THE FUND:

Building upwards: Ho Chi Minh’s changing skyline.

The fund decreased 2.98% Net (SEK) in July compared to the benchmark index which fell 1.98% Net (SEK). Our underweight in Consumer Staples (HAGL, Hoang Anh), Industrials (Hoang Huy, CII) and Real Estate (Novaland) was the key reason for the relative underperformance. Additionally, our off-benchmark bets in Materials (Hoa Sen) and Financials (LPB Bank) also did not bode well for the fund’s performance. However, the overweight in Consumer Discretionary (PAC) and Information Technology (FPT) contributed positive relative returns. As the market came off by more than 20% from its peak in April, the fund reduced its exposure in low beta stocks such as Utilities and Materials during July. At present, the valuations look much reasonable than what they were a few months ago, furthermore, with any easing of geo-political and external risks, the market will be poised to post better returns. The fund is also positioned to take advantage of better economic prospects while avoiding external shocks.

MARKET:

Vietnam’s market faced yet another tough month, this time due to concerns over increasing trade tensions between the US and China. Given that China is Vietnam’s largest trading partner (having a trade deficit of ~USD 28bn with China), US restrictions on Chinese goods would create a surplus in the region and negatively affect the trade balance in South East Asia. Further, the fact that the Chinese currency (CNY) lost ~6.5% within four weeks is also a cause for concern because it makes Chinese exports cheaper which will hurt the local industry. The market lost 2% Net (SEK) compared to -0.2% MSCI Emerging Market Net (SEK) and flat MSCI Frontier Markets xGCC Net (SEK). Foreign investors remained net sellers to an amount of USD 93m in July. However, outflows were predominantly in the Vingroup companies (Vincom, Vinhomes, Vincom Retail), totaling ~USD 103m. If this amount was excluded there was net inflow in the rest of the market. Liquidity remained low compared to earlier months at USD 181m.

As the earnings season kicked in, we saw earnings growth in key sectors such as Banking, Real Estate, Materials, and Construction, all of which posted a strong growth in Q2. The banking sector posted Y/Y growth ranging from 50%-150%, in real estate DXG grew by 113% Y/Y, while brokerage also had a good run (HCM +103%, SSI +19.8%).

On the macro front, we saw Vietnam reacting to external volatility. The Vietnamese Dong was devalued by 1.5% within the month (-2.56% YTD). This seems like an active move by the State Bank of Vietnam to cope with the quick devaluation of the CNY rather than any pressure from internal fundamental deterioration. In fact, with a trade surplus of USD 3.1bn in 7M2018, healthy FDI disbursement of USD 9.85bn in 7M2018 (+8.8% Y/Y) and record high foreign FX reserve (USD 63bnn at the end of 1H2018), the Vietnamese Dong did not face any real pressure to adjust its value. Besides currency, other indicators remained upbeat too. In July CPI reduced 0.09% month on month (+3.45% Y/Y) as a result of a decrease in healthcare and transportation prices. PMI was slightly down to 54.9 (vs 55.7 in June), still one of the highest numbers historically, indicating a strong improvement in the manufacturing sector.

 
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Capital invested in a fund may either increase or decrease in value and it is not certain that you will be able to recover all of your investment. Historical return is no guarantee of future return. The Full Prospectus, KIID etc. are available on our homepage. You can also contact us to receive the documents free of charge. Please contact us if you require any further information: +46 8-5511 4570.