Mr. Don Lam, CEO and Founding Partner of VinaCapital, tells VET’s Nguyen Ha about its funds’ performance and expectations into the future.
What do you see in 2017 for businesses in Vietnam?
We continue to be cautiously optimistic about Vietnam’s business environment in 2017. The macro-economy is on very solid ground, and GDP continues to grow. But we will need to watch inflation and interest rates.
Furthermore, we need to monitor a range of external issues that could impact Vietnam, such as the potential for new protective trade policies from the US (which could affect exports), devaluation of the Chinese Yuan (which would make exports from China more competitive), US Federal Reserve rate hikes, and much more.
But over the past few years Vietnam has demonstrated resilience in the face of global uncertainties and we expect that to continue.
What opportunities for investments are there in Vietnam in 2017 from your perspective?
Beyond our traditional focus on companies participating in the domestic consumption story, we see potential investment opportunities in areas such as infrastructure and perhaps the banking sector, which are among the top priorities for the government. Provided the conditions are right, we would certainly evaluate opportunities in those sectors.
Hospitality is another sector with great promise. Tourism numbers reached records in 2016 and are expected to continue to rise this year. At the same time, our tourism industry remains undeveloped compared with neighbors such as Thailand and Malaysia, so the prospect for growth is tremendous.
How did VinaCapital-managed funds perform in 2016?
Our major funds performed quite well in 2016. Vietnam Opportunities Fund (VOF), our flagship fund, had a fantastic year. First, it moved from the AIM to the Main Market of the London Stock Exchange - the first Vietnam-focused fund to trade on that board - which in turn led it to being included in the FTSE All-Shares index.
From a performance standpoint, VOF increased 25.5 per cent (in USD terms) in 2016, nearly double the 13.4 per cent (in USD terms) of the VN-Index and was the best performing fund in Vietnam. VCG Partners Vietnam Fund (VVF), our open-end, UCITS-compliant fund, posted solid 12.8 per cent growth. Additionally, VinaLand divested several key assets and returned cash to shareholders, while Vietnam Infrastructure Limited Fund (VNI) nearly completed its asset divestments.
What were the most successful investments by VinaCapital-managed funds during the year?
We were fortunate that our funds had a number of successes over the course of 2016. VOF made investments in An Cuong Woodworking and Thai Hoa Hospital. We also sold our stake in DHG Pharma at a large premium to market prices. VinaCapital also entered an exciting partnership with Warburg Pincus on a new hospitality platform focused on Southeast Asia.
Was there anything unsatisfactory?
When we evaluate potential investments, we do extensive research and due diligence, which is a very important part of the process but can sometimes take a lot of time. We need to find a way to accomplish the same results but in a shorter timeframe so that we don’t miss out on potential opportunities.
What investments will VinaCapital-managed funds look for in 2017? Why these investments?
From our funds’ perspectives, we continue to focus on companies that are participating in Vietnam’s strong domestic consumption story. That means companies in food and beverages, construction and materials, real estate developers, education, and healthcare. These sectors continue to post solid growth as Vietnamese seek to improve their living standards.
From an equity perspective, this could be more challenging in 2017, as price-to-earnings (P/E) ratios have risen. However, there are still many undervalued companies in the market. We are excited about the new opportunities we see for private equity investment. These are particularly interesting because we can play an active role in helping a company grow, generally have better investment terms, and tend to produce strong returns.
In terms of policy making, what major factors could affect the country’s business and investment environment from your perspective?
We believe that continued action to make doing business in Vietnam easier will benefit businesses of all sizes, both Vietnamese and foreign.
The continued equitization and listing of State-owned enterprises (SOEs) would be beneficial both to the stock market and the government treasury. Significant movements on this subject would build investor confidence and market liquidity.
Increased foreign ownership limits (FOLs) for banks could be a very positive and significant step in banking reform, as would regulatory changes that would enable the Vietnam Asset Management Company (VAMC) to better carry out its mandate of resolving non-performing loans.
What should authorities do to improve the country’s business and investment environment?
From our perspective, we believe that the government is moving in the right direction to facilitate further investment into Vietnam. We expect to see significant reforms that will help strengthen the banking sector, make private sector investment into infrastructure more attractive, and conduct equitizations and listings with greater transparency, less bureaucracy, and that are more in line with international standards.
If implemented correctly, changes like these could have a very positive impact in terms of healthier banks, a stronger economy, and higher investor confidence and participation.
Do you have any recommendations for business leaders in Vietnam for 2017?
This is a great time to be doing business in Vietnam. I would encourage Vietnamese business leaders to have the courage to innovate, to invest in areas such as technology and marketing to further build their brands. There are some great Vietnamese companies and brands, and they need to find new ways to compete with foreign companies who are attracted to this market.
What was VinaCapital’s greatest achievement in 2016?
We like to let our track record speak for itself. Beyond that, I would note that in 2016 we started work on several new products that we expect to launch this year. We are continually looking for innovative ways to enable investors to participate in Vietnam’s growth story.
Vietnam’s economy and markets continued to grow in 2016, although not at the same pace as the year before. With GDP growth for the year coming in at 6.2 per cent (vs. 6.7 per cent in 2015), the country continued to be one of the world’s outperformers and proved to be resilient despite a devastating drought in the first half of the year and global geopolitical upheaval. On the back of solid gains in 2016, we believe the pieces are in place for even stronger growth in 2017 – albeit with some new challenges on the horizon, such as higher interest rates.
Real estate sector: continued growth
Vietnam’s residential property market recorded a huge number of sales in 2015, and some observers believed that certain segments of the market were getting a bit frothy. The reality is, however, that home sales (and prices) remained stable over the course of 2016, and some observers have commented that 2016 was the best year in recent memory. Meanwhile, the commercial sector in Ho Chi Minh City continues to be strong, with little new supply coming on the market and increasing demand for premium office space. Likewise, industrial parks have seen solid demand as manufacturing continues to attract the vast majority of foreign direct investment.
With several property developers looking to raise capital in the year ahead – including Novaland, which listed in late December and is now the second-largest developer by market cap – and home sales still strong, we expect that the property market will continue to grow
in 2017, but perhaps in different directions. Less flashy than the upper-end of the industry
– but arguably more important – affordable housing developments will take on new prominence in the year ahead. With one of the highest rates of urbanization in the region, Vietnam’s urban population is expected to reach 50 per cent by 2040 (currently 30 per cent), and the World Bank estimates that Vietnam’s cities need to build 374,000 additional units each year “to cope with demand.” The country’s largest developer, Vingroup, recently announced an expansive nationwide affordable housing project that expects to construct up to 300,000 units starting at approximately $31,000 each; we expect other developers to follow suit.