London City Airport to axe a third of its workforce
London City Airport has become the latest in the aviation sector to announce a swathe of job cuts, amid plans to lay off 239 staff as part of a “crucial restructuring” drive prompted by the coronavirus pandemic.
The airport, which is based in East London and serves a largely business clientele, was shut for three months during the peak of the UK’s lockdown measures as demand for domestic and short-haul flights plummeted.
Despite reopening in June, London City has still only resumed 17 of its usual routes, with flights expected to remain well below 2019 levels through the winter months into 2021.
Last month, the airport cut all non-essential spending and announced a “temporary pause” to its long-awaited £500 million development project, which was set to see a new terminal extension.
Chief Executive Robert Sinclair released a statement on the airport’s announcement, saying:
“The aviation sector is in the throes of the biggest downturn it has ever experienced as a result of the pandemic. We have held off looking at job losses for as long as possible, but sadly we are not immune from the devastating impact of this virus.
“It is with huge regret that we are announcing this restructuring programme today and our thoughts are with all of our highly valued staff and their families.
“We believe that the difficult decisions we are taking now will enable the airport to bounce back in a better shape when growth returns”.
London City is not the only airport to have made major redundancies lately, with Heathrow already laying off one third of its managers and warning frontline staff to expect imminent pay cuts.
Last week, Heathrow Chief Executive John Holland-Kaye told The Guardian that even the UK’s largest airport had not emerged unscathed from the pandemic:
“Given the lack of passengers, we have to do something and that is the least worst option… We are such as big part of the local economy, if we have large-scale redundancies that would have a similar impact to what we saw with mining towns back in the 1980s, and we want to do everything we can to avoid that”.
Biggest banks lose $635bn during pandemic
New data presented by Buy Shares has revealed that 14 of the world’s largest banks cumulatively lost $635.33 billion in market capitalisation during the coronavirus pandemic.
Some of banking’s biggest names were found to have suffered huge losses, with America’s Wells Fargo down -56.26% in market cap, followed by Spain’s Banco Santander at -46.16%.
The data shows that the steepest decline occurred during February 2020, as fears surrounding the rapid spread of coronavirus gripped economies worldwide.
Not all financial institutions have suffered a similar fate, however, with Japan’s Mizuho Financial Group only down a comparatively meagre -11.33%.
Buy Shares’ figures demonstrate the immense strain that the banking industry was put under during the pandemic, with the financial sector’s near-paralysis leading to heavy falls in market capitalisation.
The notable drop in February goes a long way to explaining the responses of the financial sector as the pandemic began to spread.
Even though coronavirus was first reported by China in December 2019, the lack of information meant it was difficult to predict how disruptive and widespread the infection would turn out to be.
Intervention from central banks in February nonetheless helped to cushion the blow, with the easing of restrictions on liquidity and capital helping to see thousands of institutions through the enormous burden of lockdown measures.
Buy Shares’ warned, however, that although the efforts of governments to keep economies afloat were beneficial to the banking sector, banks “still face some immediate pressures on their capital and liquidity position”.
The fact that the pandemic is by no means over just yet leaves the entire sector juggling with extreme uncertainty; the length and severity of the disruption is still not entirely clear, and it is hard to plan around an infection which always seems to be one step ahead.
Overall, the data indicates that most financial institutions will struggle to generate a profit over the course of 2020, largely due to the sustained period of low-interest rates implemented by big banks such as the Bank of England.
Despite this grim warning, Buy Shares’ figures demonstrate how the pandemic accelerated the shift towards digital banking. Customers and colleagues alike shared concerns over the hygiene implications of handling physical money, which meant more people than ever switched to their mobile and online-based banking systems.
The pandemic also provides a unique opportunity for challenger banks to grow their stake in the market, with traditional banks facing growing competition from sleek and savvy online institutions, who have enjoyed a spike in consumer interest during lockdown.
Buy Shares concluded their report with a message for the industry as a whole, as the challenges ahead begin to take shape:
“Banks will need to adapt to a new customer norm with new business models as well as rethink what drives brand loyalty. Restructure the addressable market to grow beyond the core. Most importantly banks will need to validate long-standing business assumptions. Long-held assumptions that have underpinned the banking business model may vary”.
Chip raises £10.7m in 48 hours in UK crowdfunding’s biggest convertible round
Automatic saving app, Chip, raised £10.7 million in the space of 48 hours from crowdfunding and the government-backed Future Fund, as part of its series A round.
