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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
It might come as some surprise then that the largest holding in the fund, Vinamilk, accounts for 28.4% of net assets. Vinamilk got to be this large by performing well (it is the largest dairy company in Vietnam and the second largest listed stock by market cap.).
Snowball has not reduced the position for two reasons – first, he still thinks it looks like an attractive investment and second, Vinamilk is one of a number of stocks that foreigners hold up to the limit of 49% of the equity. Snowball hopes to grow PXP Vietnam substantially but, if he raised enough money to dilute the Vinamilk position below 10% of the fund, he still would not be able to buy any more because of the foreign ownership limits.
The government has been talking about upping the limit from 49% to 60% and this had been a driver of Vietnam’s recent performance. As more details emerge however, there are worries that the increase might only be via the issue of non-voting shares or restricted to, as yet undefined, ‘strategic investors’.
A sensible (ie, unrestricted uplift in the limit to 60%) resolution to the issue could help propel the market higher later this year. The concentration of the portfolio (three other holdings are more than 5% of the fund) might understandably make some people nervous but I think it can be rationalised if a holding in PXP Vietnam is only a portion of your allocation to Asia – big stocks that dominate markets are commonplace in frontier markets.
On 31 May 2012, PXP Vietnam asked shareholders for permission to launch a C share issue of up to 20 million shares ($110 million at the NAV at the end of August). This permission was renewed (for a further year) on 31 May 2013. PXP Vietnam’s discount has been too wide for it to get a C share issue away however, and, at circa 15% today it remains a problem.
At the moment the company’s articles require a vote at the AGM to open-end the company in each year from 2015 to 2018; this seems a bit drastic to me. If I were on the board, I would be thinking now about asking shareholders to replace that with the chance to exit the fund at a price close to NAV in 2015 and maybe three or five yearly thereafter – this might help narrow the discount today.
In the absence of some form of discount control, PXP Vietnam is relying on good performance and renewed enthusiasm for Vietnam to drive the discount down. It may happen but I would prefer to be already invested in the fund and riding that wave.
James Carthew is director of Sapient Research
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by Alex Steger on Dec 11, 2013 at 10:19