In Bunny we trust

— 24.08.2022

Credit rating agency Moody’s and the World Bank have recently raised their forecasts for Vietnam’s GDP growth for 2022. Moody’s expects 8.5 percent growth and the World Bank 7.7 percent. Great numbers! It is not relevant, which one will eventually be closer to the precise outcome as the most important thing is, that the growth expectations have just been raised. This will be an excellent year for the Vietnamese economy.

Global stock markets are likely to stay choppy for the time being. According to the lunar calendar, the new year will start on January 22nd, 2023, and then it is the bunny’s turn to bounce. Historically, the Year of the Rabbit has been one of the best in the stock markets, while the current Year of the Tiger has historically been a weaker one.

Thanks to the loose monetary policy, the bull market in the USA got extended for over ten years. It seems that the essential leveling in valuation multiples is still underway and a sustainable recovery will be in the cards sometime later. The year 2023 is hard to predict in terms of economic growth. If the Fed needs to keep hiking interest rates radically, next year we may see a financial market-driven real economy standstill or a slump in the USA.

From the global angle, several key economies are in very different economic cycles. China has already begun to slightly loosen its tight monetary policy of recent years, and in Vietnam, real interest rates have been kept positive, and there is no significant pressure to raise interest rates, with inflation being at reasonable levels.

I have subscribed three times PYN Elite fund in 2022, the average price being 469 euros. I have not weighted the avg. cost, which would even increase the average price somewhat. So at the moment, my new subscriptions are at the loss, as the NAV is around 450 euros. Am I worried? Not a bit.

Vietnam’s economy will keep growing also in 2023, even if we assumed that Vietnam’s exports would collapse by ten percent due to external factors. All our portfolio companies will generate more equity from their earnings and their balance sheets will become even more solid. Our portfolio companies are priced very attractively. We can expect robust profit growth from the companies and remarkable stock returns, but while we wait for the next bullish performance period, we also need to understand the market. The cash registers of our portfolio companies are ringing every day, but right now that cash flow is not driving our NAV value, but the stock markets and weak sentiment.

In our Investor letters, we have pondered the strange times of the negative interest rates and anticipated weaker markets without knowing when would these sell-offs or spikes occur. I hope this does not offend anyone, but I am very pleased to have positive rates back. It was very difficult to understand the negative rates, and during healthy economic growth, debtors should have to pay interest on their debts. As a result of the rate hikes, we have seen a healthy correction as well in the crypto and in the high-flying valuations of tech stocks, but also all weak business ideas have been getting punished. It remains to be seen how high we will end up with the interest rates and how hard it will hit the markets. Let’s try to live through these challenging times by minimizing our own damages.

Plusses:
– We realized gains from our portfolio’s high beta -companies (real estate company CEO Group and broker companies VCI and VND) before 2022.
– Our portfolio consists of quality companies of which businesses are driven by Vietnamese domestic demand.

Minuses:
– I wish we had terminated currency hedges this year and received the full benefit of the weakening euro in the portfolio. Now the hedges have eaten up the forex gains that have been coming into the portfolio.

 

Important information regarding the text and the Fund

The attached publication is marketing material and should not be regarded as a recommendation to subscribe or redeem units of the PYN Elite Fund. Before subscribing please familiarize yourself with the Key Investor Information Document, the Prospectus and the Rules of the Fund. The material presented in this text is based on PYN Fund Management’s view of markets and investment opportunities. PYN Elite Fund (non-UCITS) invests its assets in a highly allocated manner in frontier markets and in a small number of companies. This investment approach involves a larger risk of volatility compared to ordinary broadly diversified equity investments. The value of an investment may decline substantially in unfavorable market conditions or due to an individual unsuccessful investment. It is entirely possible that the estimates of economic development or a company’s business performance presented in this presentation will not be realized as presented and they involve material uncertainties.