The Vietnam Fund returned −1.6% in January with a NAV of USD 1,747.73, bringing the return since inception to +74.8%. This represents an annualized return of +11.6% p.a. The Ho Chi Minh City VN Index in USD gained +2.4%, while the Hanoi VH Index lost −1.0% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.68%, a high Sharpe ratio of 1.24, and a low correlation of the fund versus the MSCI World Index USD of 0.30, all based on monthly observations.

The start of trading in the new year was very slow in terms of market volume, just the opposite of last January. Most market action was concentrated in companies releasing their annual results. Because of a hiccup in the largest stock on the HSX, Vincom, (limit down on the last trading day in December and strongly up on the first trading day in January), the stock market in HCMC outperformed and ended up with a gain of +2% while the index in Hanoi suffered a loss of -1.3% and was more in line with the general market, which weakened, especially in the second half of the month.

Market Developments

The first month of 2019 saw the slowest trading volume in years at about 50-60% below the 12-month average. If we consider that many large companies were listed over the past 2 years, the average volume for stocks listed before the IPO-wave is even worse than this number. Additionally, both indices in HCMC and Hanoi are still trading at around their summer 2018 lows and about 25% below their peak of April 2018.

Despite the very favourable macro statistics of Vietnam, many people took profits in what we see as an interim correction in a long-term uptrend. The bottoming process can be quite painful as investors throw in the towel and institutional investors have to sell at almost any price in a declining market with low volume. With around 2/3 of our companies having reported their annual results, we were pleased to see that majority of our holdings met our earnings expectations. There are only a few stocks where we need to adjust our position and given the low market volume, we will do this rebalancing carefully and less aggressively than during high volume periods.

With many local Vietnamese investors currently on the sidelines, the stock market is showing very little activity and is mainly driven by moves from a few highly capitalized stocks, or the lack thereof, as shown in the chart below. Vingroup, the biggest contributor to most Vietnamese indices, is a good example of this. Hitting an all-time high along with the index in April 2018, the stock has gone mostly sideways on declining volume since then, while most stocks have fallen 20-40% from their peaks. The trading pattern of Vincom over the past two months is even more astonishing during a time of high volatility in all markets, as this high P/E stock (trailing P/E of 85x) is showing very unusual stability – except for the two trading days around New Year’s Eve where it shaved off almost 1% of the index’s performance for 2018 but helped the index for almost the same amount on the first day of 2019.

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