Vietnam’s stock market recently topped the milestone of $1bn of daily transactions, making it the second most liquid in South-East Asia.
As the South-East Asian country makes its anticipated progress from frontier status to a fully fledged emerging market, the stock market is now at the stage where more and more private investors are getting on board.
With the longest record of any independent asset manager in the country and the second biggest investor behind the government, Dragon Capital is first on the list for most overseas investors in Vietnam.
“When we started,” says Dragon Capital founder and chief executive Dominic Scrive, “Vietnam’s biggest export was scrap metal, and exports were $2bn. After year in between where it emerged as one of the biggest agricultural exporters – of rice, of cashew nuts, of cinnamon, and several others – this year exports will be close on $300bn and the biggest chunk of exports will be electronics and smartphones.”
“And what’s guides that is a political system, political philosophy and a social structure that all combined to underlie consistency and stability.”
Dragon is perhaps best known to UK investors as manager of the FTSE 250-listed Vietnam Enterprise Investments Ltd (LON:VEIL) investment trust, but also runs an open-ended UCITS fund, exchange-traded funds and various private mandates for investment managers and sovereign wealth funds around the world.
With assets under management totalling around US$5.5bn, of which the VEIL trust is approximately 40% and the ETFs just under 20%, the firm is one of the biggest players in South-East Asia.
Its number one ETF, the Vietnam Diamond Fund, in May overtook the biggest US-listed ETF, Vectors Vietnam, which is run by VanEck.
Dragon’s ETFs are currently locally listed but over the past few years Dragon founder Dominic Scriven and his team have been working on getting more recognition of their investment vehicles in global markets, firstly by moving the VEIL trust to a London listing in 2016 after almost two decades listed in Dublin.
Since then, the VEIL trust is on course to beat the national VN Index for its fifth year out of the six, with a gain in NAV last year of 22.8% and another 40% so far this year.
Dragon also runs an open-ended fund, the Vietnam Equity (UCITS) Fund which, like the investment trust, focuses on listed equities. The team plan to make it made available on more UK platforms in the coming years. The UCITS fund’s 12-month performance of 81.1% is way ahead of the FTSE Vietnam Index, likewise its 55.3% over three year and 139.6% over five.
While Vietnam’s equity market is now turning over a healthy amount per day, Dragon CEO Scriven points out that the market remains relatively immature and the Vietnamese economy still offers considerable catch-up opportunities with other local rivals.
“Around 95% of the Vietnamese daily stock market volume is private investors not institutions.
“There are very few domestic institutions, although we would now form one the biggest of those investing in equities. And the biggest investor above us is the government.
“So we’re a sizable player in a somewhat disparate, but really quite ebullient frontier market.”
Ebullient is putting it modestly, with economic growth averaging 7% for the past six years and expected to remain one of the world’s fastest growing countries.
Foreign investment and the guiding presence of institutions such as Dragon are a key element of the country’s growth, with investors attracted by positive similarities to China.
“Vietnam is becoming more of a known quantity and its scope is spreading a bit more,” says Scriven.
“If you look at the real economy, it’s not a stretch to say Vietnam is the next manufacturing powerhouse after Southern China and trade is booming.
“What’s been happening for Vietnam is a mix of factors, some companies have moved for reasons of cost, some people have moved for security and diversification of risk, some have moved for reasons of integrity, some people have moved for fear of tariffs against China, some people have moved because frankly it’s quite a nice place to live.”
As one of the leading local institutions, Dragon has been a vital source of corporate developments in the country.
“We’ve not done anything super-brilliant, we’ve rather just been the one-eyed in the land of the blind – knowing what has worked elsewhere and just trying to replicate that.
“So many of the initiatives that we’ve embarked upon are seen here as new – such as last month we launched Vietnam’s first pension fund, and with ESG being something that is on everybody’s lips around the world, for VEIL our 2020 annual report was the first in the country to have climate-related financial disclosures.
“But I would say we’re active but not activists – at one stage we used to have 44 board seats on companies, now we only have one. The reason is because companies have grown, they are listed and the stock market is maturing.”
The VEIL trust, which is the largest of three Vietnam-focused trusts listed in London, invests entirely on listed shares, unlike its rivals.
“We do so because we think it’s quite important that investors have some comfort as to the underlying nature of the assets in which we invest, which means avoiding going off-piste into the private investing world.”
Since its move to London, VEIL has broadened its investor base hugely but is still mostly the preserve of institutional investors.
“And that’s possibly appropriate because for much of its past, Vietnam has been a very rarefied proposition. But this is changing.
“I went to a reasonably high-level government discussion recently talking about a vision for 2045. Number one is Vietnam wants to catch up with its neighbours – the aspiration is to be pre-eminent in Southeast Asia, to leave behind being a middle-income country – that’s the holy grail for Vietnam in the next 15 years.
“And the market’s maturing, it’s no longer completely illiquid, there’s 1,500 companies listed, it’s at nearly $250bn of value and turning over a billion a day.
“It’s sizable and it’s touching on becoming an accepted emerging market and over the next five years I believe we will broach the individual investor market as people open their eyes to what’s going on here.”