Vibrance
Indochina Capital is one of the largest investment firms in Vietnam, with a focus on the property sector. Inside Investor wanted to know about the latest market developments from the company’s Managing Director Tony X. Diep.
Q: Could you give an outline of the competitive environment for asset management, investment and security broker firms in Vietnam?
A: The investment industry in Vietnam has developed significantly over the last 10 years. The first and early entrants remain key players who have grown alongside the development of the financial markets. They include Indochina Capital, Dragon Capital, Vinacapital , and Mekong Capital. Most fund managers manage foreign money for foreign high-net worth or institutional investors. Local money is from predominantly retail investors, partially due to the fact that the legal framework around a local fund is still under developed. In addition, professional asset management service is still an alien concept to local investors. Many believe they can invest their own money. The legal framework will also need to be better developed to give local investors comfort in the domestic fund management business. Local brokers dominate the brokerage market, the most prominent being HSC, SSI and Vietcapital Securities.
Q: What are the best blue chips at the Hanoi and HCM stock exchanges?
A: The best blue-chips in Vietnam are mainly listed on HCM Stock Exchange, they are the market leaders in their industries with established brands and are financially strong with long-term track records of creating shareholder values. Some of the most notable ones include:
- Viet Nam Dairy Products (VNM): the country’s leading dairy player with an overall market share over 49 per cent and an extensive distribution network. VNM has been reporting impressive growth over the years and is expected to continue its excellent growth story in the years to come thanks to Vietnam’s demographic and relatively low per capita milk consumption. The company is expected to grow by 20% pa going forward.
- DHG Pharma (DHG): DHG is the largest local pharmaceutical company in Vietnam with an extensive distribution network and the strongest brands in pain relief and antibiotics product lines. It is also one of the most profitable companies with ROE of approx. 29 per cent, 4-year CAGR for EPS at 39 per cent. We expect the company to continue to grow at 20 per cent annually in the coming years.
- Refrigeration Electrical Engineering Corp (REE): REE is a home-appliance, construction and real-estate company. Within the real estate sector, it owns and operates a number of office buildings. Its operating assets have more than 80 per cent occupancy, generating stable cash flow and accounting for 50 per cent of total net profit. REE is also a pioneer investor in infrastructure development in Vietnam.
Q: Who are your main global partners in the financial services sector?
A: Our key global partners include HSBC as a custodian bank and KPMG as auditor. Brokers include local top brokers like HSC, SSI and Vietcapital Securities. We also co-manage a Japanese listed open-ended fund with Capital Asset Management, which is a Japanese asset manager. The fund focuses on the Vietnamese, Indonesian and Philippines markets. ORIX is a significant minority investor, and Marc Faber is our Chairman.
Q: What are the most popular investment funds you are offering?
A: We offer separately managed account services where we can tailor the investment strategies to suit each individual investor. Our vehicles also allow investors the opportunity to reduce their administrative burdens. As mentioned above, we manage the Vietnam allocation of ASEAN-VIP fund which is a Japanese listed open-ended fund with focused on Vietnam, Indonesia and the Philippines.
Q: In which main assets is Indochina Capital invested, in Vietnam and abroad?
A: Indochina Capital currently manages three private equity real estate funds totalling close to $500 million. The real estate funds are focused on the Vietnamese real estate market. We use the funds’ proceeds along with pre-sales and debt financing to develop approximately $1.8 billion of real estate. We have developed across sectors including residential, office, retail, hotels and industrial parks and have a nationwide footprint. In addition to the real estate funds, we are in the process of raising a fund to focus on renewable resources in the Mekong Region. We already have a $50 million funding commitment from the Overseas Private Investment Corporation. At the corporate level, we have invested our own capital in a proprietary account focused on Vietnamese listed equities
Q: What is your advice for property investment in Vietnam?
