How can a foreigner invest in the Vietnam stock market?
For a foreign investor to dip their toes in the water in terms of investing in the Vietnam stock market, an active fund manager can make sense in certain situations. That is the path I have tread over the last decade and it has worked out successfully for me.
Should I use and an active fund manager or ETF when investing in the Vietnam stock market?
An advantage of using an active fund manager in Vietnam is that they may get set in an investment opportunity well before it is large and liquid enough to be included in the major equity indices that ETFs track. Also an active manager can have the flexibility to focus on attractive pockets of the Vietnam stock market. They can build out a portfolio of companies at attractive valuations, whereas an ETF will own whatever the major indices suggest regardless of valuations.
This at first glance may not sound too much different to similar debates in more developed equity markets. In future blog posts I shall drill down on this debate in choosing between more passive ETFs, or active managed funds or closed end funds (CEFs). One difference though is in Vietnam there is a school of thought that the indices have not matured enough to make ETFs as efficient as you see in developed markets. The 5 biggest company exposures in a Vietnam share index ETF can could easily be nearly half of the investment, a lot more concentrated than one tracking the S&P500. It might cause some concerns if your ETF has to buy a huge IPO at unattractive valuations if it joins the index. Also if the largest names are flooded with hot capital and blow out to expensive valuations do you really want your investment increasing their exposures to such names on that basis? Whilst that is an issue with a S&P500 ETF I guess, it is less so because the concentrations are not as large.
Without going too far down that rabbit hole of that active / passive debate just yet, the purpose of this post was more to let readers know of my experiences to date with my methods. The key weakness with active funds is often the higher management fees. When I said earlier that an active manager might make sense in “certain situations”, I will let you know now what I had in mind.
Should I invest in a frontier market like the Vietnam stock market?
One aspect is that an active manager should have more potential in a “frontier” market like Vietnam, because it has less research coverage. Whereas in the US the markets have arguably become more efficient in recent decades. The Vietnam market history only dates back to the year 2000.
Is the VinaCapital Vietnam Opportunity Fund (VOF:LSE) a buy?
The active manager I have gained exposure to the Vietnam stock market over the last decade is VinaCapital, who have closed end funds (CEFs) listed on the London Stock Exchange (LSE). CEFs can trade at a discount / premium to NAV depending on demand and supply. When trading at deep discounts this can mitigate a lot of the risks of investing in active funds that exists because of their higher fees. With the VinaCapital Vietnam Opportunity Fund (VOF:LSE), for example on many occasions in history you can buy $1 of assets to work for you for only 75c (or cheaper when you go back further like 5-10 years ago). In 2014 I remember investing in it more significantly at a discount of 30% to NAV.
How to invest in the Vietnam stock market
My journey from 2014 to 2017 was successful with VOF particularly in calendar 2017 where the Vietnam Index gained about 50% or so. I was patting myself on the back back thinking I was clever and sold this investment late in 2017. Before I could tell people about my clever decision within only 4 months the market surged another 33% AFTER I sold out! Not so clever perhaps.
Over the next year or so I had wondered upon reflection if I was a bit too hasty to take profits. The market did settle down and eventually go through a sizeable correction. In early 2019 I decided to allocate back into VOF with a plan to keep a little bit as a core holding in my portfolio, and accumulate a more meaningful position on any further weakness. I wrote about this on the Seeking Alpha website here:
As it turned out the covid panic in 2020 certainly provided the “further weakness” part. I wasn’t smart enough to buy more straight away, but did buy some more around May 2020. I do remember seeing it trade at what I thought was close to a 25% discount.
Now let’s get back to how I was saying a potential discount opportunity can create a situation that favours getting exposure via an actively managed CEF.
Even just in the last 3 years there has been quite a lot of volatility in terms of what discount VOF trades at as we can see from the below chart.
My other experience in investing in Vietnam related equities was in fact another VinaCapital CEF that invested in Vietnam property. It was called VinaLand and also traded on the LSE under the code VNL. The discount got so large that activists forced it to wind up and distribute proceeds to shareholders.
This property CEF I also started investing in around 2014 from memory. The discount on this was even larger. Look at the chart below that tracks the discount from 2011 to 2016.
Now the Vietnam property market was looking quite under pressure around 2011-2012 so a large discount to some degree did make sense. Also with this fund, it was only after this point in time they voted to gradually wind it up.
However I would argue that the discount of still near 40% in late 2015 was way too large as by then the Vietnam property market had clearly bottomed.
From there, selling the remaining assets was quite smooth and those investors that had accumulate VNL at deep discounts in the previous few years did extremely well.
I think we can get some key takeaways here that deep discount opportunities like this are well worth keeping your eye out for. Funds that are closed end like this and reasonably liquid trading on the London Stock Exchange are easily accessible for many global investors.
However I also have some other key takeaways from my experiences as described above, and perhaps explain where I will head with this blog.
What is the outlook and investment opportunities in Vietnam?
These fund experiences above are large funds, probably too big for them to look at smaller listed companies in Vietnam. Perhaps then I should research how I would get exposure to smaller companies? Now the discount on VOF as I write is not as large as it used to be, does it make thinking of ETFs now as something I shouldn’t rule out, given the cheaper fees on ETFs? With the world being a crazier place in 2020 is it worth thinking about more diversification in terms of the custody of one’s assets? For example, would having accounts set up “on the ground” in Vietnam to directly own stocks there achieve that, whilst also facilitating getting exposure to small stocks I could pick myself?
Basically I have a lot more questions to ask myself on many factors about investing in Vietnam. The market fundamentals look attractive enough still for me to consider gradually increasing my allocation. Therefore I intend to regularly research more about the opportunities in investing in the Vietnam stock market and the country in general. I shall document much of that on this blog on a regular basis.
VIETNAM STOCK MARKET NEWS
Expect to see me tackle topics in the future such as:
An overview of the Vietnam stock market.
Can a foreigner invest directly in the Vietnam stock market?
What stockbrokers to use in Vietnam?
Should I invest in a Vietnam ETF, Managed Fund or Closed-end fund?
What is the outlook and investment opportunities in Vietnam?
Which are the best stocks to buy in Vietnam?
Can I retire in Vietnam by owning and trading in the Vietnam stock market?
ABOUT ME – STEVE GREEN VALUE INVESTING FOR A LIVING
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