Why invest in Vietnam?

Vietnam has been rapidly developing over the last few decades, benefiting from global trade and significant foreign direct investment (FDI) by global companies setting up their manufacturing bases in the country. GDP growth in 2024 stood at 7%, fuelled by exports to the US. The recent threat by the US of 46% tariffs has resulted in uncertainty about Vietnam’s future development and competitive advantage. While the country’s future growth path uncertain, Dynam Capital (VNH’s investment manager) is confident that the government will be able to avoid the full implementation of tariffs.

VNH’s investment story

VNH positions its portfolio to benefit from the three main macroeconomic trends it sees in Vietnam: industrialisation, the rise in domestic consumption and urbanisation. These accounted for 92% of the portfolio at end February 2025 (including banks as a play on broad economic growth and excluding cash). VNH’s manager has identified 60–80 investable stocks in Vietnam, in which the trust rotates its portfolio of around 20–30 stocks. This approach and its small size allow VNH to quickly reposition its portfolio and the manager estimates that VNH can liquidate its portfolio within a month.

Politics should not distract investors from fundamentals…

Recent headlines have been dominated by US decisions on the introduction of tariffs to the vast majority of countries around the world, sending ripple effects across global markets, and suggesting long-term consequences for global supply chains and economies throughout the world. While Vietnam was among the countries with the highest suggested rate of tariffs (46%), we should not ignore this rapidly developing economy. Vietnam’s GDP increased by an impressive 7% in 2024 and the International Monetary Fund expects a further 6.1% growth for 2025, although this projection was published in October 2024, before the tariffs were announced. Vietnam’s government targets 8% GDP growth for 2025, which has been maintained despite the political turmoil.

The current global geopolitical environment is characterised by a high degree of uncertainty and subject to sudden changes. At the time of writing this report, the US has put a 90-day pause on the implementation of tariffs for all countries except China, which responded with retaliatory tariffs. The US openly indicates unfavourable trade balances as an ignition point for introducing tariffs (Vietnam’s imports from the US amounted to just 9% of its exports to the US in 2024), and Trump admits that good trade deals may be a starting point to renegotiate the tariffs, which prompted a long list of countries to initiate talks with the US. Importantly, Vietnam’s government reacted before the introduction of tariffs, meeting with US officials to discuss boosting imports of agricultural products and liquefied gas from the US. At the same time, the Civil Aviation Authority of Vietnam proposed recognising Chinese aircraft certifications to help diversify its aviation sector, strengthen regional ties and strategically counterbalance global trade risks. In addition, the construction of Starlink ground stations (Elon Musk’s satellite internet service) will begin in Vietnam in May or June, according to Reuters.

It is also important to note that during Trump’s previous term, Vietnam was a beneficiary of FDI by companies attempting to diversify their supply chains away from China, and this time the focus of the White House again seems to be China. Vietnam has very favourable demographics in terms of education, age and employment, as well as good economic relations with other countries in the region, which leads Dynam Capital to believe that over the long term Vietnam remains an attractive economy to invest in.

...even if the short-term threat is significant...

Vietnam’s economy is strongly reliant on exports (export to GDP ratio at 87% in 2023 according to the World Bank), and the United States is its main export partner, representing 29% of total exports volume in 2024. Were the tariffs implemented in full, it would put at risk US$63bn, or around 14% of Vietnam’s annual GDP. According to Oxford Economics, in their best case scenario (where America’s economy avoids a recession, its trading partners avoid retaliation and investment is not deterred by uncertainty) Vietnam’s GDP growth would be halved in 2026. We also need to highlight thesis put out by the US that Chinese goods are being repackaged in Vietnam and sold to the US to avoid tariffs put on China, which adds an additional layer to the political discussion. We should also note that some of the neighbouring countries are confronted with lower US tariff levels than Vietnam (such as Thailand (35%), Indonesia (32%), Malaysia (24%) and the Philippines (17%), also put on hold for the time being), which may influence investment decisions of companies considering developments in Southeast Asia.

In summary, the initial proposal by the US could be devastating for Vietnam in the short term, until it repositions its economy towards Asian economies, away from the US exports. This has been reflected in the Vietnam’s stock market (VNI index) plummeting 17% over the week following the announcement, as well as VNH’s NAV decreasing by 19% in the same period. On top of that, VNH shares have been subject to selling pressure as well, leading to discount widening to 13%. Over the last days the markets have somewhat moderated, but the outlook remains foggy.

