I have been interested in and invested in Vietnam since the fall of 2006. I bought the Vietnam Opportunity Fund (VOF.L) at $2.48, sold half of it at $4.73 a few months later and still have some shares now trading at $1.99.The fund hovered along at down a little for the year before starting to swoon about a month ago, consistent with the VN Index which is down 59% YTD.
The GDP has been en fuego, but less than in China, which has proven too hot to handle as now inflation appears to be running at 25-30%.
As I wrote several times along the way about Vietnam, a destination like this is going to have huge booms and huge busts along the way.
The story on the ground, which of course includes the inflation right here right now, is still the same. An average age in the early 20's and a 70 million population in a country that will modernize and become more economically relevant.
I don't discount the luck factor in leaving me with just having the house's money left in the position.
There will soon be frontier market ETFs coming. It can be easy to forget but these things are not one-way trades. When the downturns come they are big and can last for a while.
None this means the asset class lacks viability but it hopefully makes the point for why I favor moderation in this sorts of themes. After selling down the position I was left with about a 1% portfolio weighting. If the fund had doubled again over the rest of 2007 it would have added 100 basis points to the overall portfolio which becomes a meaningful number when your benchmark is up mid single digits.
Obviously the fund did not double again. In dropping by 60% since that sale it has created a very small drag on the portfolio for the literal handful of clients that own it (I own it personally as well).
Vietnam going up a lot did not make the thesis right. Now that it is down a lot the thesis is not wrong. Committing to a frontier destination should be thought of as a very long term proposition that will not be right for everyone.
When the ETFs come out you need to really look in the mirror and know what you can withstand before buying one of them.
3 comments:
The problem is most of the frontier ETFs appear to contain 50+% EM nations. Admitedly "frontier" EM nations, but still EM. The problem is I'm not sure you can build a "scalable" ETF/index without them. It's hard to find frontier companies that won't be overwhelmed by index ownership.
http://socialize.morningstar.com/NewSocialize/blogs/M_Jeffrey/2520103/post.aspx
Paul
What do you think of the latest news coming from Vietnam? It sounds like they're on the verge of a currency crisis with a trade deficit running at 30% of GDP and the dong way overvalued. I'm a little worried it could cause a global financial event, let alone what it could do to Vietnam.
Matthew, the market has already cratered which is part of the process, I would not describe the action in the dong as a massive devaluing but that may come. This sort of thing has happened to countries before and will happen again. When it does happen it takes a while to build back up but at some point it becomes a great destination again. My exposure is so small that I am just not concerned about the time line but my sense of history suggests we might be 5 years from the story on the ground being reflected in stock prices again.
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