VinaCapital Vietnam Opportunities (VOF ) is banking on a recovery in financials next year, with manager Andy Ho propelling Vietnam Prosperity Bank into his top five holdings to take advantage of the bounceback.

The £710m single-country investment trust has always had a large exposure to financials, and Ho Chi Minh-based Ho has increased it to almost a quarter with a fresh investment in Vietnam Prosperity Bank, which is now the fifth-largest holding, making up 5.8% of the portfolio, up from 1.9% at the end of 2022.

Ho’s exposure to some of Vietnam’s biggest banking names, including top holding Asia Commercial Bank at 12.8% of the fund and Orient Commercial Bank at 4.3%, have helped deliver a 10.5% return over the 12 months to the end of September. However, it is still slightly behind the 12.7% delivered by the VN Index.

The financial sector of the VN Index is up 24.4% in the year to date and Ho said government policies supporting the real estate market and lower interest rates are ‘set to further enhance outlook’.

The State Bank of Vietnam has cut rates four times this year, now down to 4.5% – in contrast to most major central banks, which have tightened rates – in order to boost the slowing economy.

‘The decrease in lending rates has resulted in a noticeable improvement in credit growth,’ said Ho, who added that recent government policies are also alleviating non-performing loan formation. 

He anticipated a ‘robust recovery in the banking sector starting from next year’, which will be driven by improving asset quality and net interest margins, which is the difference between the amount of money a bank is earning as interest on loans versus the amount of interest it is paying on deposits.

Ho recently added funds to Vietnam Prosperity Bank as it is positioned for ‘accelerated growth compared with its peers’ and is one of just four banks to receive a 24% credit quota growth per annum for the next five years from the State Bank of Vietnam, thanks to its acquisition of weaker rival GPBank.

The central bank has applied annual credit growth quotas to its banks since 2011 with an aim to avoid overheated credit growth.

Ho predicted an improvement in net interest margins at Vietnam Prosperity Bank in the fourth quarter and ‘more clearly from 2024, primarily driven by the proceeds from [the bank’s] private placement with Sumitomo Mitsui Banking Corporation, which will alleviate funding costs’.

Vietnam Prosperity sold a 15% stake for $1.5bn to Japan’s Sumitomo Mitsui bank in March.

Ho said that, in general, there is ‘enthusiasm’ for Vietnam, compounded by a visit in September from US president Joe Biden to upgrade its ‘comprehensive strategic partnership’.

He said the VN Index is valued at an ‘attractive 11.4 times 2023 price/earnings ratio’ and a 20% discount to regional peers.

This valuation should be ‘very attractive’ to investors as earnings growth is expected at below 10% for 2023 and around 30% for 2024.