...and Vietnam’s equities have de-rated

Vietnamese equities have experienced a notable de-rating amid capital outflows from South-East Asia. As of 15 April, the stocks are trading at 9.5x forward earnings, which is approximately 27% below their 10-year average (as measured by the country index provided by Datastream). While the future remains uncertain and consensus forecasts may be adjusted as the outlook becomes clearer, current valuation levels could present attractive opportunities for specialist investors like VNH which are adept at navigating such market conditions.

VNH’s main investment themes remain intact

Dynam Capital recognises three main development trends in Vietnam’s economy that provide the most investment opportunities: industrialisation, domestic consumption and urbanisation. These trends are unlikely to change regardless of the outcome of global geopolitical turmoil. As at end February 2025, 57% of VNH’s portfolio is allocated to these macro trends, supported by 35% exposure to banks, which act as a broad theme exposure to the growth of Vietnam’s economy.

Industrialisation: Global behemoths move production to Vietnam

Vietnam has been attracting significant volumes of FDI over the last few decades due to its open market policies and favourable business conditions (an abundant and well-educated workforce and relatively low labour costs), a process that has been amplified by global businesses diversifying their supply chains away from China. The FDI inflow to Vietnam amounted to US$25.4bn in 2024, 9.4% higher y-o-y. Meanwhile, FDI pledges, an indicator of future disbursements, increased by 3% in the previous year to US$38.2bn.

While large-scale investments were mostly targeted at manufacturing for exports, this has created an ecosystem of local supporting businesses, which form the majority of VNH’s exposure to the industrialisation theme (34% of the portfolio at end February 2025). Meanwhile, only 11% of VNH’s portfolio was directly exposed to exports, which VNH swiftly reduced recently, increasing its cash position to 7% at end March 2025. We believe VNH’s small size and nimbleness is a competitive advantage in times of uncertainty and heightened volatility. Currently, its key exposure to industrialisation is Vietnam’s largest steel producer, Hoa Phat Group, representing 6.1% of VNH’s NAV at the end of February 2025.

Domestic consumption: Population getting richer

Vietnam's economic landscape is characterised by a rapidly growing and increasingly affluent society. Since the turn of the century, the country's GDP per capita has risen at an average annual rate of 11% in US dollar terms (4.0% y-o-y in 2023), according to World Bank data. This economic momentum is supported by favourable demographics – with 15 births per 1,000 people (2023) and a high share (68% in 2023 according to World Bank) of the population falling within the working-age bracket – slightly lower than 69% in China (for reference, the ratio in the European Union stands at 64%). What differentiates Vietnam is that its population is active in employment, with its employment-to-population ratio of 73% surpassing China’s 63% (and the EU’s 54%). The combination of economic growth and demographic factors contributes to a rising middle class and higher disposable incomes, which leads to heightened domestic demand. VNH capitalises on this trend, with 17% of its portfolio invested in leading domestic consumption companies. Notably, its top 10 holdings include omnichannel and omni-sector retailer Mobile World Group (MWG, 7.7% of NAV as of end-February 2025), jewellery producer and distributor Phu Nhuan Jewelry (PNJ, 4.7%) and FPT Digital Retail (FRT, 4.7%), which operates retail chains in electronics and pharmaceuticals.

Urbanisation: People increasingly move to cities

The unmet housing need in Vietnam presents plenty of opportunities for growth and investments over the long term, as demand significantly surpasses supply. Vietnam’s urbanisation remains relatively low at 39% (2023), compared to 54% in Thailand and 79% in Malaysia (World Bank data). However, the country is experiencing steady urban growth, with an annual urban population increase of almost 3% (last four years, Macrotrends calculations). This ongoing urbanisation, driven by economic industrialisation, is generating increased demand across various sectors including housing, transportation, retail and entertainment. VNH typically gains exposure to this trend through investments in real estate developers. However, in response to the real estate financing crisis in 2023, VNH reduced its direct exposure to urbanisation to 6% of the portfolio, where it remains at end February 2025 (compared to 15% in August 2023). Despite this cautious approach, VNH remains confident in the long-term potential of Vietnam's urbanisation and is prepared to increase its investments when attractive opportunities emerge.

