The portfolio manager’s main thoughts about the fund and the market:
1) The discount caused by disciplinary measures will disappear.
2) Earnings growth remains decent.
3) The decline in deposit rates will support the stock market valuation multiples.
The index hit the bottom at 911 points
In November 2022, the Vietnamese stock market index recorded a low of 911, from which the index has recovered to 1,100 points. We believe the index will be on an upward trajectory for the next three years, driven by earnings growth, but also the moderation of Vietnam’s interest rate and the fact that the disciplinary measures that shocked the securities market will be put on the back burner will bring the valuation multiples on a more fair level. The market is still trading well below historical averages with a P/E ratio of 10 to 11.
The bond market is getting back to normal
In the fall the authorities took disciplinary measures in the financial markets due to the unethically marketed corporate bonds. The bond market faced a huge uncertainty in November 2022 and lacking buyers completely, bond yields temporarily rose to 28 percent. Since then, the average yield has already returned to the 13-14 percent range. There are still uncertainties regarding the market, but we believe that the situation will normalize.
The dollar gained too much
After the Fed raised interest rates at a rapid pace, the dollar appreciated too much against Asian currencies. It’s too early to expect fed rates to decline in 2023. The depreciation of the overvalued dollar which started in late 2022, will probably continue for the next two years, as there are no longer remarkable rate hikes in line and later on expectations turn into falling rates.
Export numbers will weaken
The contraction of Asian countries’ exports that started in late autumn will continue during this spring. We expect also Vietnam’s exports to decline compared to spring 2022 figures. The flip side is that US retail sales and demand for goods will remain weak.
US stock markets at fair value
The P/E 19 of the US S&P 500 seems fair, as it matches the historical average of the US market. We may experience seesawing US markets in the next three years, especially so if the earnings growth will stay rather weak.
Relief for the State Bank of Vietnam
The end of the dollar appreciation is of great importance to the State Bank of Vietnam. Vietnam did not face challenging inflation in 2022, but the SBV nevertheless had to raise its key interest rates to manage the FX rate and to maintain the country’s liquidity. In this regard, 2023 will be easier, and Vietnam’s deposit rates which rose at a rapid pace, are likely to continue downwards. Similarly, we believe that the country’s foreign exchange reserves will accumulate again, even if exports take a hit.
Domestic businesses will lead the earnings growth
We expect Vietnam’s exports will decline by five percent this year, and the negative period will be from January to May. Disbursed FDI to Vietnam reached 22 billion USD last year. The largest investors were all from Asia: Singapore, Korea, Japan, China, and Hong Kong. Denmark took sixth place, thanks to Lego bricks, as their production will start in Vietnam by 2024 in a new USD 1.2 billion factory. China’s opening supports Vietnam’s exports. China has long been Vietnam’s fastest-growing export destination, but we believe that the overall export growth will remain negative for the next few months due to weak demand in the EU and the USA. The last time Vietnam’s exports declined was in 2009, but even then, GDP grew by 5.4 percent and the stock market rose by 57 percent.
Vietnam’s economic policies are to stay
Vietnam’s most influential political leader, Mr. Nguyen Phu Trong, has long considered it important to address the most blatant abuses of the system. Trong’s idea is to leave behind a reformed and more responsible administrative culture. He has not taken kindly to Vietnam’s low ranking in the global corruption index. In 2016, the prime minister at the time had to resign, and last year disciplinary actions were taken against hard-nosed stock manipulator Trinh Van Quit and real estate mogul Truong My Lan. President Nguyen Xuan Phuc, who messed with the corona vaccines contracts, had to leave his position at the beginning of 2023.
It is still possible that the Vietnam Central Committee has not yet finished the clean-up job and some more disciplinary actions may be on the way. In long run, these measures should have a positive impact on companies considering FDI investments into Vietnam. It should be noted that for a couple of decades, Vietnam has pursued a very market-friendly investment policy, and changes in the leadership have not threatened this policy. Measured by free trade agreements, Vietnam is one of the freest industrial production locations in the world. In the short term, of course, several changes in the country’s leadership may cause confusion. They may occasionally scare equity investors, as was the case last year when the authorities took action against the key players in the private sector.
| Now | End of the year | |
| VN-Index | 1 100 | 1 450 |
| Deposit rates | 9-9.5% | 5-6% |
| Inflation | 4.5% | 3.5% |
Expectations for 2023
In 2023, we expect Vietnam’s economy to grow reasonably briskly (+5.5%), despite exports for the whole year might decline by five percent. We believe that Vietnam’s public investments will boost domestic demand and that private consumer demand will also pick up as the year progresses. For listed companies, our view is that the average earnings growth may reach 14 percent.
In the long run
Outlook for Vietnam’s economy indicates 5%-7% annual economic growth for the next few years and 12%-25% annual earnings growth for listed companies. The stock market’s valuation is exceptionally attractive right now when you take into consideration the long-term return potential.
Free ride
Due to PYN Elite’s weak performance last year, the current NAV is 434, while the fund’s High Watermark (HWM) is at 566. Performance fees are charged only after the HWM value is exceeded again. Until then, the portfolio’s returns will accrue to current fund units and new subscriptions without performance fees.
Important information regarding the text and the Fund
The attached publication is marketing material and should not be regarded as a recommendation to subscribe or redeem units of the PYN Elite Fund. Before subscribing please familiarize yourself with the Key Information Document, the Prospectus and the Rules of 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.