The manager of VinaCapital Vietnam Opportunity (VOF ) believes confidence in the country’s markets should continue to rise as falling bank deposit and lending rates encourage domestic investors to put their money back into equities and property.

Speaking at a webinar, portfolio manager of the £687m trust Andy Ho said that, as emerging and frontier countries cut interest rates in contrast with the developed world, Vietnamese bank deposit rates have fallen 100 basis points (bps) in the year to date, which is reflected in a 6.7% gain for the Vietnam Stock Index. Last year, bank deposit rates shot up 250bps in line with rising rates, precipitating a 32.8% fall for the index.

Other positive factors include ‘benign’ levels of inflation and a stable Vietnamese dong against the US dollar. However, Ho said that continued interest rate cuts would eventually translate into a weaker dong.

While the index may be back in positive territory, it is not plain sailing as the economy is in the grip of a domestic consumption slowdown, with gross domestic product growth of 3.7% in the first half of this year significantly lower than the 6.4% recorded 12 months earlier.

Ho explained that tourism, which previously accounted for about 10% of Vietnam’s economy, is yet to fully recover (although China’s reopening has helped), and manufacturing and export levels have slumped as the US winds down its inventories.

He added that the frozen real estate market would need further rate cuts of at least 100bps to tempt investors back because banks remain cautious in directing loans to developers and mortgages.

The Vietnamese government has cracked down on the corporate bond market, which included making arrests, to deleverage the residential property sector and promote sustainable property development and affordable pricing for local home buyers.

‘We are facing some risks revolving around the anti-corruption campaigns of arrests and investigations,’ said Ho (pictured below). ‘We hope the government recognises this can cause some instability in the market and I expect these types of activities to lessen in the years to come.’

Real estate remains a core long-term play in the portfolio at 24.5% of total assets, capturing the growing middle class, particularly in Hanoi and Ho Chi Minh City, increasing urbanisation and the trend of transitioning to small family units with fewer multi-generational houses.

Banks, the ‘cornerstone of the economy’, contributed to 57% of the index’s returns year to date and command 19.8% of the trust. Materials, energy and industrials have also contributed, Ho said. 

Asia Commercial Bank is the largest holding at 13.8% of assets, with real estate company Khang Dien House second at 10.1% and materials company Hoa Phat Group third at 9.9%.

The trust’s 18.5% discount to net asset value is the widest in its peer group.

Five-year performance

Source: Morningstar