Monday, June 19, 2017

Vietnam Opportunity Fund a way to buy Vietnam at a 20% discount

One of my long term investing themes is the continued modernization and urbanization of emerging and frontier market countries.

The inexorable rise of China over the last twenty five years has caused investors to look for countries starting from a small economic base with potential for long term growth and wealth creation.

I have been watching Vietnam for some time and have been investing in the country for a couple of years. The country has many interesting characteristics that cause me to believe that it is on a long term trend of consistent high growth.

One of the main things I look at when analyzing a country is the demographics of the country. Vietnam is a country of approximately 92 million people. This is a larger population than the UK, France, or Germany.

An important note about the population of Vietnam is that it is growing and mostly younger with the median age being 30 years old.

Vietnam demographic chart


The above chart indicates a country with more young people than older people. This is excellent because younger people spend more money. They are creating families, buying houses, cars, and having babies. They are consumers. One of the problems in the west is the demographic decline of its populations. Too many old people who do not spend money.

This younger population is coming of age right in the sweet spot of Vietnam's development as more of them continue to enter the middle class.

Vietnamese middle class in 2020 and 2030


As the chart from Nielsen shows Vietnam's middle class will grow to 44 million in 2020 and a whopping 95 million by 2030. This tsunami of middle class consumers should propel the Vietnamese economy for decades to come.

The country does have a communist form of government but I think the leaders are adopting the Chinese model of allowing capitalist enterprise as long as the communist party of Vietnam maintains political power.

Economic conditions and the business environment in the country continue to improve as Vietnam moved up nine spots on the World Bank's ease of doing business rankings. I expect the government will continue to make it easier for business to be conducted in the country. However, these things take time and the party will want to make sure reforms are done in an orderly manner such that political control can be maintained.

One of the best ways I have found to gain exposure to the growth of the Vietnamese economy is through shares of the Vietnam Opportunity Fund (OTCPK:VCVOF). The fund also trades on the London Stock exchange VOF.

VOF is a closed end fund and therefore is traded on a stock exchange. This has resulted in the price of the fund trading for below the net asset value of the fund for many years. The current discount to NAV is approximately 20%. This allows investors to buy $1.00 of a growing dynamic economy like Vietnam for $.80.

A couple of things to note about VOF. The first is that the fund managers are Vietnamese and based in Vietnam. This is a plus as they speak the language and are close to the action. The second important thing to note is that 8% of the funds assets are invested in private equity deals.

I like this fact as it gives the fund optionailty in pursuing investments that may be cheaper and have more upside than a regular equity investment. This may be part of the reason the shares sell at a discount.

The management of the fund recognizes the discount to NAV and has been a regular buyer of the funds shares in an attempt to narrow the NAV. Over time this will have a cumulative effect that should benefit shareholders. Link to recent fund report chock full of info on the fund and the Vietnamese economy and markets.

In conclusion I believe an investment in the Vietnam Opportunity Fund allows the average investor to have a stake in a dynamic emerging market that has decades of growth in front of it. Buying at a twenty percent discount to NAV is a great deal also.

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