Lumen Vietnam Fund - Monthly Comment June 2023
Fund Commentary
Lumen Vietnam Fund (LVF) finished the month of June 2023 with a positive performance
of 3.84% MTD, bringing the YTD performance to +14.47% for USD Class R.
For comparison reasons, the Vietnam All Share Index (VNAS) increased +5.17% in June to
result in a +14.27% YTD performance.
Asset Class Performance in June 2023
Bloomberg US Treasury
Bloomberg Pan-European Aggr.
Bloomberg US Credit
Bloomberg Euro Aggr. Corp.
ICE BofA US High Yield
ICE BofA Euro High Yield Index
MSCI AC World (USD)
S&P 500
MSCI EMU
MSCI Switzerland
MSCI UK
MSCI Japan
MSCI EM (USD)
MSCI China
Gold – spot
Brent – spot
June 2023
-0.8%
-0.8%
0.3%
-0.4%
1.6%
0.5%
5.8%
6.6%
3.8%
0.4%
1.2%
7.7%
3.8%
4.4%
-2.2%
4.8%
YTD 2023
1.6%
1.8%
3.1%
2.2%
5.4%
4.4%
13.9%
16.9%
15.3%
7.3%
2.6%
23.8%
4.9%
-4.4%
5.6%
-5.8%
2Q2023
-1.4%
-0.1%
-0.3%
0.4%
1.6%
1.7%
6.2%
8.7%
2.7%
1.9%
-0.6%
15.6%
0.9%
-9.0%
-2.4%
-2.1%
Source: Bloomberg
Lumen Vietnam Fund - Portfolio Comments
The month of June ended with a strong performance for LVF, which can be attributed to
its strategic allocation in small & midcap stocks and successful stock picking in selective
sectors. Specifically, the Consumer Discretionary, Consumer Staples, and Materials sectors
performed well:
▪ The Materials sector experienced the highest performance during the month with +16.7%.
This was driven by increased public investment disbursement to improve the countries
infrastructure.
▪ Consumer Discretionary returned +13.2%, primarily due to the strong performance of ICT
retailers/distributors. This segment is expected to benefit from a lower interest rate
environment for the near future, indicating a potential recovery in business for in the
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second half of 2023. LVF had an overweight position in the Consumer Discretionary
sector, allocating 7.3% compared to the VNAS's 5.1%.
▪ And finally, the Consumer Staples sector had a positive start in June with a +7.5% increase.
This is remarkable, as this sector under-performed in the recent past. We anticipate that
companies in this sector will surprise on earnings growth in Q2 and Q3 of this year,
supported by lower raw material prices.
▪ Apart from the sectors mentioned above, the Financials sector showed good
performance, increasing by 4.6% compared to VNAS.
Lumen Vietnam Fund - Portfolio Outlook
Starting from May 2023, the market began to show signs of a healthy recovery, supported
by a strong rebound in certain sectors. We believe the market's momentum will increase
in the time coming due to the following factors:
(i)
the Vietnamese government's decisive policy shift, which will help alleviate risks
associated with the property market and corporate bond market;
(ii)
government initiatives aimed at stimulating economic recovery in the second
half of the year, such as reducing interest rates and cutting the Value Added Tax;
and
(iii)
a positive turnaround in earnings growth expected from the second half of 2023
onwards, following a low base in the second half of 2022, ultimately leading to
a complete recovery in 2024 and beyond.
Lumen Vietnam Fund portfolio will maintain its strategy of a diversified investment
portfolio of 30 – 40 stocks, with particular focus event driven and special situations and on
the following key sectors:
▪ Financial sector/Banks: We will prioritize companies with appealing valuations and
significant potential for improving their business performance in the long term.
▪ Real Estate sector
a. Industrial Park segment: Our priority will be companies that owns large land banks
in strategically advantageous locations for future goods transportation. This sector
will continue to benefit from increased public investments and improvements in
Vietnam's business environment.
b. Residential real estate segment: We will prioritize companies that aim to develop
affordable housing products in the future and exhibit strong financial balance
sheets.
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▪
Industrials sector: Focus on leading transportation and logistics companies that
possess clear competitive advantages and are poised to benefit from future FDI
inflows.
▪
Energy sector: Our focus will be on companies that stand to gain from the
government's recent policies aimed at fostering long-term, stable development in the
whole industry.
▪
Consumer discretionary and consumer staple sectors: We will give priority to industry
leaders with diversified product portfolios, capable of adapting and flexibly
responding to new market conditions.
Lumen Vietnam Fund – Market Update
In this section, we will provide and update on the financial and real estate sector.
