The Vietnam Fund returned −3.3% in May with a NAV of USD 1,780.23, bringing the return since inception to +78.0%. This represents an annualized return of +11.2% p.a. The Ho Chi Minh City VN Index in USD lost −2.8%, while the Hanoi VH Index lost −3.7% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.65%, a high Sharpe ratio of 1.19, and a low correlation of the fund versus the MSCI World Index USD of 0.28, all based on monthly observations.

With most world markets down 5-6% in May, Vietnam unfortunately couldn’t escape this trend, especially after President Trump continued his aggressive stance against China. A few large caps helped to support the main indices in Vietnam to fare better than those of developed markets. In general, volumes were low with little volatility during this month.

Market Developments

It was a quiet month in Vietnam, though not on the streets as they are getting busier by the month and so is the economy. But the stock market took a breather with lower volumes and little movement in all market segments. While most western investors head for their summer holidays soon, Vietnamese will continue to work in order to get a bit closer to their dreams of improving their personal lives. This should help to drive the Vietnamese economy and markets in the second half of this year.

When living in Vietnam it is very easy to notice the changes on the ground. The roads are getting more congested, more buses are carrying a growing number of tourists around and cars are slowly substituting the massive amount of annoying motorbikes with their persistent honking. We also see the ever-increasing number of high-quality roads all over the country. Unlike in some countries in Eastern Europe or Asia, the positive effects of the fast-growing middle class can be seen everywhere.

When talking to our investors we mainly get the following two questions from them: What will be the effect of the trade war for Vietnam and its stock market? When will we see further gains in stock prices?

While our crystal ball always lies next to our bed, it is impossible to predict precise numbers for stock markets. What we can observe more and more on a daily basis are reports about Vietnam being one of the main beneficiaries of the trade war between the US and China, with even small European countries such as Austria reporting about this topic on TV news. As shown below, companies predominantly from Asia, and more recently especially from China / Hong Kong, are shifting their production to Vietnam. The majority of stock investors are known to be short-term minded and fearful, and therefore often take quick and nervous decisions to sell their holdings on rumours and non-fundamental news. However, the more experienced and successful investors often take a longer-term view without revising their decisions as soon as President Trump switches his mind once again; the same as business people won’t change their decision once they have decided to set up a factory in Vietnam.

The fact that stock prices, especially in the mostly domestic retail driven small- and mid-cap segment are still not going up at the moment has, at least partially, something to do with last year’s short-term bubble in the biggest stocks, with many investors staying away at the moment because a handful of stocks are still trading at lofty valuations.