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Vietnam potential profiled for UAE investors.

The Middle East Investment Summit (Park Hyatt Hotel, 4-5 November) has provided a forum for a number of senior local banking and investment companies to learn more about how the Vietnam stock market offers long-term advantages for investors, as the Government prepares a new round of reform initiatives designed to revitalise the development of its capital markets.

Kevin Snowball, CEO of PXP Vietnam Asset Management (PXP) one of the participants in the two-day summit said the Socialist Republic of Vietnam has been one of the fastest growing economies in Asia, with Ho Chi Minh City, home to over seven million people, recognised as its commercial hub. Trade between the UAE and Vietnam exceeded $24m in 2010.

"Vietnam is one of the very few markets offering significant potential for superior returns in times of deteriorating global macroeconomic conditions," he said. "We would not be surprised to see the Vietnamese market double within three years, potentially trebling in five. It will be investors with this kind of long-term perspective who will realise the advantage.

"The Vietnam equity market is currently suffering from the uncertainty created by the likely level of non-performing loans within the banking sector. But PXP Vietnam is advising clients to look beyond the uncertainty and see the opportunity. The fact that the authorities have recognised the problems is a positive thing; it is a first step to their resolution and we anticipate progress to be made towards firm and decisive action during the current month-long meeting of the National Assembly, due to conclude on 21 November.

"PXP's flagship fund - PXP Vietnam Fund Ltd - has recorded year-to-date Net Asset Value growth of 25.4 per cent. This compares with just 11.5 per cent growth (in US dollars) experienced by the benchmark Vietnam Index (VNI) over the same period. PXP was Vietnam's first pure equity-specialist investment manager.

"The immediate outlook for the Vietnamese economy may be a period of slower growth," he said, "with GDP growth for 2012 expected to be a little over five per cent, somewhat lower than the seven per cent per annum experienced on average over the previous decade, but a reasonable performance given the global macro environment. PXP Vietnam believes share valuations remain at the low end of the historic trading range and that the market retains significant upside potential in the medium to long term.

"As everyone knows, markets don't like uncertainty and there has been a fair degree of that around recently," he continues. "The level of non-performing loans is rightly causing grave concern within government. A 298-page report from the National Assembly's Economic Committee (released on 4 September, 2012) included a warning that Vietnam 'must act quickly to clean up bad debt' or 'risk prolonged stagnation'. What is crystal clear is that a major recapitalisation of the banks is urgently required. The issue is how to achieve this without creating a scenario which potentially results in good money being thrown after bad. One solution is to encourage foreign strategic investors to increase their holdings, or to buy stakes of up to 35 per cent or more of the expanded share capital of individual banks, allowing, or possibly legislating, the real involvement of these investors in the management and credit control of the banks with a view to raising the overall foreign ownership limit to 49%, in line with non-banking stock limits.

"In summary, the market is nervous due to the current uncertainty but the country should ultimately benefit from decisive action to improve the macroeconomic environment, and therein lies the opportunity. Long-term bulls should be taking advantage," concluded Mr Snowball.

PXP manages PXP Vietnam Fund - a closed end fund which is the only Vietnam Fund listed on the Main Market of the London Stock Exchange (VNF LN) - and Vietnam Emerging Equity Fund - an open-ended fund with monthly liquidity - as well as a segregated mandate for a European institution.

Established and operating in Vietnam since 2002, the firm takes a fundamental, research-driven, bottom-up investment approach. PXP has a full-time staff of 21 in Vietnam, including an eight-strong research team, and has a multi-year track record of VNI outperformance. Over the almost nine years since PXP launched its first fund the VNI has expanded from 22 listed companies to over 300 (with a further 400 listed in the nation's capital, Hanoi) and has seen extreme volatility, with the index soaring from 166 at launch to 1,170 a little over 3 years later before falling back to 235 in 2009. The VNI currently sits just below 400 points.

2012 CPI Financial. All rights reserved.

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Publication:CPI Financial
Geographic Code:9VIET
Date:Nov 5, 2012
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