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Trust Insider: pulling out of China? Try this frontier Asia trust
by James Carthew on Sep 25, 2013 at 00:01
While many Asian markets have been lacklustre this year on fears of a protracted slowing of Chinese growth, for the first half of the year at least Vietnam managed to buck the trend.
One of the best performing dedicated Vietnam funds is PXP Vietnam – its NAV is up almost 30% year to date. It was not a fund I knew particularly well before writing a note on it late last year but I think it is worth following and it probably deserves to be bigger than its current £36 million market cap.
Vietnam is classified as a frontier market. It has a lot going for it: a strong agricultural sector, abundant natural resources, favourable demographics and a fast growing manufacturing sector. It also has a long way to go to catch up with its northern neighbour China.
As in China, a relaxation of the government’s hold on the economy has allowed capitalism to flourish but the state still wields considerable influence. The stock market is dominated by former state-owned enterprises, some of which have successfully made the transition to shareholder-friendly, dynamic and entrepreneurial companies, while others have not.
Like China, fast rising property prices were accompanied by incautious lending and the banking sector developed a problem with non-performing loans. Vietnam also had to combat high inflation. The government clamped down on the economy in 2011 and this triggered a slump in the stock market. As things cooled the state was able to cut interest rates and try to stimulate recovery, the currency stabilised and, by the start of 2013, this began to feed through to equity valuations.
In recent months there has been some profit taking (and disappointment on proposals for lifting foreign ownership restrictions – more later) but, if China is on the mend, it is possible that Vietnam will start to take off again.
PXP Vietnam was launched at the end of 2003 but did not list on the LSE until April 2010 (prior to that it was listed in Dublin).
PXP Asset Management, based in Ho Chi Minh City, was set up in 2002. PXP Vietnam’s manager is Kevin Snowball, one of the founders of PXP, and he is supported by a fairly large team of analysts – Snowball reckons they have the best in-depth coverage of the Vietnamese equity market of any asset manager looking at the country. The ability to generate decent In-house research is important in any underdeveloped securities market.
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The portfolio is constructed using a bottom-up approach and sector weightings are a product of this. The fund is relatively concentrated (there were 44 holdings at the end of August 2013). There is a restriction in place that prevents Snowball from holding more than 10% in any one stock at the time of investment.
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