Vietnamese financial news media CafeF has published an interesting article about PYN Elite Fund and the portfolio manager Petri Deryng. CafeF goes through the early years of the fund in Thailand but also takes a good look at our current strategy in Vietnam and what to expect in the near future.
CafeF article is based on Q&A with Mr. Deryng which can be read in its entirety here:
1. You are Finnish, but I know that you have successfully invested in the Asian financial market for 23 years. Why did you choose Asia, especially Vietnam? And during that time how Asian economy and Vietnam’s economy transformed
“We look for fundamentally strong growth economies, which have faced macroeconomic crises which has caused extremely attractive stock valuations. Thailand had its Tom Yum Cung crisis in 1997-1999 (57 financial institutions went belly up) We started to invest in Thailand in 1999. Vietnam GPD didn’t contract in its crises, due to strong exports, but it went thru the domestic property and bank crises 2009-2012 and we waited for the property market to bottom before we started to make our moves into Vietnamese stocks. In the year 2012 there were practically zero new property developments launched and that number can’t get lower than zero.”
2. PYN Elite has been investing in Vietnam since 2013; today, all PYN Elite equity investments are in Vietnam. Why did you decide to withdraw all investment in Thailand and China to focus on Vietnam? Is the Vietnam stock market more attractive?
“By 2012 Vietnamese economy had bottomed and VAMC was launched in May 2013 to start clearing the NPLs, It looked like a good moment to switch from Thailand, where the economy and the stock market had been doing well for many years and the market was looking fairly priced, meaning potential upside from there was limited. 2013-2022 period in figures: VN-Index +196 %, SET Index +33 %, Vietnam’s earnings CAGR +11,9 %, Thailand +1,9 % (EPS based).”
3. What’s your opinion about the potential of the Vietnam stock market in the short and mid-term?
“For the short term I look Vietnam’s potential to have impact from global markets and I think next 12 months the outlook is not clear. We have tried to position our portfolio to be ready to face positive or negative sentiment in the near future. For a bit longer term 3 years and longer, the Vietnam market has huge potential for outperformance overall markets. Key factors are earnings growth, cheap valuations, and externally sound financial balance of Vietnam Macro.”
4. What is the pressure when leading a 1 billion USD actively managed equity fund?
“Our clients are long-term private investors with their own money and they are very well aware of everything that we do and why, so for us, short-term events at markets or some periods of underperformance to index are not an issue. I think by character, I have always been a very relaxed person, despite how much AUM we have or how bad our performance has been. What is important to our loyal clients is, that we have never needed to flip our targets based on changed market conditions. A Finnish Formula One driver Kimi Räikkönen said it well on team radio during a race: Leave me alone, I know what I am doing.”
5. In your opinion, what are the difficulties when raising foreign capital in the Vietnam market?
“I think currently the biggest issue to us is the Russian invasion to Ukraine, which means, Europeans are much more considering political risks and categorizing non-democratic countries as high-risk regimes, which carry risen country risk for long term.”
6. You often give very optimistic forecasts about the Vietnam stock market, even when the market crashed in May 2022. What is the reason?
“Well, you need to separate temporary events/lost sentiment moments from fundamentals that can drive the long-term performance. In our estimations, Vietnam will have very attractive earnings growth in 2022, 2023, and 2024 and based on those figures, we ended up calculating a VN index target at 2500 points and market fairly valued at P/E 16.5. Many unfavorable events can mess up this timeframe, but I think the key elements to our key metrics are correct, so 2500 it is and we all will make plenty of money in this market.”
7. In a recent investor letter, you wrote it’s irrational that the Vietnamese stock market’s P/E ratio is lower than that of Thailand. So, according to you, what level P/E ratio of the Vietnam stock market should be?
“Thailand is trading at PE 15-20. Vietnam is trading PE at 10-15. Anyways Vietnam is likely to have stronger earnings growth in the next 5 years and should trade at least at the similar level as Thailand. Can I shock you with one another figure: last 5 years Vietnamese banks’ earnings CAGR has been 31,2 % and Thai banks for the same period -1,2 %.”
8. Vietnam stock market fluctuated very strongly in the first half of 2022. How was PYN Elite Fund affected?
“We took profits out in autumn of 2021 from high beta stocks like CEO group and brokers to face better possible difficulties of global uncertainty in 2022, but anyways our bank stocks and property stocks got hit along the index in H1 2022. No big drama, we just had to watch cheap valuated stocks getting even cheaper, without knowing how much lower the negative sentiment will drive those stocks.”
9. PYN Elite’s portfolio is very different from other funds in the Vietnam market. Can you tell more about your investment strategy? Which kind of companies you will choose?
“I think there are so many ways, how I and my colleagues in other funds find their best stocks and various strategies can deliver excellent returns. For us, the key driver now is that we believe in Vietnamese domestic demand to stay robust for several years and that’s why we stay out of steel, oil, Agri and export-related sectors as those sectors earning growth can be much more impacted by global reasons. We build our own financial models for each company, that we hold and try to get the key metrics right. We don’t hold a stock, if we cannot calculate a huge upside potential for its value and we don’t care if we need to wait with some non-performers for long periods.”
10. How about PYN Elite Fund’s plans in Q4 2022 and 2023?
“We just stick with our current portfolio. Our two biggest holdings, CTG and VHM are likely both to report strong H2 2022 numbers and 2023 looks also very favorable to them.”
11. Can you give some advice to investors in Vietnam?
“Look what has happened historically at stock markets. Markets always repeat similar patterns. Through past events, you learn what to expect from the future. Build your own criteria to choose stocks, then you don’t have to change your mind when market sentiment changes.”
12. Prior to starting as a full-time portfolio manager, you worked as an entrepreneur in the media industry in radio and television program productions. Can you share more about this? Why did you decide to become a portfolio manager?
“I have been fortunate to have two interesting industries to make a living in my life: media and fund management. I decided to change my semiprofessional personal stock investing into full profession by applying for a fund management license in 1998, when I saw that radio and tv companies started emerging in Finland. I was an independent radio and tv producer and it meant the number of my clients was getting smaller, as the same owners became holding more stations, for me to be able to make same earnings, when getting squeezed by margins, I had a choice to keep producing more, But the idea of more work for same earnings didn’t really strike me. I loved the producer work and I love the current job equally, but I must say this current job pays surprisingly well.”
13. Today all of PYN Elite’s equity investments are in Vietnam but you are living in Thailand. Why don’t you live in Vietnam? Is there any special reason? And how can you run the fund when living in a different country?
“Vietnam is a good target market by its size as an economy and not too large geographically either. It is rather easy to follow the macro and the market even from this distance. Google translates all Vietnamese CafeF articles in seconds into English, Can you think, if there is anything else I need to read to cover everything that happens in Vietnam…. I like Vietnamese society even more than Thai society, but I happened to land in Thailand first and built my nest in Bangkok.”
14. What is the most impressive thing to you when you come to Vietnam? About our country, about Vietnamese people?
“Because of my work, I meet walks of all sides of society. I meet educated and less educated people in Vietnam, but it seems they all are very aware of what’s going on in Vietnam and in the World – they read the news. Vietnamese impress me, with their strong self-confidence and high ambition, each individual wants to solve problems and get on and not wait that someone else will do it for them. And of course, I have to mention that I love Thai food, but the Vietnamese kitchen tops up even that.”
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.