Is it a good time to invest in Vietnam Enterprise Investments Ltd?
When President Trump announced his 'liberation day' on April 2, one unexpected country that took a huge hit was Vietnam. He imposed 46 per cent tariffs on its exports to the United States, which account for nearly 30 per cent of the country's GDP. This includes a big share of Nike's footwear production, as nearly half of all Nike trainers are made in Vietnam.
On April 30 the country celebrated the 50th anniversary of 'Reunification day'. To investors of a certain age, Vietnam is synonymous with the 20-year civil war between the victorious communist north and the capitalist south, backed by the US army.
Vietnam then largely dropped out of the headlines in the West, but the one-party government has used the past 50 years to transform the country, including a paradoxical campaign promoting private industry. From a low base the economy has been growing at 8 per cent a year since the advent of private enterprise in 1986, one of the fastest rates in the region.
Free enterprise was first officially permitted in 1986 and last month the politburo formally declared the private sector to be 'the most important driving force of the national economy', targeting it to rise from 51 per cent to 60 per cent of GDP by 2045.
Among the earliest foreign entrepreneurs to see the country's potential was Dominic Scriven, an Englishman, who emerged from the M&G investment group and the now-defunct London stockbroking firm Vickers da Costa to land in Vietnam in 1991. Scriven, who collects Vietnamese propaganda art and lives in a palatial riverside house, said: 'After I drove from north to south, it was pretty obvious to me the general direction in which Vietnam would go, so I went to university in Hanoi to learn the language.'
The upshot in 1994 was Dragon Capital, now the country's biggest private investor. Its banner fund is Vietnam Enterprise Investments Ltd (Veil), which soon gathered heavyweight followers. The biggest shareholders, the Bill & Melinda Gates Foundation and the family office of the Ikea founders, each have 15 per cent, along with City of London Investment Management.
The financial and property sectors account for 54.2 per cent of the fund. This is because banks fill the capital vacuum between demand and the still-limited capacity of the stock market and they are at the forefront of digitising financial transactions. Hanoi market stalls increasingly accept plastic payments and property is booming as cities sprout commuter suburbs.
Veil's total income rose by $17.1 million last year to $216.9 million, fuelled by a $16.9 million increase in gains from asset sales and $3.5 million more dividend income. Fair value of financial assets fell by $3.2 million. After a $1 million rise in expenses and a $1.5 million increase in foreign exchange losses, profits rose by $16 million to $177 million. On the back of that, net asset value per share rose 12 per cent to $9.73.
There is still huge scope. Vietnam has 100 million people, with a median age of 33.4. More than a third of them were born in the 21st century. Average GDP per head is almost $4,500, compared with $13,300 in China. The biggest infrastructure project is to upgrade the rail link between Hanoi and Ho Chi Minh City by 2032, slashing the 1,000-mile journey time from 32 to 6 hours.
To Lam, general secretary of the country's communist party, has obtained a delay in implementing the Trump tariffs and the hope is that the average rate will come down to 20 per cent or 25 per cent. That would still be a headache and, although Veil has relatively little exposure to exporters, its shares plunged from 582p to 460p on the initial hit, recovering to 593p.
Veil is not for everyone. There is little prospect of a dividend and some investors will jib at Vietnam's political slant, persistent reports of corruption and a poor human rights record, which all contribute to a steady emigration flow. On the positive side, rising living standards are creating a middle class that has hardly begun investing on the local stock market.
The FTSE and other authorities still rate the country a frontier economy rather than a less risky emerging market. Scriven has no clear idea when that might change, but patience should be rewarded eventually.
While the shares trade at a 20 per cent discount to net asset value, at this week's AGM investors gave the board unlimited powers to buy back shares.
Advice Buy
Why A well-managed way to tap into a fast-growing economy
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