The amount was raised from 6,420 investors in what is both the largest convertible round in UK crowdfunding history, and the largest crowdfunded Future Fund participation. The round also saw 25,000 people register ahead of the launch on Crowdcube, with £2 million being raised in the first ten minutes and £4 million in under an hour.
Continuing its year of optimism
Today’s announcement is just the latest headline in what has so far been a record-breaking year for Chip. Prior to its crowdfunding success, the company had; almost 280,000 registered users; processed more than £165 million in savings; increased deposits by 110%; achieved full FCA authorisation; tripled the size of its team; and validated a new revenue model. Chip said that the proceeds from its recent crowdfunding round will be spent on growth and will allow them to continue discussions with VCs from a position of strength. It added that it hopes these new funds will allow it to improve the infrastructure and capacity to give access to more deposits, and evolve to investment funds, ISAs, LISAs and pensions.Chip response
Commenting on the company’s crowdfunding success, Chip CEO Simon Rabin stated: “This round means big things for Chip. The growth we’ve seen this year has been incredible, but it’s time to take the business to the next level. Right now we are presented with a huge opportunity to capture a slice of Europe’s €30 trillion savings market that’s ripe for disruption, and Chip is poised ready to accelerate and dominate this space as a market-defining savings and wealth management app.” “In conjunction with the Future Fund, the UK government’s initiative backing tech start-ups, we’ve been able to welcome thousands more savers into our investor community and become the largest crowdfunded Future Fund round in the country. However, perhaps the only downside to the overwhelming demand we saw with this round is that we have run out of allocation before the entire 25,000+ who requested access were able to participate. We want to give as many people as possible the opportunity to own a part of Chip and are therefore working on finding a way to allow for more capacity, so make sure you watch this space.”FTSE miners among the headline rise and fall shares on Monday
FTSE 100 miners occupied many of the top spots on the highlight reel on Monday, with three in particular posting some of the biggest blue-chip gains and losses.
Rio Tinto started bright
Leading the pack was Rio Tinto (LON:RIO), bouncing 4.68% after the first bell on Monday morning. This rally took the company to its highest price of the year, and its almost 4% rally on the Australian exchange took it to its third-highest price in the year-to-date, despite the pandemic slowing down its operations. After losing some ground during morning trading, Rio Tinto shares are currently trading at 5,018.39p, up 0.53% or 26.39p 14/09/20 12:00 GMT. The company’s p/e ratio is currently 10.05, its dividend yield is generous at 6.01%.Glencore continues recovery trajectory
The second of our FTSE miners, Glencore plc (LON:GLEN) followed close behind, up 4.35% after the bell. This comes despite consistent headwinds against the company’s growth, including controversies and falling copper prices, and more recently COVID hitting its share price. After more than halving from 239.00p to 112.50p a share between February and March, the company’s shares have since been on a gradual but largely upward trajectory. The now sit up 0.34% or 0.62p at midday, at 182.62p 14/09/20, with some way to go before recovering to pre-pandemic levels. The company’s p/e ratio is currently 14.57, while its dividend yield sits at 4.43%.Fresnillo hops down from its year-to-date high
The third of our FTSE miners, Fresnillo plc (LON:FRES), led the pack of large-cap Monday fallers, down 6.14% or 83.00p to 1,269.00p a share 12:30 GMT 14/09/20. Monday’s drop follows something of a subdued start to the year for the Mexican-focused miner, with 2019 production and profits behind expectations. Today’s price, however, is a blip in an otherwise upward-surging trajectory for Fresnillo shares. Having started the year on 644.00p apiece, shares have more than doubled in value, fluctuating between 1,200p and 1,300p since the end of July. The company’s p/e ratio is encouraging at 74.95, their dividend yield is currently 0.92%.Costain Group shares down 10% on profit plunge
Costain Group shares (LON: COST) fell over 10% on Monday after the group revealed a first-half loss.
The smart infrastructure solutions company released results for the half-year ended 30 June 2020, which showed a 73% fall in operating profits to £5.7m.
Adjusted revenue fell by 8% to £549m.
The group took the brunt of a terminating contract and was on the wrong side of an arbitration decision over the A465 road-building contract in Wales.
Costain Group’s chief executive, said: “We are clearly disappointed with the recent arbitration outcome in relation to the A465 contract which, together with the mutual termination of the Peterborough & Huntingdon contract, has resulted in significant revenue adjustments for these long-standing projects.”