A: Short term, the market remains challenging given the supply-demand imbalance. The outstanding stock of unsold condos in Hanoi is around 20,000 and in HCMC it is around 35,000. Many of the units are in the low to mid-range segments developed by inexperienced less reputable local developers. With still high interest rates, there is a crowding out investment effect as investors prefer to keep their money in the bank as opposed to buying real estate – though rates have been going down. Given the large stock of unsold inventory, developers have had to cut prices on most inventory. There is high office vacancy of 21 per cent though it is trending in the right direction – it was 37 per cent in the fourth quarter of 2012. Take up remains strong as less supply is introduced and as rents are falling. Though still high, retail sales growth have slowed relative to last few years as consumers tighten their budget. Better malls continue to differentiate themselves, and new retailers like Starbucks and McDonalds are entering the market and will look for good retail locations. However, in the long term, the underlying fundamentals for real estate investments in Vietnam are still very attractive. There is a young and large population looking to form families, and rapid urbanisation creates opportunities in the residential sectors. There is also a very high retail growth of between 16-20 per cent per annum. The entry of new retailers and the shift towards modern shopping conveniences create opportunities in the retail sector. Many local companies are transitioning from shop houses to modern offices, and more multinationals will be attracted to Vietnam’s growth which will create opportunities in the office sector. Last but not least, natural beauty and cultural charms have a lot of tourism potential. Vietnam attracted a record 6.85 million international visitors in 2012, a 14 per cent increase from 2011, and is expected to attract 7.3 million tourists in 2013. This is up from 4 million in 2007
Q: What are your services for corporations and institutional investors?
A: We can provide managed accounts services for our investors where we use our local market knowledge to outperform the market. Our team is led by two local Chartered Financial Analysts who have significant Vietnam market investment experience. In addition, we can provide administrative services to allow investors to access the market without having to deal with the administrative burden. Our minimum investment size is only $500,000 which allows investors to sample the market before making a significant investment.
Q: How would you assess the current situation with spiraling bad loans in the banking sector impacting Vietnam as an investment destination?
A: The biggest impact that the bad loan crisis is having on the market is the slowdown in credit growth. This subsequently led to the slowest GDP growth rate since 1999 with 5.03 per cent in 2012. As such, they make investing in the banking and real estate sectors more risky as the actual amount of bad loans is unknown. Until it is resolved properly, this non-perfomring loan issue will prevent bank credits to flow smoothly in the economy to support growth. The Vietnamese government has keen on this issue and has been taking measures to tackle it including making commercial banks stricter in provisioning and proceeding with the establishment of a national asset management company to deal with this situation. However, it would be short-sighted to only focus on the bad debt situation when one is assessing the Vietnamese market. The government has done a tremendous job of bringing inflation from over 18 per cent in 2011 down to 6.8 per cent in 2012. The trade balance posted its first trade surplus since 1993 and the level of foreign currency reserves has increased. The currency has appreciated against the US dollar, and the government appears serious to tackle the bad debt situation as it is reforming the stock market to allow foreigners more access to local companies by increasing the foreign ownership limits. The market is off to a fast start of over 9 per cent year-today with growth through the first three weeks of 2013.
Q: How would you recommend leveraging against inflation spikes when investing in Vietnam?
A: Even though the question is about inflation spikes, it should be noted that the Vietnamese government has been doing a better job curbing inflation and stabilizing the dong value over the past year with a consumer price index growth rate in 2012 at 6.8 per cent versus over 18 per cent in 2011, and the dong value is actually appreciating slightly against the US dollar, by 1-2 per cent in the year 2012. This signals a lower level of inflation and exchange rate risk for foreign investors in Vietnam. The government has demonstrated its willingness to trade growth for more economic stability and less inflationary pressure. As typically hedging instruments are limited and are expensive when available, one should consider other natural hedges against inflation: As inflation may lead to a devaluation in the currency, investors may want to invest in export oriented companies which would benefit from a devaluation in the local currency. With higher inflation, there will be higher interest rates so investors should look for solid companies with less leverage and/or cash. Real estate acts as a hedge as prices may go up in an inflationary environment. Another method is structuring the investment through a vehicle that will allow for an offshore exit in US dollar, as typically done with real estate investments. It should also be noted that the government is looking to introduce more derivatives instruments in the near future which would allow costs to come down.
Q: What are your predictions for the VN-Index in 2013?
A: We expect the stock market to end the year higher though given the high volatile nature of the market, there will be will peaks and valleys throughout the year. Many of the underlying market fundamentals have improved significantly over the past year while lower interest rates and tax incentives should spur spending which will lead to growth. However, market participants will be watchful of policy moves, including the banking reforms and how the government deals with non-performing loan problems. Another catalyst will be reforms in the stock market, most remarkable and most anticipated is the lifting up of foreign ownership limit. An additional 10 per cent foreign ownership has been in discussion. It is expected that the implementation will be in first quarter of 2013. We believe the VN-Index could go up another 20 per cent to over 550 points during 2013, or around 32 per cent year-on-year.
