Thursday, May 5, 2016

Vietnam Opportunity Fund selling for a 25% of Net Asset Value

The Vietnam Opportunity Fund is a security I owned several years ago when the market in Vietnam bottomed after the last financial crisis. I made about a fifty percent gain and then decided to get out. I have revisited the fund and noticed that the fund is still selling at a discount to NAV.

The current discount to net asset value is approximately 25%. So in effect you are buying a $1.00 in assets for $.75. The fund is consistently buying back shares in the open market in order to close the gap. In fact they have bought back $236 million in shares since 2011. This is good because we want to see a catalyst for the discount between NAV and the share price to shrink.

The economy of Vietnam is growing quite nicely and the last GDP report showed a 7.0% growth rate. The lower oil price has really done great things for Vietnam as it is a net oil importer. The lowered oil price has also allowed for a quite low inflation rate of 1.8%.

Vietnamese shares in a trading range

Although the economy has done quite well over the last few years the stock market in Vietnam has basically been in a trading range. This is consistent with the general malaise we have seen in frontier and emerging market shares. However, sentiment towards these markets is beginning to turn and we are seeing money beginning to flow into these markets. Vietnam with its robust economic growth should be the beneficiary of these flows.

One of the things I like about VOF is the fact that the fund management is able to buy stakes in companies that do not trade on the exchange. This gives the fund a certain private equity component. This is also allows for optionality which I definitely am a fan of.

I like Vietnam for several reasons. It has a young population with about 40% of the people under 25 years old. I believe that demographics are destiny. Young people spend money on consumer goods, houses, children, etc...Vietnam is also another country that is experiencing a migration from rural areas to urban areas. This is also a big growth catalyst with all the infrastructure that goes along with this migration.

Overall I like this as a long term investment. Vietnam has years of growth ahead of it and the VOF is a vehicle to take advantage of the growth that is going to happen in Vietnam.

The stock trades in London but has a OTC listing in the US (VCVOF). There is not a lot of liquidity so if you are interested in buying this you must use a limit order.

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