Vietnam is being hit hard by the fourth wave of the Covid epidemic. The infection rate has been on the rise since April, and the number of new cases per day has now exceeded 5,000. Until lately, the stock market had not reacted to the growth in infections, but the lockdown measures imposed by the government in July have led retail investors to realize their early-year profits on shares. The VN index has dropped rapidly from 1420 points at the beginning of July to 1250 points, with a decline of 12%.
Ho Chi Minh City and surrounding provinces are particularly hard hit by the lockdown measures, but restaurants and several other service businesses in Hanoi have also been ordered to close doors. In addition, there are outbreaks in individual industrial areas. The strictest lockdown measures in Ho Chi Minh City came into effect on July 9, and the rise in infections can be expected to stabilize in August. The situation in Vietnam in terms of vaccinations remains poor, but efforts in recent weeks have improved both vaccination readiness and vaccine availability. Roughly five million people have been vaccinated so far, which is about 5% of the total population. However, the number of those who have received a second jab remains under 1%. The Vietnamese government has said it is ready to vaccinate up to a million people a day, with plans to reach a vaccination rate of up to 60–70% by the end of the year.
The strict lockdown measures now in force will slow economic growth during the third quarter. Earnings growth forecasts for listed companies for 2021 will have to be adjusted, although the increase is still expected to be 30–40%. The VN index is now trading at the following P/E ratios: 2021(E) 14.5, 2022(E) 12.0 and 2023(E) 9.8.
It has been a rough ride for stocks in the PYN Elite Portfolio as well. The focus of the Portfolio is on domestic-market companies, which are affected by the lockdown measures. The Fund’s perceived decline in the unit value thus corresponds to the deteriorating situation. However, we believe that the Vietnamese government will be able to both curb the infections and ramp up vaccinations in a reasonable time. As a result, economic growth will be able to accelerate again in the autumn, and the stock market will continue its upward trend. In our opinion, it is these shares of companies focusing on the Vietnamese domestic market that have the greatest potential for outperformance in 6 to 12 months, although the next few weeks may still be difficult.
The redemption notice for the July redemption date was to be filed during June. As the stock market downturn occurred during the weeks immediately following the July submission date for redemption notices, you should be aware that you have the opportunity to file a redemption cancellation request with the fund management company. If you are redeeming, I urge you to consider whether it would be in your interests to take this cancellation opportunity because of the sudden stock market plunge. For more information on redemption cancellation, call (09) 270 70400.
I myself will be subscribing for more PYN Elite fund units in the end-of-July subscription!
Important information regarding the text and the fund
The material presented in this text is based on PYN Fund Management’s view of markets and investment opportunities. PYN Elite Fund (non-UCITS) invests its assets in a highly allocated manner in frontier markets and in a small number of companies. This investment approach involves a larger risk of volatility compared to ordinary broadly diversified equity investments. The value of an investment may decline substantially in unfavorable market conditions or due to an individual unsuccessful investment. It is entirely possible that the estimates of economic development or a company’s business performance presented in this presentation will not be realized as presented and they involve material uncertainties.