James Carthew: Trump is not too much trouble for my Vietnam trust
Trump’s trade policies have caused anger and confusion in many different parts of the world. China was an obvious target, but many other emerging markets could also be affected. One name that keeps coming up – because of the phenomenal growth in its exports to the US in recent years – is Vietnam. In 2024, the US imported goods worth $136.6bn from Vietnam and exported just $13.1bn to the country, according to the American government’s own data.
The managers of VinaCapital Vietnam Opportunity (VOF ) held a webinar recently that was aimed at helping investors assess the risk of this. The webinar was led by Khanh Vu, the recently appointed lead manager for the trust, and the manager’s in-house economist, Mike Kokalari.
Mike feels that the push for protectionist policies coming out of the US would also have been an issue had the Democrats won the election. Halting and reversing the hollowing out of US manufacturing jobs, or at least being seen to be trying to achieve this, is a vote winner in marginal states. He paints a picture whereby, over many years, asset owners shifted jobs to countries with cheaper labour, enhancing their profits, which were then repatriated to the US, keeping the dollar strong. He feels that this has contributed to the dollar being overvalued by something like 25-30%.
Trump wants to lower the value of the dollar and there has been talk of a Plaza Accord 2.0, where big countries would work together to manipulate the currency lower. The problem is that if you are a major trading partner of the US, there is not much benefit that would come out of that. Kokalari thinks Trump will seek to use tariffs as a way of bullying countries to take part. I cannot see that working.
He is sceptical about the prospect of reshoring jobs to the US while US wages are relatively high. Instead, he thinks that businesses will seek to compromise with ‘friendshoring’, siting factories in countries that the Trump administration has a good relationship with. The big question is, does Vietnam fit that description?
Strong economic drivers
The VOF team thinks that the answer is yes. In part, this is because Vietnam has closer ties to the US than China and is making efforts to buy more US goods and services. A more depressing but, in my eyes, plausible explanation is that The Trump Organization is currently developing a $1.5bn golf course and hotels project in the north of the country.
Vietnamese goods already attract average tariffs of about 5% and, notwithstanding the arguments above, Kokalari concedes that additional tariffs of 5-10% are possible. However, the negative effect that Trump’s policies are having on the US economy could mean that there is a hit to Vietnamese exports in 2025 regardless.
Goldman Sachs has come up with a range of predictions for the gross domestic product (GDP) impact of tariffs on the Vietnamese economy. In a worst-case scenario, it believes that a 10% universal tariff would knock just under 2% off Vietnam’s GDP.
That sounds like a disaster, until you realise that Vietnam is actually targeting 8% GDP growth for 2025. A large chunk of that is coming from infrastructure investments – including high speed rail links, nuclear plants, and new underground lines in Ho Chi Minh City – and these projects will plough on whatever Trump decides. There is good news too on the tourism front, where the post-Covid recovery in tourist numbers is continuing, including a jump in visitors from China.
VOF’s widening discount
VOF is differentiated from its peers in that it has about 19% of its portfolio in unlisted companies. It benchmarks its returns against the VN Index and, up to the end of February, it has done a reasonable job of beating that benchmark. Five-year figures are distorted by the effects of the Covid-related panic in markets. However, over 10 years, VOF just pips VietNam Holding (VNH ) in net asset value (NAV) terms.
Where VOF falls down is with its discount, which is currently about 24%, the widest of the three Vietnamese investment companies. It has been trying to tackle this with share buybacks, having repurchased about 9% of its share capital over the past 12 months.
I have been a shareholder since 2015 and last topped up the position in 2023 at about 468p per share, versus 441p today, so I am sitting on a modest loss on those new shares. A widening discount is the main reason for this, but the NAV has made only minimal progress over that time. The underlying companies have been doing fairly well, but they just keep getting cheaper. At end of February, VOF’s portfolio was valued on just 10.8x earnings despite predictions of near 18% earnings growth.
The uncertainty of what Trump may do is clearly a weight on the Vietnamese market, but I am going to stick with my holding and may even add to it if the market falls further.
James Carthew is head of investment company research at QuotedData
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