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UVEF: A UOBAM Malaysia Fund managed by Vietnam expertise, focused on growth

IFM_UVEF
UVEF targets Vietnam's telecommunications and infrastructure sectors, benefiting from increasing FDI and government investment in public projects

As per the latest reports, Vietnam’s GDP grew by 5.66% in the first quarter of 2024, marking the highest expansion for the three-month period since 2020. For 2024, the International Monetary Fund sees the Southeast Asian country’s economy potentially reaching USD 469.7 billion, thereby helping the nation to maintain its status as the fifth-largest economy in the region.

Investors who want to tap into Vietnam’s growth story now have a choice in the form of the United Vietnam Equity Fund (UVEF). As of July 2023, it was the only local unit trust fund dedicated to investing in the country, said Lim Suet Ling, CEO of UOB Asset Management Malaysia, while interacting with International Finance.

Investors have plenty of reasons to put their money into Vietnam’s growth journey. ASEAN as a region is emerging as the world’s fourth-largest economy in the coming decade, with 70% of its population joining the middle class with a consumer market worth USD 4 trillion (RM18 billion), according to the World Economic Forum’s forecast. Vietnam will be one of the main beneficiaries riding this trend.

The “China Plus One Strategy,” which sees multinational companies moving parts of their supply chain from China to other countries due to its geopolitical tension with the United States, is another factor that could benefit ASEAN in the coming days.

Market players are already seeing foreign direct investments (FDI) flowing into ASEAN. And Vietnam is one of the largest recipients.

“Vietnam stands out in ASEAN, thanks to its strong economic growth and improvement in the business environment in recent years,” Lim stated further, while pointing out that the Southeast Asian nation received the second highest absolute inflows of FDI among ASEAN countries in 2023 at USD 23.2 billion.

The country that received the largest FDI inflows in absolute terms was Indonesia (USD 45.6 billion), followed by Vietnam, Malaysia (USD 16.2 billion) and Thailand (USD 12.3 billion).

Vietnam: An Emerging Economic Powerhouse

Vietnam is geologically well positioned as it shares long borders with China and maintains proximity with Japan, South Korea and Taiwan. The Southeast Asian nation’s location is convenient for suppliers, based in their respective home countries, to provide manufacturers located in Vietnam with the necessary products and services.

The country has a long coastline with several seaports and it has signed 15 Free Trade Agreements (FTAs) with its major trading partners to facilitate import and export activities.

Demographically, 58% of Vietnam’s population is of working age, which provides the country with an abundant skilled workforce associated with low labour costs. It has also moved up 12 places in the Economist Intelligence Unit’s (EIU) business environment ranking recently and has seen improving infrastructure and business innovation, she adds.

On 29th February 2024, the Vietnam Ho Chi Minh 30 Index rose 11.87% year-to-date (in VND). The index is a market cap-weighted index of the 30 stocks with the highest market cap and liquidity on the Vietnam Ho Chi Minh Index. By February 2024 end, United Vietnam Equity Fund delivered a YTD return of 8.90% (in MYR Hedged Class). For a three month period (i.e. 30.11.2023-29.02.2024), the Fund is up 10.96% (in MYR Hedged class).

A Solid Track Record

While interacting with International Finance, Lim Suet Ling, CEO of UOB Asset Management Malaysia, said that the UVEF is managed by professional fund managers with a solid track record of investing in Vietnam.

The key investment decision-maker for the fund is Le Thanh Hung, investment director at UOBAM Vietnam Co. Earlier; he was the CEO and investment director of CNAV, a joint venture between the National Bank of Canada (NBC) and Montreal-based financial institution CTI Capital. He managed the CNAV’s Vietnam Focus Fund (which belongs to NBC) from April 2008 to January 2015.

During January 2015, when the Vietnam market had yet to experience an economic boom, which it is going through today, the CNAV Vietnam Focus generated a total return of 10.58%, outperforming the Vietnam Ho Chi Minh Index of -32.82%. CNAV Vietnam Focus’ annualised return since inception was 1.47% while the Vietnam Ho Chi Minh Index did -5.6% on an annualised basis.

On Hung’s watch, UVEF pursues a “flexible investment style” that swings between small- and mid-cap growth stocks and large-cap value stocks, depending on the stock market cycle and movement, said Lim.

“During a bull market, we tilt towards small- and mid-cap growth sectors and stocks to capture the strong growth momentum. During a bearish market, we overweight large-cap and value stocks to protect portfolio value,” she stated further.

Lim also noted that the State Bank of Vietnam, the country’s central bank, cutting its interest rates, while the Southeast Asian country’s government is speeding up public investment and spending. The nation’s stock market has recovered strongly as a result, with the return of more retail investors.

Vietnam also strategically prioritised semiconductor manufacturing, fostering closer relationships with key partners like South Korea, the United States, and Japan. Industry giants like Samsung, Amkor, Marvell, Synopsys, and Hana Micron have pledged substantial investments to expand their operations in Vietnam.

Against such backdrops, UVEF emphasises sectors and stocks exhibiting robust growth prospects. These sectors include telecommunication, industrial parks, materials, and construction. Additionally, investments have been made in brokerage firms poised to capitalise on a buoyant stock market.

Furthermore, UVEF favours the Banking sector, which stands to gain from favourable funding costs amidst a low-interest rate environment. The Fund also selects some leading export names that benefit from export recovery momentum in 2024. UVEF has also adopted a cautious stance towards the property sector, which continues to grapple with liquidity challenges amid subdued transactional activity.

As of 29th February 2024, the top five holdings of UVEF are the Bank for Foreign Trade of Vietnam (9.27%), Viettel Construction JSC (6.44%), Hoa Phat Group JSC (6.30%), Vietnam Joint Stock Commercial Bank for Industry and Trade (5.70%), and Gemadept Corp (5.61%).

However, Lim said that UVEF investors should be prepared for volatility as the Vietnam market is dominated by retail investors, with their transactions accounting for 85% to 90% of the daily transaction value. The sentiments of retail investors can be easily swayed by news and rumours.

“Foreign exchange volatility is another factor that investors should watch out for. Although the dong (VND) has been quite stable against the US dollar in the recent decade, investors cannot rule out the possibility that the situation might change as the US Federal Reserve raises interest rates further,” she noted further.

“Also, Vietnam’s real estate sector is struggling from oversupply in certain market segments,” Lim said, while adding, “UVEF manages the risk via diversification by investing in a minimum of 40 stocks across sectors and adopting a flexible investment style that swings between smaller-cap and large-cap stocks, depending on the market cycle.”

“As for foreign exchange rate fluctuation, there isn’t any hedging tool available in the Vietnam market. Yet, as we mentioned, the VND has been quite stable against the USD in the recent decade. And we do not see any event that will make such a situation change,” Lim remarked.

In her concluding statement on the future prospects of the Fund, the senior official said, “Maintaining foreign currency exchange rate stability is one of the essential targets of the State Bank of Vietnam and its government to support the economy. It is vital in attracting FDI inflows. And FDI plays an important role in Vietnam’s economy as it contributes about 20% to Vietnam’s GDP and 75% of its export turnover.”

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