Dear Investors and Newsletter Readers,
Ruchir Desai, Co-Fund Manager of the AFC Asia Frontier Fund, travelled to Hanoi in January 2024 and Ho Chi Minh City in February 2024 to attend investor conferences and meet with portfolio companies.
Though Vietnam is one of the better long-term structural stories within the frontier and emerging market universe, it is fair to say that its economy and stock market have had a challenging time in 2022 and 2023. Hence, it was good to be on the ground at the start of the year to get a feel for how the economy is doing and whether investor sentiment has improved since my last visit in 2023.
In 2022, like many other economies in the world, Vietnam was negatively hit by the aggressive interest rate hikes by the U.S. Fed, which led the State Bank of Vietnam to increase its benchmark interest rates by 200 basis points within a span of two months – a significant negative shock for the stock market sentiment in the country.
Furthermore, the government’s crackdown on the corporate bond and real estate sectors in the same year did not help matters. The regulatory oversight of the corporate bond and real estate sectors is part of a larger anti-corruption drive by the government that has ensnared individuals from both the private and public sectors, and this has also been an overhang on domestic investor sentiment in the last two years.
Earlier this week, the country’s President had to tender his resignation, most likely due to the ongoing government crackdown on corruption. This only shows how deep and serious the anti-corruption crackdown is this time in Vietnam.
However, the position of the President is largely ceremonial, and we do not believe this will impact the investment case for Vietnam as the government realises the importance of long-term economic growth backed by exports, the manufacturing sector, and domestic consumption.
Therefore, we are not worried that the Vietnamese government will rock the boat so hard that it will hurt the long term economic development of the country.
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