In June, the State Bank of Vietnam (SBV) had its fourth interest rate cut of 25bps to 50bps
resulting in an interest rate reduction of total 125bps to 200bps on different rates since
beginning 2023. One main reason for these four cuts is the country’s inflation well below
its target, with an average 1H2023 CPI of +3.3%. We think, the SBV has still room for another
rate cut of 25bps to 50bps in the second half of the year, depending on the global economy
and FED’s actions.
Figure 1: Vietnam’s interest rate cuts in 2023 (YTD)
As of
end 2022
14 March
2023
03 April
2023
23 May
2023
16 June
2023
YTD
change
Refinance rate
6.0%
6.0%
5.5%
5.0%
4.5%
-150bps
Discount rate
4.5%
3.5%
3.5%
3.5%
3.0%
-150bps
Overnight rate for interbank
payments
7.0%
6.0%
6.0%
5.5%
5.0%
-200bps
1- to 6-month term deposit cap rate
6.0%
6.0%
5.5%
5.0%
4.75%
-125bps
Source: SBV and VNHAM Research
Following these interest rate cuts, commercial banks have reduced term deposit rates by
an average of 90bps in 2Q20203 or 130bps YTD. State-owned commercial banks (SOCBs)
currently offer the lowest 12-month deposit rate of 6.3% by the end of June, an approximate
90bps YTD cut. On the other hand, private commercial banks even cut their 12-month
deposit rate by 150bps, on average, in the same period.
At the end of 1Q2023, 3-month term deposits and 12-month term ones accounted for 17.3%
and 44.6% of banks’ total deposits, respectively, per our banking coverage. These term
deposits will be matured from July 2023 and might switch to CASA or refinance at lower
rates, giving room for banks to improve net interest margin (NIM) or boost credit growth
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via lower lending rates. In another scenario, if these term deposits flow out of the banking
system, the stock market will be considered the most potential investment channel since
domestic investors still see the real estate sector unsafe.
Overnight interbank rates have recently stayed at low levels, equivalent to the COVID
period, to imply that banks have solid liquidity and no pressure on the deposit side.
Figure 2: Interest rate comparison
10
8
6
4
2
0
Jan 2021
Jul 2021
Jan 2022
Jul 2022
VND overnight rate
State-owned commercial banks
Small private banks
Jan 2023
Jul 2023
Fed funds rate
Large private banks
Source: Bloomberg and VNHAM Research
Thanks to the lower interest rates, the real estate market continues to recovery gradually.
Home buyers could access a more comfortable mortgage loan rate of 10% - 10.5% in June
compared to at least 12% - 13% or even above 15%, six months ago. As a result, some real
estate developers reported improving numbers in 2Q2023.
Nam Long Group (NLG: HOSE), a mid-end real estate developer, tripled its units sales in
2Q2023, with transaction value doubling t0 VND 422bn (USD 17.7mm). Dat Xanh Service
(DXS: HOSE), a real estate brokerage firm, had more than 1,000 real estate transactions in
2Q2023 while it transacted only 400 in 1Q2023. Even Nova Land (NVL: HSX), the stressed
dominant player, recently announced to re-launch several projects and negotiated with
bond holders for either term extensions or converting their principals into underconstruction real estate products.
Figure 3: NLG’s sales performance
Unit
Sales value (VND bn)
113
41
Southgate
66
9
20
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Akari City
232
64
Mizuki Park
76
16
20
96
77
1Q2023
April-May 2023
1Q2023
April-May 2023
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Vietnam’s credit volume grew +4% YTD, up from its 1Q2023 growth of +2.6% YTD. Credit
growth may not be as impressive as it did in previous years, but there is a mist behind the
number. Industry players explained the underlying reasons that real estate speculators had
to deleverage their investment assets and due to high interest rates; therefore, the amount
of advanced debt repayments was surprisingly high in 1H2023 (and thus less borrowing).
However, most local banks are confident of higher credit growth in the second half of 2023,
given gradually reducing lending rates and expected steady recovery of the real estate
market. SBV recently reaffirmed its 2023E credit growth of 14% to 15%.
Figure 4: Vietnam’s credit growth in the 2018-2023 period
16.0%
14.0%
3.4%
12.0%
4.0%
4.3%
5.1%
10.0%
2.7%
8.0%
1.5%
1.0%
6.1%
3.5%
1.4%
6.0%
4.3%
4.7%
3.6%
3.1%
4.0%
2.0%
0.0%
2018
(+13.9%)
2019
(+13.7%)
2.4%
3.5%
6.0%
2.3%
1.3%
2020
(+12.2%)
1Q
1.1%
3.0%
2.1%
2021
(+13.6%)
2Q
3Q
2022
(+14.5%)
2023
(target +14%-15%)
4Q
2Q2023 only included April and May 2023
Source: SBV and VNHAM Research
Lumen Vietnam Fund – Macro Update
Vietnam’s GDP grew +4.1% YoY in 2Q2023, an improvement from +3.3% in 1Q2023 to result
in 1H2023 GPD of +3.7%. There several reasons for this improvement:
The service sector was key growth driver in 2Q2023 with an increase of +6.1% YoY (1H2023
growth: +6.3% YoY) to contribute 78.9% to the overall 2Q2023 GDP growth. Additionally,
the industry and construction sector grew +2.5% YoY in 2Q2023, compared to a decline of 0.1% YoY in 1Q2023.
