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The Vietnam Fund gained +0.8% in August with a NAV of USD 1,791.39, bringing the return since inception to +79.1%. This represents an annualised return of +13.2% p.a. Due to the heavy weight of banking stocks The Ho Chi Minh City VN Index in USD gained +3.4%, while the Hanoi VH Index added +6.2% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.69%, a high Sharpe ratio of 1.45, and a low correlation of the fund versus the MSCI World Index USD of 0.23, all based on monthly observations.

Market Developments

International investors are still focused on the political friction and trade tariffs between the USA and – let’s call it a growing number of countries around the globe. People are now mainly concerned about the impact on those countries involved, but at the end of the day, global trade and growth as a whole will be negatively affected. Currently, people still feel safe in US assets including the USD but are dumping assets from struggling countries such as Turkey, for example. Countries like Vietnam are, at least for now, not being negatively impacted, similar to most countries in the west, but people still fear a contagion effect similar to that which occurred during the Asian crisis 20 years ago, although economic conditions and the level of development are not comparable. The emerging market crisis of the 90’s was mainly caused by a misallocation of capital and an unhealthy combination of current account and trade deficits, as well as low currency reserves and overvalued currencies, none of which are the case for most countries in Asia today.
In fact, the exact opposite is the reason for Trump’s aggressive foreign economic policy which makes investors feel uneasy. High trade surpluses and an accumulation of USD assets over the past 10-20 years in countries like China are leading to fears that an increasing number of countries will have trade surpluses with the USA, and hence could become a target of US trade sanctions, including Vietnam. Vietnam is a smaller, but growing exporter to the USA, although its exports to Asian countries still dominate with a share of around 48%. Vietnam has a very small economy on a global perspective, but its currency reserves have improved significantly over the past few years, reaching over USD 60bn even though the trade balance is currently only around 1-2% of GDP, which seems to be low when compared for example to Germany where the balance is around 8-9% of GDP.

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