The Vietnam Fund returned +1.1% in September with a NAV of USD 1,840.73, bringing the net return since inception to +84.1%. This represents an annualised return of +17.6% p.a. The September performance of the Ho Chi Minh City VN Index in USD was +2.8% while the Hanoi VH Index gained +3.6% (in USD terms). Since inception, the AFC Vietnam Fund has outperformed the VN and VH Indices by +37.2% and +37.7% respectively (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 9.10%, a high Sharpe ratio of 1.90, and a low correlation of the fund versus the MSCI World Index USD of 0.30, all based on monthly observations since inception.
The market went sideways in the last two weeks of the month, although the picture was very mixed. Surprisingly strong economic data will hopefully also support earnings when third-quarter results will be published in October. The index in HCMC went up +2.8% while Hanoi added another +3.6% thanks to the index heavyweight, Asia Commercial Bank, which increased by +7% last month.
With index heavyweights surging again, we would like to take some time to highlight the main drivers of the Vietnamese stock market.
Macroeconomic data remains impressive without any signs of a slowdown in economic activity. The biggest concerns in recent years have always been inflation, the trade deficit, and currency devaluation. Both inflation and trade numbers are under control and compare very favourably with other strong and growing economies. Most experts have been expecting a devaluation of the Vietnamese Dong for quite some time now, but the reality shows that this concern was overblown, since the Vietnamese currency is one of the most stable versus the USD in the whole region and beyond.
One of the main arguments for a weaker Dong by currency experts was the bearish view of the Chinese Yuan on concerns about growing risks in the Chinese financial sector and the sustainability of the economic growth model, something we have heard and read about for almost 20 years now. Every fresh burst of Yuan weakness, as seen in 2015 and early 2016, was accompanied by a strong correction in the Vietnamese stock market. Now, those experts calling for a weaker Yuan are back in their caves with the Yuan and other major currencies substantially up versus the USD in 2017. This development has helped the Vietnamese currency immensely and brought foreign investment capital into Vietnam and other frontier and emerging markets around the world.