Turning Negatives Into Positives

General News 6th December, 2009

Vietnam Investment Review- The local stock market has run along a bumpy road for most of 2009. But there are always winners and losers out there. Saigon Asset Management Corporation’s (SAM) general director Louis Nguyen reviews the market with VIR’s Thu Huong.

Can we say 2009 was a tough year for Vietnam-focused portfolio funds?

Well, in 2008 most Vietnam-focused fund managers faced a market downturn, as unfavourable results were shown through by LCF Rothschild’s ranking. However, in 2009, most funds have recovered relatively well with improved market conditions. Our investment team and board members worked well together during the storm to prevent further portfolio slides. This helped deliver top rankings for our Vietnam Equity Holding (VEH) and Viet­nam Property Holding (VPH) funds   with LCF Rothschild. In the equity field, we did not want to simply invest in “me too” companies that most other funds have within their portfolios such as the blue chips. We dedicated significant time to dive deep into promising listed and pre-initial public offering (IPO) private companies, which yielded very pleasing results.

On the real estate side, we also structured various downside protection deals, not just in the form of preferred shared or senior debt, but convertible equity deals with bank guarantees. Success is relative and performance is the ultimate benchmark. We believe our fund managers did a good job.

With recent market tumbles, is Vietnam still an attractive destination for portfolio funds? Which sector has the most potential?

Certainly, Vietnam’s strong economic fundamentals ensured its position as one of the most attractive emerging markets. Most investors still consider Vietnam a fast-rising star with the potential of a young China or South Korea. Of course, there are still concerns over corporate governance, financial transparency reporting and forecasts but they are certainly improving and none of these are significant enough to be a deal stopper.

We see the real estate area as still attractive. Low and medium.­ income housing is also hot as the average living space in Vietnam is only eight square metres per per­ son compared to approximately 30sqm per person in other ASEAN counties.

Generally, equities are also more reasonable due to the recent correction. The latest data shows the Vietnam Index trailing P/E (price-to-earning) at 14, compared to 21 in Hong Kong, 24 in China and 19 India. Lastly, we like the pre-IPOs of various state- owned enterprises coming up. This is why we recently launched the Vietnam Smart Money Fund to capture these opportunities.

Can we say it is time for foreign investors to come to Vietnam and look for many local assets, which are undervalued with the recent economic shake-up?

The short answer is yes, but for equity investors, it would have been nicer if this was asked when the market was at its bottom of 230 points in February, 2009. However, valuations are still fairly attractive with great long-term potential. Things seem favourable for investors with three-year or more horizons.

For real estate, we did quite a few undervalued deals as mentioned above but these are quickly disappearing due to the quick economic recovery in Vietnam. The deal can still be undervalued if the investor is able to create and contribute intrinsic value. For example, if the investor brings in value such as international branding or contract with RNG Invest, the investment arm of REE Corporation, to launch the Vietnam Smart Money Fund (VSM). The new fund will be a limited partnership domiciled in the US and investing in real estate projects, pre­IPO companies and listed. Vietnamese films.

The initial target fund size is $100 million and part of the foreign fund will be invested into a local fund raised by RNG Invest Both SAM and RNG Invest plan to invite a special group   of investors and advisors into the fund, comprising of top industry executives and specialist investors in Vietnam and abroad. This “smart money” concept creates an environment where the value-creation process is greatly strengthened not only through the fund manager but the investors as well. This was derived from the Japanese “keiretsu” phenomenon in post World War 2. To do such a task is not simple and needs a highly credible industry leader in Vietnam.