[caption id="attachment_6750" align="alignleft" width="282"] Tony X. Diep, Managing Director Indochina Capital[/caption] Indochina Capital is one of the largest investment firms in Vietnam, with a focus on the property sector. Inside Investor wanted to know about the latest market developments from the company's Managing Director Tony X. Diep. Q: Could you give an outline of the competitive environment for asset management, investment and security broker firms in Vietnam? A: The investment industry in Vietnam has developed significantly over the last 10 years. The first and early entrants remain key players who have grown alongside the development of the financial markets. They...
Indochina Capital is one of the largest investment firms in Vietnam, with a focus on the property sector. Inside Investor wanted to know about the latest market developments from the company’s Managing Director Tony X. Diep.
Q: Could you give an outline of the competitive environment for asset management, investment and security broker firms in Vietnam?
A: The investment industry in Vietnam has developed significantly over the last 10 years. The first and early entrants remain key players who have grown alongside the development of the financial markets. They include Indochina Capital, Dragon Capital, Vinacapital , and Mekong Capital. Most fund managers manage foreign money for foreign high-net worth or institutional investors. Local money is from predominantly retail investors, partially due to the fact that the legal framework around a local fund is still under developed. In addition, professional asset management service is still an alien concept to local investors. Many believe they can invest their own money. The legal framework will also need to be better developed to give local investors comfort in the domestic fund management business. Local brokers dominate the brokerage market, the most prominent being HSC, SSI and Vietcapital Securities.
Q: What are the best blue chips at the Hanoi and HCM stock exchanges?
A: The best blue-chips in Vietnam are mainly listed on HCM Stock Exchange, they are the market leaders in their industries with established brands and are financially strong with long-term track records of creating shareholder values. Some of the most notable ones include:
- Viet Nam Dairy Products (VNM): the country’s leading dairy player with an overall market share over 49 per cent and an extensive distribution network. VNM has been reporting impressive growth over the years and is expected to continue its excellent growth story in the years to come thanks to Vietnam’s demographic and relatively low per capita milk consumption. The company is expected to grow by 20% pa going forward.
- DHG Pharma (DHG): DHG is the largest local pharmaceutical company in Vietnam with an extensive distribution network and the strongest brands in pain relief and antibiotics product lines. It is also one of the most profitable companies with ROE of approx. 29 per cent, 4-year CAGR for EPS at 39 per cent. We expect the company to continue to grow at 20 per cent annually in the coming years.
- Refrigeration Electrical Engineering Corp (REE): REE is a home-appliance, construction and real-estate company. Within the real estate sector, it owns and operates a number of office buildings. Its operating assets have more than 80 per cent occupancy, generating stable cash flow and accounting for 50 per cent of total net profit. REE is also a pioneer investor in infrastructure development in Vietnam.
Q: Who are your main global partners in the financial services sector?
A: Our key global partners include HSBC as a custodian bank and KPMG as auditor. Brokers include local top brokers like HSC, SSI and Vietcapital Securities. We also co-manage a Japanese listed open-ended fund with Capital Asset Management, which is a Japanese asset manager. The fund focuses on the Vietnamese, Indonesian and Philippines markets. ORIX is a significant minority investor, and Marc Faber is our Chairman.
Q: What are the most popular investment funds you are offering?
A: We offer separately managed account services where we can tailor the investment strategies to suit each individual investor. Our vehicles also allow investors the opportunity to reduce their administrative burdens. As mentioned above, we manage the Vietnam allocation of ASEAN-VIP fund which is a Japanese listed open-ended fund with focused on Vietnam, Indonesia and the Philippines.
Q: In which main assets is Indochina Capital invested, in Vietnam and abroad?
A: Indochina Capital currently manages three private equity real estate funds totalling close to $500 million. The real estate funds are focused on the Vietnamese real estate market. We use the funds’ proceeds along with pre-sales and debt financing to develop approximately $1.8 billion of real estate. We have developed across sectors including residential, office, retail, hotels and industrial parks and have a nationwide footprint. In addition to the real estate funds, we are in the process of raising a fund to focus on renewable resources in the Mekong Region. We already have a $50 million funding commitment from the Overseas Private Investment Corporation. At the corporate level, we have invested our own capital in a proprietary account focused on Vietnamese listed equities
Q: What is your advice for property investment in Vietnam?
