Vietnamese market tumbles

— 26.04.2022

In recent weeks, the Vietnamese stock market has fallen, and the VN-index is now -6.1% YTD. PYN Elite NAV is -8.1% YTD. For the six months, the VN-Index is +0.8% while PYN Elite NAV is up +7.7%. In this post, I try to open the reasons behind the stock market fall but also reflect the relationship between Russia and Vietnam, which has caused some stir.

In 2019, the Vietnamese government announced the country’s security policy guidelines for the next ten years. They emphasize the following: Vietnam does not militarily engage with other countries or military alliances. Vietnam remains neutral while acknowledging that all superpowers – China, the US and India – are pursuing their interests in the Asian region. Vietnam is aware that its biggest threat is rising from China’s actions in the South China Sea, which is and will remain a gray area without clear borders. In its military policy strategy, Vietnam relies heavily on being independent and ready to defend its country and thus does not rely on the military assistance of others in crises.

During the war in Ukraine, Vietnam has consistently kept its policy to remain neutral and outside military alliances. With this logic, The Vietnamese government has refrained from taking a stand on the ongoing war. However, its’ diplomats have voiced their concern over civilian casualties and the well-being of Vietnamese citizens in Ukraine. In the UN Vietnam reminded that every nation must abide the international laws and commitments, but on the other hand, it did not condemn Russia as an aggressor.

When the UN General Assembly voted to condemn Russia’s attack, Vietnam abstained. Later Vietnam opposed the resolution when General Assembly voted to suspend Russia from the UN Human Rights Council. In the vote, 93 countries voted in favor, 24 opposed and 58 abstained.

For decades, human rights have been an issue, where the developed and developing countries have had difficulties finding the common ground. Vietnam has also been criticized for its human rights record. I believe that in this UN vote, Vietnam ended up primarily opposing western criticism of human rights issues and did not feel that it was taking a stand on Russia’s invasion, although one can interpret the vote as joining the Russian side.

During the crisis, Russia has been engaged in propaganda creating images that it has multiple allies. This week Russia released information about their planned joint military drills with Vietnam. I believe that this is related to multiple arms deals Russia has made with Vietnam during the years, and the deals most likely also include weaponry training from Russia. Vietnam has previously bought large amounts of arms from Russia and Ukraine. I would not be surprised if in the future Vietnam buys more weapons from Europe or the US.

It is obvious that due to the Russian invasion, the political risk of the autocracy states has grown significantly in the long run. They will have to face the risk of trade sanctions if they participate in aggressive politics or join in military alliances with countries that use state terror.

Weak sentiment in the stock market
The Vietnamese government surprised by starting disciplinary actions in the stock market. This has led to the arrest of a billionaire for manipulating the stock prices of his group of companies alongside two other company executives. In the spotlight is the real estate company FLC together with ROS, ART, HAI and AMD, which all are connected with FLC. Their stock prices crashed in March-April and now the companies are at risk of bankruptcy. The culprits will likely face long sentences.

Authorities have also arrested the founder of a large unlisted real estate company whose activities relate to the bond market and dishonest bond marketing to retail investors. It is likely, that the top management of the Tan Hoang Minh -group will also face long prison sentences.
Active market participants, like PYN Elite Fund and other institutional investors, have been well aware of stock manipulation and unethical actions in the stock trading of these companies. However, the timing of the disciplinary actions surprised everyone. The top management of the HoSe, along with the SSC and the VSD will all receive disciplinary measures for failing to perform their duties by the regulations and for allowing ethically questionable events.

I believe that other parties who have benefited from the manipulation will also be revealed shortly, but Trinh Van Quyet, the founder of FLC has committed the most flagrant actions. In a couple of months, FLC’s share price has fallen from the 21,000 dong level to 6,000. The downturn is likely to continue for another couple of weeks as the fall is limited by daily limits, and the price can gradually end to 1,000 dong levels.

The government’s disciplinary actions are, of course, a good thing for the stock market’s long-term outlook, but it has had a shocking effect on the short-term sentiment. This is reflected in the entire stock market, but especially in PYN Elite’s housing and banking stocks. The weakness of the market does not change the fact that we still expect good earnings news from our companies. However, it is difficult to assess the stock market’s turns in the coming weeks – what will drive the appetite of Vietnamese investors more, the positive results or the uncertainty caused by the sanctions on the stock market. Of our companies, air freight company SCS was the first to release its Q1 results: earnings growth of +37%, which is in line with our expectations.

Important information regarding the text and 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.