Performance

VNH naturally follows Vietnamese equities and represents a macro play on Vietnam’s economy for investors. Over the long term, VNH has meaningfully outperformed the VNAS, but the broad market has recently experienced significant losses as a result of capital shifts in response to the global political environment, casting uncertainty over Vietnam’s future development route (described earlier in this note). VNAS is currently (18 April 2025) 12.0% lower than before the announcement of the tariffs which led to the recent market downturn (see Exhibit 7), whereas VNH’s NAV is down 10.3%. Dynam Capital attributes the recent underperformance predominantly to capital flows – as specialised international investors exit Vietnam, selling VNH’s high-conviction stocks, whereas domestic investors are predominantly invested in index positions, which VNH is underweight.

Peer group comparison

Vietnam-focused funds have on average outperformed peers investing in other Asian markets (over the last three-, five- and 10-year periods), buoyed by the country’s robust economic expansion and structural tailwinds. Dynam Capital is confident in the ability of Vietnam’s leadership to navigate the current environment on the back of its ‘friend to all’ approach, although Vietnam’s competitive advantage over other Asian countries will depend on the final version of trade tariffs and, in broader terms, on the geopolitical environment.

Among the three London-listed Vietnam funds, Vietnam Holding (VNH) stands out as the top performer over the five- and three-year periods. While its significantly smaller size results in relatively higher ongoing charges, it also provides the portfolio manager with enhanced agility, an important strategic advantage in navigating periods of heightened market volatility. Notably, VNH’s performance metrics are reported net of fees, underscoring the fund’s ability to outperform the market through active management.

Dividends and distributions

VNH does not pay dividends but provides regular shareholder returns through NAV-accretive share buybacks, from both the open market and through tender offers. Additionally, it has recently introduced a share redemption facility, where investors can tender all their shares once a year. The first one resulted in 13% of shares being tendered, as described in our November 2024 note. In the first half of FY25 (ending December 2024), VNH distributed US$18.9m, which represents 14% of its end-June 2024 market capitalisation.

Distribution through share buybacks gives investors a clear advantage to effectively reinvest their potential distribution at no cost if they choose not to participate in the buybacks. The ambitious redemption facility, which allows for a de facto wind down of the fund, has effectively narrowed the discount to NAV. The decision was feasible due to VNH’s relatively small size and the manager’s confidence in the ability to effectively sell down VNH’s portfolio within a month. In addition, shareholders are presented with a continuation vote at every fifth AGM, with the next one to be held in 2028.

Discount: force majeure

Since the implementation of the share redemption facility in 2024, VNH’s discount to NAV has narrowed to a single-digit range, in which it has remained until very recently. The discount widened rapidly in response to President Trump imposing tariffs on Vietnam’s imports (see above) as investors sold out their shares. Currently, the discount stands at 7%, which we expect to moderate once the volatility settles.

Capital structure

As at 4 April 2025, the company’s share capital consisted of 23.7m ordinary shares, 23.5m of which were outstanding. VNH regularly cancels repurchased shares and as at 4 April had 0.2m shares in treasury. The shares have been listed on the Premium Segment of LSE’s Main Market (ticker: VNH) and on the International Stock Exchange (VNMH-VNH) since 2019; previously VNH traded on AIM. The company is domiciled in Guernsey, Channel Islands. The board and representatives of the investment manager directly own 0.4% of outstanding shares, aligning their interests with shareholders. Additionally, the chairman of VNH’s board is also a director at Discover Investment Company, which owns 6.0% of VNH’s outstanding shares as at 2 April 2025. The fund is subject to an annual share redemption facility, where 100% of shares can be tendered, effectively giving shareholders the opportunity to wind down the fund each year.

The board

VNH’s board consists of four independent non-executive directors, two of whom were appointed in September 2017, when the company underwent significant corporate governance changes. At the AGM in 2023, Sean Hurst and Damien Pierron stood down from their positions held since October 2017. VNH appointed Connie Hoang Mi Vu to the board in March 2024, effectively reducing the board to the current four members. Ms Wu is an ESG specialist with more than 20 years’ experience and is one of Vietnam’s leading experts on human trafficking, modern slavery and labour migration. She is a partner at Raise Partners, a board member of the Belgium Luxembourg Chamber of Commerce Vietnam and has a BA from the University of Michigan and an MPA in International Non-profit Policy & Management from New York University. For detailed biographies of the remaining board members, please see our 2019 initiation note.