A: Short term, the market remains challenging given the supply-demand imbalance. The outstanding stock of unsold condos in Hanoi is around 20,000 and in HCMC it is around 35,000. Many of the units are in the low to mid-range segments developed by inexperienced less reputable local developers. With still high interest rates, there is a crowding out investment effect as investors prefer to keep their money in the bank as opposed to buying real estate – though rates have been going down. Given the large stock of unsold inventory, developers have had to cut prices on most inventory. There is high office vacancy of 21 per cent though it is trending in the right direction – it was 37 per cent in the fourth quarter of 2012. Take up remains strong as less supply is introduced and as rents are falling. Though still high, retail sales growth have slowed relative to last few years as consumers tighten their budget. Better malls continue to differentiate themselves, and new retailers like Starbucks and McDonalds are entering the market and will look for good retail locations. However, in the long term, the underlying fundamentals for real estate investments in Vietnam are still very attractive. There is a young and large population looking to form families, and rapid urbanisation creates opportunities in the residential sectors. There is also a very high retail growth of between 16-20 per cent per annum. The entry of new retailers and the shift towards modern shopping conveniences create opportunities in the retail sector. Many local companies are transitioning from shop houses to modern offices, and more multinationals will be attracted to Vietnam’s growth which will create opportunities in the office sector. Last but not least, natural beauty and cultural charms have a lot of tourism potential. Vietnam attracted a record 6.85 million international visitors in 2012, a 14 per cent increase from 2011, and is expected to attract 7.3 million tourists in 2013. This is up from 4 million in 2007
Q: What are your services for corporations and institutional investors?
A: We can provide managed accounts services for our investors where we use our local market knowledge to outperform the market. Our team is led by two local Chartered Financial Analysts who have significant Vietnam market investment experience. In addition, we can provide administrative services to allow investors to access the market without having to deal with the administrative burden. Our minimum investment size is only $500,000 which allows investors to sample the market before making a significant investment.
Q: How would you assess the current situation with spiraling bad loans in the banking sector impacting Vietnam as an investment destination?
A: The biggest impact that the bad loan crisis is having on the market is the slowdown in credit growth. This subsequently led to the slowest GDP growth rate since 1999 with 5.03 per cent in 2012. As such, they make investing in the banking and real estate sectors more risky as the actual amount of bad loans is unknown. Until it is resolved properly, this non-perfomring loan issue will prevent bank credits to flow smoothly in the economy to support growth. The Vietnamese government has keen on this issue and has been taking measures to tackle it including making commercial banks stricter in provisioning and proceeding with the establishment of a national asset management company to deal with this situation. However, it would be short-sighted to only focus on the bad debt situation when one is assessing the Vietnamese market. The government has done a tremendous job of bringing inflation from over 18 per cent in 2011 down to 6.8 per cent in 2012. The trade balance posted its first trade surplus since 1993 and the level of foreign currency reserves has increased. The currency has appreciated against the US dollar, and the government appears serious to tackle the bad debt situation as it is reforming the stock market to allow foreigners more access to local companies by increasing the foreign ownership limits. The market is off to a fast start of over 9 per cent year-today with growth through the first three weeks of 2013.
Q: How would you recommend leveraging against inflation spikes when investing in Vietnam?
A: Even though the question is about inflation spikes, it should be noted that the Vietnamese government has been doing a better job curbing inflation and stabilizing the dong value over the past year with a consumer price index growth rate in 2012 at 6.8 per cent versus over 18 per cent in 2011, and the dong value is actually appreciating slightly against the US dollar, by 1-2 per cent in the year 2012. This signals a lower level of inflation and exchange rate risk for foreign investors in Vietnam. The government has demonstrated its willingness to trade growth for more economic stability and less inflationary pressure. As typically hedging instruments are limited and are expensive when available, one should consider other natural hedges against inflation: As inflation may lead to a devaluation in the currency, investors may want to invest in export oriented companies which would benefit from a devaluation in the local currency. With higher inflation, there will be higher interest rates so investors should look for solid companies with less leverage and/or cash. Real estate acts as a hedge as prices may go up in an inflationary environment. Another method is structuring the investment through a vehicle that will allow for an offshore exit in US dollar, as typically done with real estate investments. It should also be noted that the government is looking to introduce more derivatives instruments in the near future which would allow costs to come down.
Q: What are your predictions for the VN-Index in 2013?
A: We expect the stock market to end the year higher though given the high volatile nature of the market, there will be will peaks and valleys throughout the year. Many of the underlying market fundamentals have improved significantly over the past year while lower interest rates and tax incentives should spur spending which will lead to growth. However, market participants will be watchful of policy moves, including the banking reforms and how the government deals with non-performing loan problems. Another catalyst will be reforms in the stock market, most remarkable and most anticipated is the lifting up of foreign ownership limit. An additional 10 per cent foreign ownership has been in discussion. It is expected that the implementation will be in first quarter of 2013. We believe the VN-Index could go up another 20 per cent to over 550 points during 2013, or around 32 per cent year-on-year.
