Vietnam Enterprise Investments Regulatory News (VEIL)

13 July 2022

Vietnam Enterprise Investments Limited

("VEIL" or "the Company")

Monthly Update

-7.3% NAV Return in June 2022

VEIL is a closed-end fund investing primarily in listed equity in Vietnam, and a FTSE 250 constituent. The Company's NAV performance for June 2022 is set out in this notice.

Fund Performance

· As of 30 June, VEIL's NAV decreased 7.3% over the previous month against a fall of 7.6% for its reference index, the Vietnam Index, both in US dollar terms.

· The Company's NAV per share was US$9.76 as of 30 June, and its total NAV was US$2.0bn (£1.7bn).

· VEIL's NAV per share performance was -20.5% over three months, -17.2% over one year and +48.3% over three years. Over the same time periods, the performance of the Vietnam Index was -20.9%, -14.9% and +32.3%, respectively.

· The Company's share price decreased by 5.8% in June and 20.8% YTD, and its discount to NAV as of 30 June was 15.9%, compared with 17.9% at the end of May.

· The Company repurchased 194,169 shares in June, to be held in treasury, compared with 1,051,782 shares repurchased in May. As of 30 June 2022, 2.3% of issued shares have been repurchased since 1 January 2022.

Dien Vu, the Portfolio Manager of VEIL commented:

"The apparent disconnect between Vietnam's economic strength and market performance continues; this follows the announcement of a globally envious 7.7% growth in in GDP for Q2 2022 and 6.4% for H1 2022. The domestic market's response has so far been muted, which the Investment Manager largely attributes to well-documented global pressures, as well as domestic events, namely the investigations into market abuse in March and April (mentioned in previous monthly releases). That said, retail investors account openings have totalled 943k in the last two months (a record of 477k in May and a close second at 466k in June), and 1.9m for the first half of 2022; this is equivalent to the total number of accounts opened in the first 18 years of Vietnam's capital markets.

Thus, with Vietnamese retail investors playing an increasing role in valuations, we attribute the market response to private investors remaining on the sidelines until clarity emerges in the global economy. As this could be a protracted wait, it is possible that valuations over the near term are unlikely to reflect accurately the strength of the economy and its individual components. 

Looking beyond the impact that global pressures are having on short term volatility, the secular themes in the economy remain evident in Vietnam's H1 2022 macroeconomic numbers. Notably: 

· Total industrial output climbed by 8.5% and exports grew 17.3%, resulting in a swing to a trade surplus of US$1.1bn versus a deficit of US$1.9bn the prior year. 

· FDI disbursement reached US$10.1bn, up 8.9% year-on-year and a record level for this stage in the year.

· The service sector grew 8.6% year-on-year in the second quarter and 6.6% in first half of 2022 on the back of solid local consumption.

· Total retail sales of goods recovered impressively in the second quarter with an increase of 19.7% year-on-year in Q2 2022 and 11.4% year-on-year for H1 2022.

Crucially, neither domestic consumption nor Vietnam's role in the supply chain look threatened by inflation at present. The headline inflation rose by 0.7% month-on-month and 3.4% year-on-year, mainly due to an increase of 8.2% month-on-month and 61.6% year-on-year in petroleum prices, accounting for more than half of the increase. With the sting of the price at the pump being felt by consumers, the government used its fiscal capacity to cut petrol taxes to reduce the pressure earlier this week. 

Thus, the Investment Manager retains its forecast for FY 2022 GDP growth of 7.0-8.3%, and going by Q2 2022 results there is a good chance this will lean towards the upper boundary. FDI disbursement remains a key driver in its realisation, and the news that the Chinese company BYD is relocating the manufacturing of iPads from China to Vietnam reflects the emerging recognition of the complementary role that the two nations can play as manufacturing hubs, and the ever-greater sophistication of Vietnamese manufacturing capacity. 

Nevertheless, despite this solid GDP growth and continued FDI inflow, which were two of the catalysts cited by the recent S&P Global upgrade to one notch below investment grade, we believe there could be a lag between the continuing demonstration of Vietnam's strength and its pricing being reflected in its capital markets."

Economic Overview

· Vietnam's GDP growth registered at 7.7% in Q2 2022 - the highest second quarter growth in eleven years

· H1 2022 GDP growth reached a three-year high of +6.4%, compared with H1 growth of 5.7% and 2.0% in 2021 and 2020, respectively

· A trade surplus of US$1.1bn was recorded for H1 2022, a big increase from the trade deficit of US$1.9bn in H1 2021

· Exports and imports in H1 2022 totalled US$186.0bn (+17.3% YoY) and US$184.9bn (+15.5% YoY)

· Disbursed FDI hit an H1 record high of US$10.1bn (+8.6% year-on-year) for the first six months of 2022

· The Vietnam Purchasing Manager's Index was 54.0 in June, a ninth consecutive monthly expansion

· Inflation has stayed under control, rising 0.7% month-on-month and 3.4% year-on-year.

· In June, the Vietnamese dong depreciated 0.4% against the US dollar, year-to-date depreciation is 2.3%.

June Commentary

Every sector in Vietnam's equity market experienced an overall decline in June, and nine of VEIL's top ten holdings also finished the month down, the outlier being Duc Giang Chemicals ("DGC").

DGC is a new holding for VEIL this year. It gained 12.6% for the month as the selling price for yellow phosphorus, which is used in semiconductors, remains relatively high compared to last year giving positive investor sentiment towards potential earnings going forward. As a beneficiary of the semi-conductor shortage, the company's outlook remains bright as Q2 2022 is expected to be another strong quarter on the back of demand for its industrial phosphorous chemical and high output prices. In June, DGC also started its US$2.5bn investment in a bauxite-aluminum project in Dak Nong province (c. 250km from HCMC in the country's central highlands), which we believe will help secure the company's medium-to-long-term growth.

Vietnam's leading steel producer Hoa Phat Group fell further as the tough year for the company continues, despite H1 2022 sales volumes being up +5.6% year-on-year. While this may be seen as an indicator that domestic demand remains resilient, the Investment Manager will monitor the situation carefully given unfavourable selling prices and rising input costs.

Vinhomes ("VHM") had bucked the market's downtrend in May but was unable to escape the property sector's negative momentum in June. Whilst there was little company-specific news during the month, there was much talk and analysis regarding the tightening of liquidity in the sector, which the Investment Manager believes will reduce speculation from property developers while providing liquidity to developers capable of bringing supply to the market. VHM is the largest property developer in Vietnam, CBRE report the company has a 27% market share in apartments and a 19% market share in houses. Over the medium to long-term, the Investment Manager believes VHM is well positioned to benefit from the key structural growth trends of urbanisation and the emerging middle-class in Vietnam.

Top Ten Holdings (64.2% of NAV)

For further information, please contact:

Vietnam Enterprise Investments Limited

Rachel Hill

Phone: +44 122 561 8150

Mobile: +44 797 121 4852

rachelhill@dragoncapital.com

Jefferies International Limited

Stuart Klein

Phone: +44 207 029 8703

stuart.klein@jefferies.com 

Buchanan

Charles Ryland / Henry Wilson / George Beale

Phone: +44 20 7466 5111

veil@buchanan.uk.com

LEI: 213800SYT3T4AGEVW864