Where Main Street Meets Wall Street

Vietnam Enterprise Investments hit by local market correction but positive structural trends provide confidence

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The investment trust saw “understandable” profit-taking hit some of its holdings that have heavily outperformed the market, while other areas such as retail and technology performed well

() () outperformed the Vietnamese national equity benchmark last month as the local stock market underwent a correction.

The fourth and most serious wave of COVID-19 in Vietnam led to the investment trust’s first marked pullback of the year, with seven of its top 10 holdings declining.

However, the market clawed back a lot of its losses, which VEIL’s investment manager Dragon Capital attributed to the underlying resilience of stocks, shown by the rally’s extension into August.

Dien Vu Huu, portfolio manager of VEIL, said: “It was an eventful month for the market in which the Vietnam Index reached an all-time high of 1,423 points before the market pulled back following the spread of Vietnam’s fourth COVID wave and heavy lockdowns were implemented in Ho Chi Minh City and neighbouring provinces, including key manufacturing hubs, but recovered from its intra-month low of 13.5% and as of mid-August was just 5% off its highs.”

Looking back three years, Dien noted that the market hit record levels in April 2018 before a big correction amid external pressures on emerging markets.

“Since then, Vietnam’s market has deepened substantially and is far broader. We see much more local participation, average daily liquidity has quadrupled and is now routinely over $1bn a day, and a much larger offering of products including ETFs.”

This period has seen the market’s performance become much more broad-based across the full range of market capitalisation, as opposed to concentrated heavily on select large-cap names as seen with the 2018 high, he said.

Back to the present day, while VEIL saw “understandable” profit-taking on some of its holdings that have heavily outperformed the market so far this year, Dien also noted that there was strength in other areas including retail and technology.

“Although 3Q2021 expectations have been revised down for both the economy and corporate earnings growth, we anticipate the K-shaped recovery witnessed elsewhere globally will also take place in Vietnam, resulting in larger, well-capitalised companies being able to increase their market share despite reduced economic growth.

“With our long-term investment philosophy for the fund, we focus on positioning the portfolio to take advantage of the structural trends which are driving Vietnam’s economy and as such, continue to look for suitable opportunities at compelling valuations.”

With the government of Vietnam carrying out a mass inoculation programme and with over 50% of Ho Chi Minh City’s population vaccinated, Dien said the Dragon team expect to see the economy “start to open in the coming months and the economic recovery starting from as soon as Q4”.



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