Having this week launched a Ucits fund focused on Vietnamese equities, the first of its kind in Vietnam, Dragon Capital is mulling putting other Asean strategies on the Ucits platform, which may eventually also offer third-party products.
Vietnam is undergoing a number of significant regulatory changes, which include allowing domestic investment managers to set up open-ended and exchange-traded funds (ETFs). Although the country’s State Securities Commission passed these regulations in 2012, Dragon and other local houses – such as Vietfund Management, Vinawealth and Military Bank Fund Management – have only recently launched open-end funds, AsianInvestor understands.
However, Ho Chi Minh City-based Dragon’s product is the only to be Ucits-compliant, says Dragon CEO Dominic Scriven. The firm aims to launch more Ucits funds before partnering with other firms and is mulling funds invested in other neighbouring Southeast Asian countries, he adds.
“For us the key driver [now] is Vietnam,” Scriven says. “But we are interested in looking at other ways of providing properly regulated investment access to different parts of emerging Asia.” He declined to offer a timeline for when it will launch the other Ucits strategies.
However, Dragon earlier this year shuttered an IndoChina strategy it had been working on with Frontier Investment & Development Partners due to low investor demand.
Scriven acknowledges raising money for emerging market strategies is difficult, noting that “the bloom is a little off the rose” in the region. Billions have been yanked from EMs this summer, on the back of inflation worries, depreciating currencies and the US Federal Reserve tapering quantitative easing.
“This year, specifically the last quarter or two, has been very tough for emerging markets,” Scriven says. “But when people get back out from under their desks, Asean is a very interesting proposition [for global institutions]”.
However, Vietnam has withstood recent volatility well, he notes, when compared to Indonesia, for example. The Vietnam Ho Chi Minh Stock Index is up 15% year-to-date (September 23), which Dragon attributes to strong export numbers and positive economic policies from the government.
“Vietnam is undergoing a phase of reforms to stabilise the economy,” says Scriven. “This points to a significant turnaround in its economic fortunes and should prompt a reassessment of the country’s still-powerful growth drivers: ideal demographics, an increasingly skilled labour force, a strong work ethic, political stability and ongoing foreign direct investment.”
The country also stands to benefit from China’s move to shift from an export-driven model to one focused on consumption, he says, adding that in some ways, Vietnam is replacing China as the world’s leading manufacturing centre. For example, Samsung produces half of its global smart phones in Vietnam, while Nokia and Intel also have large manufacturing facilities in the country.
Vietnam’s participation in the Trans-Pacific Partnership (TPP) – a free-trade agreement between the US, Australia, Brunei, Chile, Malaysia, New Zealand, Peru and Singapore – stands to benefit local companies, as it will raise the profile of its garment, textile and manufacturing capabilites.
“A lot of Chinese, Korean and Taiwanese textile companies are relocating to Vietnam,” Scriven adds. These companies hope that through the TPP, they will have “direct access to the US market”.
Cheap labour in the country also makes it an appealing location to set up manufacturing centres.
The Vietnam Equity Ucits Fund will chiefly invest in stocks listed on the local exchange, or other companies with significant exposure to the country, with a smaller portion allocated to local sovereign and corporate bonds.
Quynh Le is lead portfolio manager for the fund, which has an investment minimum of $25,000 and annual management fees of 2%. Investors are a mix of Asian and European private banks and wealth managers.
There are a number of initiatives to encourage foreign investment into the country at the moment. Local regulators in March aimed to raise foreign voting ownership limits for listed companies to 59% from 49% via non-voting depository receipts. There is also a scheme whereby companies meeting as-yet-unspecified criteria automatically get 10% more foreign voting room.