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Could this frontier market be the next China?

01 February 2019

Janus Henderson’s Sat Duhra says that growth rates of up to 40 per cent are not uncommon for companies in Vietnam, while the macro picture is just as exciting.

By Anthony Luzio,

Editor, FE Trustnet Magazine

Vietnam has all the drivers in place to be “the next China”, according to Sat Duhra, a portfolio manager on Janus Henderson’s Asia ex Japan equities team, who calls it “the most exciting growth market in Asia right now”.

According to data from the World Bank, Vietnam’s GDP of $241,434bn in 2018 accounted for less than 0.3 per cent of the global figure.

However, its economy is currently growing at an annual rate of close to 7 per cent, and while there is often scepticism around the figures put forward by emerging markets such as China, Duhra (pictured right) said this number is supported by what he is seeing at a company level.

“When you go to meet corporates in Vietnam, they all seem to be growing at 30 to 40 per cent,” he explained.

“Vietjet, which is one of the biggest airlines, has grown from 60 aircraft to 410. This is not unusual. Every company we meet is doing exceptionally well.”

Duhra said Vietnam seems to be following the Chinese model of attracting huge amounts of FDI (foreign direct investment), with Samsung alone investing $8bn in the country. This has established a manufacturing base, which is creating employment and helping people move up the income curve.

Source: Janus Henderson, Bloomberg

However, he pointed out that Vietnam is not particularly reliant on China, with its larger neighbour not even in the top-three contributors from an FDI point of view – these are South Korea, Japan and Singapore.

The manager said this is a good thing, as it will provide some diversification within the region if the trade war between the US and China escalates.

“There is some onus geographically from China because of where Vietnam is and over the years it has benefited from that,” he continued.

“But one of the catalysts for Vietnam is it is in the process of signing a very big trade agreement with the EU, and there are another three or four agreements to go.

“So, you are seeing companies go, ‘this trade tension has made us think just a little bit more about digital capacity’, and we hear about people going to Malaysia and other parts of ASEAN [Association of Southeast Asian Nations], and they are seeing a bit more interest in terms of manufacturing. And Vietnam surely will be a beneficiary of that.”

He added: “That is not really our base case, that is not why we are there. But that will be positive for the Vietnam story as well.”


Investing in frontier markets is not without its risks and Vietnam suffered a banking crisis in 2012 after the government made vast sums of money available to state-owned enterprises (SOEs) in 2009 in response to the global financial crisis. Much of this cash was invested badly and non-performing loans soared to 12 per cent of all lending, according to data from the World Bank.

However, Duhra said that most of these loans have now been written off and the government seems to have learnt its lesson, with the banking system in much better shape.

“I don’t think we will get the boom and bust at the level we had and inflation is also under control,” he continued. “The currency has also behaved very well versus the rest of ASEAN, because it has a very strong current account surplus and it has been building its foreign exchange reserves.

“So, from a macro point of view, it is very hard to find holes in the story.”

Duhra said the one issue for Vietnam is that market liquidity remains tight, with capital markets yet to open up.

In 2018, there were numerous rights issues and IPOs which raised billions of dollars, and the government has pledged to privatise 400 SOE-type companies over the next two years – Duhra said that whatever the final number, he believes it will allow the market to open up and become more liquid.

However, he said the market is still not as open as it should be as there are foreign ownership limits which means that if you want to buy stock in Vietnam, you have to buy it from another foreigner, at a hefty premium.

“I would say that is the biggest issue from a market point of view,” the manager added. “But from a macro and a corporate point of view, it is doing fantastically well. And you could easily see where this country could be in the next five to 10 years because it has built such a strong manufacturing base and that continues to be the case.

“You’ve got a population of 95 million people and 55 million of those are of a working age and they are being employed. So it is a very good story.”

As a result of the foreign ownership limit, Duhra’s colleague Mike Kerley, manager of the Henderson Far East Income trust, said his exposure to Vietnam is via another investment trust, VinaCapital Vietnam Opportunity.

“To be honest, I hate plugging other people’s products,” he said. “As a foreigner buying individual shares, you can pay up to a 20 per cent premium for them.

“Yet you can buy the closed-ended investment company at a 20 per cent discount and with a 3 per cent yield. So, for a closed-ended investment company to invest in another closed-ended investment company, unless you are going to take it over, which clearly we are not, is unusual.

“We expect we will probably invest directly in Vietnam as well. But for us at this point in time, it’s quite an attractive proposition.”


Data from FE Analytics shows Henderson Far East Income has made 181.98 per cent over the past 10 years compared with 290.23 per cent from its IT Asia Pacific ex Japan benchmark.

Performance of trust vs sector over 10yrs

Source: FE Analytics

The trust is on a premium of 1.13 per cent compared with 1.62 and 0.55 per cent from its one- and three-year averages. It is yielding 6.45 per cent, has ongoing charges of 1.1 per cent and is 5 per cent geared.

VinaCapital Vietnam Opportunity has made 465.02 per cent over the past decade compared with gains of 85.05 per cent from the MSCI Vietnam index, although much of these gains have come from a narrowing discount. 

Performance of trust vs index over 10yrs

Source: FE Analytics

The trust is currently on a discount of 15.2 per cent compared with 18.72 and 20.33 per cent from its one and three-year averages.

It has ongoing charges of 1.8 per cent and is not currently geared

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.