Vietnam gained further in trade surplus of USD 2.6bn in June to accumulate a 1H2023 trade
surplus to USD 12.3bn (1H2022 surplus: USD 1bn). In 2Q2023, exports reached USD 83.4bn
and increased +2.9% QoQ but dropped -14.2% YoY. The decline was heavily caused by
fisheries (-27.6% YoY) and electronic mobile devices (-24% YoY). Vietnam also reported
strong growth for some key export products in 2Q, including coffee (+17.3% YoY), rice
(+35.5% YoY), vegetables and fruits (+113.1% YoY). On the other hand, 2Q2023 imports
experienced a decrease of -22.3% YoY to USD 76bn.
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Figure 5: Monthly trade activities
40’000
40%
30’000
30%
20’000
20%
10’000
10%
0
0%
-10’000
-10%
-20’000
-20%
-30’000
-30%
Exports (monthly, USDmn, LHS)
Monthly exports growth (YoY, RHS)
Imports (monthly, USD mn, LHS)
Monthly imports growth (YoY, RHS)
Source: GSO and Vietnam Customs as of 30 June 2023
On the production side, Vietnam’s PMI rebounded to 46.2 in June from 45.3 in the previous
month. Reduction of new orders has remained the most concern in recent PMI reports.
Meanwhile, Vietnam’s Index of Industrial Production (IP) inched up +2.8% YoY in June (in
May +0.1% YoY), mainly thanks to increases of +2.9% YoY of the manufacturing sector and
+1.9% YoY of the mining sector.
Figure 6: Vietnam Manufacturing PMI
60
55
50
45
40
35
Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23
Source: GSO and Vietnam Customs as of 30 June 2023
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Figure 7: Vietnam Industrial Production index (monthly, YoY)
18%
13%
8%
3%
-2%
-7%
-12%
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Source: GSO and Vietnam Customs as of 30 June 2023
On the demand side retail sales of goods and services reached VND 506tn (USD 21bn), up
+6.5% YoY to yield 1H2023 retail sales growth of +10.9%. The 1H2023 growth was mainly
supported by the hotel and restaurant sector (+18.7% YoY) and the tourism sector (+65.9%
YoY).
Figure 8: Vietnam retail sales (YTD, YoY)
25%
22.8%
21.0%
20%
15%
12.4%
13.0%
10.4%
10%
12.1%
11.3%
12.1%
10.9%
8.4%
5%
2.3%
0%
-5%
-10%
2012
2013
2014
2015
2016
2017
2018
2019
2020
-7.8%
2021
2022
2023
YTD Total Retail Sales (%, YoY)
Source: GSO and Vietnam Customs as of 30 June 2023
Regarding inflation, June’s CPI only rose +0.3% MoM and +2.0% YoY to produce an average
1H2023 CPI of +3.3%. The key CPI drivers included education cost (+7.9% YoY in 1H2023) and
housing and construction materials (+6.6% YoY in 1H2023).
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Figure 9: Headline and Core CPI
20%
15%
CPI (YoY)
10%
Core CPI (YoY)
5%
0%
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
-5%
Source: GSO and Vietnam Customs as of 30 June 2023
In June, registered and disbursed FDI reached USD 2.6bn and USD 2.4bn, respectively, the
highest level in 2023. In the first six months registered and disbursed FDI were USD 13.4bn,
down -4.3% YoY and USD 10.0bn, up +0.5% YoY, respectively. Within the first months, the
manufacturing and processing sector continuously attracted the most FDI with total
registration of USD 8.5bn, equivalent to 63% of total registered FDI.
Figure 10: Registered and disbursed FDI (USD bn)
40
35.9
35.5
38.0
35
28.5
30
25
21.7
21.9
20
15
11.5
12.5
22.8
14.5
31.2
27.7
24.4
15.8
17.5
19.1
20.4
20.0
19.7
22.4
13.4
10.0
10
5
0
2013
2014
2015
2016
2017
2018
2019
2020
Registered FDI
Disbursed FDI
2021
2022
YTD
2023
Source: GSO and Vietnam Customs as of 30 June 2023
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