PXP plans to list new Vietnam fund on SGX

What better time to introduce a product investing in ôthe worldÆs worst stockmarketö?
Ho Chi Minh City-based PXP Asset Management is in discussions with the Singapore Stock Exchange (SGX) and the Monetary Authority of Singapore regarding the listing of a closed-end mutual fund to invest in Vietnam equities and pre-IPO deals.

This would be the first Vietnam fund to be listed in the region, and is PXPÆs fourth mutual fund. The firm initially considered a rights issue on its third fund, the $70 million Vietnam Lotus Fund, which was due to close on 31 March. The month of March was so awful for the Vietnam stockmarket that it would have entailed a substantial discount, says Kevin Snowball, director at PXP, so the Lotus fundÆs maturity was postponed.

ôLaunching a new fund means it wonÆt be sensitive to current NAVs,ö he says.

So far all the other listed Vietnam funds are to be found in Dublin (Dragon Capital, DWS, Prudential Asset Management and PXP), LondonÆs Alternative Investments Market (VinaCapital, Vietnam Holdings) or the London Stock Exchange (Indochina Capital).

PXP is keen to list a product in Singapore in order to widen the investor base to Asian retail and institutions, particularly in Taiwan and Singapore, which are major sources of current portfolio and direct investment into Vietnam. An SGX listing would allow for trading in the Asian time zone as well.

The firm is in talks with investment bankers that would place the fund, to be called the PXP Value Opportunity Fund, but Snowball declined to name them. The closed-end fund will raise a maximum of $200 million and has a 10-year maturity, with annualised open-ending votes every year after 2013. He hopes the fund can list by the end of May. PXP manages $350 million in six funds, of which three are under its own name and three are white labelled for other management companies.

Snowball acknowledges that ôVietnam is the worldÆs worst-performing stockmarket in 2008 to dateö. After the index peaked in March 2007 at nearly 1,200, it wobbled for a while and then began a decline that, in March 2008, turned into a rout, ending now at 529, the same level from which it began a meteoric rise in the spring of 2006.

ôThe market suffered complete capitulation in March because of panicking retail investors,ö Snowball says. ôThis is typical for an emerging market: overshooting on the way up, and then overshooting on the way down.ö

He reckons while the market may not repeat the fireworks of 2006 and early 2007, it should still enjoy above-trend growth. The macro picture is still intact, with 10-year annual GDP growth of 7.5%, thanks to domestic demand and foreign direct investment.

The demographics are very favourable to continued growth although inflation is now a worry û rising food prices for a country with a per-capita annual income of $850 can pose serious challenges to policymakers. And rising oil prices and VietnamÆs reliance on foreign refineries mean it is about to switch from becoming an oil exporter to a net importer. Growth this year will slow and its current-account deficit, which doubled last year, will continue to rise.

Nonetheless the market may have hit bottom, growth does continue and the government has little choice but to continue privatisation: it needs the money to pay for its trade deficit. More banks, telecom companies and other attractive assets are on the block. The market is also now quite cheap, trading at around 13x 2008 estimated earnings.

Moreover, the government will have to become more realistic about how it prices these deals: Vietcombank just barely got done in late 2007, while Saigon Brewery and Hanoi Brewery were heavily undersubscribed in February. Hanoi Brewery was valued at 40x 2008 earnings û a huge mismatch compared to the inexpensive secondary market.

Snowball says the government is also considering relaxing ownership limits on foreigners, which would also give the market a boost. Today, foreigners can own up to 30% of a bank and 49% of other listed companies. The government may relax the 49% limit on non-strategic sectors û although that may not include most of the bigger companies, which tend to be state-owned. ôThe government can improve the free float without having to sell companies,ö he says.

The market remains very small, so it wouldnÆt take much to get the index going up again. The Saigon market has over 150 listed companies and three listed funds, with a total market capitalisation of $15 billion û although only 10 stocks have a market cap of $500 million or more, and only three over $1 billion. The bourse also needs to be modernised, to handle rising trading volumes; the collapse in March strained the marketÆs capacity. It has signed MOUs with many foreign stock exchanges and is looking at various models.
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