now that concerns over the property and bond markets are subsiding, a resurgence in consumer confidence can be expected. Over the next six months, we anticipate a notable upswing in consumption, presenting an opportunity for leading retail players to fortify their market position. By capitalising on the challenges faced by smaller competitors, our own retail holdings, which exhibited subdued performance in the first half of 2023, are now well-placed to benefit from the projected surge in demand.'

Quynh continued: 'The recently approved power development plan should also help our tactical investments within this space, spanning service providers to power plant investors. With approval now in place, there is potential for accelerated progress in power generation capacity to meet the 9% annual growth in demand, alleviating recent pressures on the national grid.'

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