The Vietnam Fund returned −2.0% in December with a NAV of USD 1,776.74, bringing the return since inception to +77.7%. This represents an annualised return of +12.1% p.a. The Ho Chi Minh City VN Index in USD lost −3.4%, while the Hanoi VH Index lost −0.3% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.67%, a high Sharpe ratio of 1.31, and a low correlation of the fund versus the MSCI World Index USD of 0.30, all based on monthly observations.

The month of December can be seen as the climax of an already ugly year in all markets, including Vietnam. Deflating prices in overvalued stocks in the world’s leading market, the USA, led to declines in Vietnam as well, although to a much lesser degree and the Vietnamese Dong was even able to gain against the USD by 0.4%. Nevertheless, the index in HCMC lost -3.7% and ended the year with a loss of -9.3% in local currency (-11.4% in USD). The index in Hanoi didn’t fare much better, experiencing a loss for the month of −0.6% and ending the year down −10.8% in local currency (-12.9% in USD). Along with our strategy, we always note how unimportant short-term swings in a market like Vietnam are and how low our volatility is (our invested capital is always between 95% – 98%), and despite having our first yearly loss after 4 continuous years of gains, those losses are rather mild with the expected NAV down just −4.0% in USD terms after gaining 80% in previous years. The loss for 2018 in local currency at -1.8% was very small and depending on the investor’s home currency, the fund’s performance was even break even or positive in the respective currency of € or GBP.

After just recently celebrating our fund’s 5th anniversary on 23rd December 2018, we can look back at an annualized USD performance of 11.4% with a very low annualized volatility of only 8.7%. Based on the highly attractive valuation of our portfolio and the success story of Vietnam which is continuously improving, we are looking forward to a prosperous future.
Market Developments

In December we finally saw something really “remarkable” as the financial media was looking, as always, for attention. Their headlines included “worst Christmas Eve day ever”, “worst December since 1931” and “all major indices and markets now in bear market territory”. It should be noted that these headlines are mostly from the same sources that were sending out super bullish messages just a few months ago, in line with most strategists’ bias for further gains. We did not like to see the US equity bubble expand over the past two years and we are certainly not happy with the declines hitting markets around the globe in Q4. Though, to keep things in perspective, most markets are now back to the levels seen two years ago and not at a level people would need to expect a world economic crisis like in 2008/2009 where many economic indicators were much more alarming than today. We see the overvaluation in certain sectors and markets deflating rapidly as there is no more “money for free” from most central banks; people just have not experienced any major losses over the past nine years, which was exceptional and not sustainable. It is not something we care too much about, but after we experienced similar losses in history, including the global financial crisis of 2008/2009, we saw either massive mid-term rebounds or long-term bottoms. Nevertheless, the dimension of the US stock market decline in just one single week (17th − 21st Dec.) was shocking with a loss of around USD 2,000 bln – this is roughly equivalent to 11x the total market cap of Vietnam’s stock market, or 8x Vietnam’s GDP!

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