Fundamentally we think that companies that pay back to society and have better governance will do well and get a better rating. A number of investors are attracted to our ESG and are engaged on that.
Craig Martin, chairman of Dynam Capital (the fund’s manager)
“Vietnam defeated the Chinese many years ago, they defeated the French and defeated the Americans,” says Craig Martin, chairman of Dynam Capital.
“And it looks like it is round one to Vietnam against the coronavirus.”
Martin is attempting to distil down the dogged determination and dynamism of this Southeast Asian nation of 100mln people that can’t be summed up in a spreadsheet or an analysts’ report.
Coronavirus is a case in point – 268 people infected and no fatalities. A recovered Boris Johnson and his cabinet must be wondering how this feat was achieved.
Cynics will point out Vietnam is a one-party command economy where the population has been willing to sacrifice civil liberties for safety in the teeth of the pandemic.
However, it is emblematic of the stoic resilience of the Vietnamese, according to Martin, whose Dynam Capital runs VietNam Holding, which is dedicated to sustainable investment in the country.
Martin has more than two decades’ worth of experience and insights and reckons Vietnam is approaching an economic inflexion point – hitting US$3,000 per capita GDP (gross domestic product).
Crossing the Rubicon
For China, Vietnam’s neighbour, 2008 marked the point at which it became an emerging consumer economy rather than purely one based on a hand to mouth agrarian subsistence; now, Vietnam’s emergence from its chrysalis may be imminent.
Vietnam was at US$2,556 per capita in 2018. According to the latest available figures this is estimated to have grown to US2,740 last year. This means 2020 could be the year the magic number is achieved.
Under Dynam’s stewardship, VietNam Holding has built up investments in 20-30 local companies that tap into the industrialisation and urbanisation of the country as well as the consumerism that comes with growth.
Around half are in the small- and mid-cap arena, and there is a very real and tangible focus on environmental, social, and governance investing, known as ESG for short.
“Fundamentally we think that companies that pay back to society and have better governance will do well and get a better rating,” says Martin. “A number of investors are attracted to our ESG and are engaged on that.”
That focus on small- and mid-caps means the Dynam team overseeing VietNam Holding has uncovered pocket rockets that are growing at 20-30% a year. And it is also tuned in to some of the bigger firms too, giving the portfolio balance.
Changing hands at 157p, the trust trades at a discount of about 16% to net asset value which marks an improvement to the March, mid-COVID, discount of around 30%.
“We’ve seen over the last few months increased liquidity is the daily trading and we’ve seen that discount narrow,” Martin added.
It is an improved account of the underlying investments though still leaves an attractive entry point for investors – not least because restrictions that cap foreign shareholdings in Vietnam companies can mean stake transactions between foreign investors can fetch premium prices.
Dynam’s Martin believes the current share price overlooks the nuance of the Vietnam market, where foreign ownership of local stocks is limited.
This has the effect of pushing up demand for shares in certain companies from overseas investors that isn’t taken into account when valuing its portfolio.
“We could sell our number one stock, FPT, for probably a 30-40% premium [to the current share price] to another foreign investor,” Martin says by way of example.
VietNam Holding took some money off the table earlier in the year, more by chance than design, and is reinvesting in quality companies at lower prices.
Martin believes VietNam will be a two or three-year play as the NAV increases and the discount to that asset valuation unwinds.
“We are patient investors,” says Martin. And of course, there’s the people: “If you throw an opportunity at a Vietnamese person they will crack it. There’s a human capital there that people who haven’t visited the country just don’t get.”