“Looking ahead, assuming no further sustained Covid-19 lockdowns, we are confident of delivering growth in profits and margins next year,” he added.
The company said in a statement: “As a result of the arbitration award and on the basis of the uncertainty of recovery of such costs, and subject to reaching a final settlement, the group’s half year results include a charge to the income statement of GBP45.4 million to adjust the revenue recognised based on the level of cash received to date under the contract. Costain will continue to fulfil its obligations under the contract, with completion scheduled in 2021.”
Costain Group shares (LON: COST) are trading -10.70% at 42,15 (1316GMT).
Why you shouldn’t be concerned IAG shares fell 30%
International Consolidated Airlines Group (IAG) (LON: IAG) shares plummeted 30% on Monday morning.
The British Airways owner saw shares fall, however, it was not due to troubles at the airline group. Instead, is linked to a technical issue as the shares trade ex-rights.
Last week, the airline group launched a heavily discounted rights issue to raise €2.74 billion. Investors taking part in the new rights issue have to do so at a price that is 35.9% lower than Thursday’s closing price.
Shares are trading at their lowest since the 2009 financial crash.
British Airways has been hit hard by the pandemic. The group has said that quarantine rules will mean that this Autumn will see travel rates at a 60% reduced compared to this time in 2019.
The airline revealed plans to shed up to 13,000 jobs this year and normal passenger numbers are not expected to return until 2024.
Chief executive Luis Gallego said: “Where travel markets have reopened without border restrictions and quarantine requirements, IAG has been encouraged by the level of pent-up demand that exists for air travel.”
The airline sector is calling on the government to end quarantine rules to encourage flight travel. Heathrow’s chief executive, John Holland-Kaye, said:
“Britain’s economic recovery is falling behind. Heathrow’s traffic figures for August demonstrate the extent to which quarantine is strangling the economy, cutting British businesses off from their international markets and blocking international students, tourists and investors from coming here to spend money.”
IAG shares (LON: IAG) are trading -28.66% at 138,55 (1255GMT).AstraZeneca shares begin rally as Oxford vaccine trial resumes
Shares at Cambridge-based biopharmaceuticals firm AstraZeneca (LON:AZN) have begun a modest rally on Monday as the company resumes its high-stakes coronavirus vaccine trial.
Clinical trials of AstraZeneca’s joint venture with Oxford University were forced to halt last week after it emerged that an anonymous participant had suffered from an alleged “adverse reaction”.
A New York Times article reported that a volunteer from the UK branch of the project had been diagnosed with transverse myelitis – an inflammatory syndrome that can be caused by viral infections – but AstraZeneca have so far not confirmed the speculation.
The trial was routinely paused while an independent body reviewed the incident to determine if it was safe to continue with the late-stage human studies.
Oxford University announced over the weekend that the trial was cleared to resume after regulators gave it the go-ahead, and it has been confirmed that the ill participant is expected to make a full recovery.
AstraZeneca shares were trading at 8,431p at GMT 08:33 14/09/20, giving the FTSE 100 its biggest boost of the morning, but the rally was swiftly tempered by concerns from investors that US President Donald Trump’s executive order to lower drug prices could hurt global pharmaceutical stocks.
By lunchtime, AstraZeneca’s share price had slipped back into the negative at -0.66% to 8,373p, but is still up 3.79% over the past week as investors’ fears that the trial could be scrapped were consoled by regulatory approval to resume studies.
Surface Transforms wins £27.5m contract and sees shares accelerate by 87%
Carbon ceramic brake disc manufacturer, Surface Transforms (AIM:SCE), saw its shares rally by almost 87% on Monday morning, as the company announced a big contract win.
The company said that the contract had been won with a car company – that they term ‘OEM 8’ – and detailed pricing, volume and payment terms. It added that it had also received an order for engineering samples from OEM 8 to complete their homologation activity on their new high-performance car.
Surface Transforms also stated that the contract means they’ll be the standard fit, sole supplier of carbon ceramic brake discs on both axles of OEM 8’s new car.
The anticipated lifetime revenue on this specific contract is around £27.5 million, with an estimated income of £8 million per year for three years from the contract’s commencement date in the summer of 2021.
The contract is currently expected to extend until 2024, but the company noted that there is potential for it to be extended. It also said that the estimated contract revenue will more than double its previously projected contracted turnover in 2022. It added that in anticipation of further contract awards, it would be increasing its manufacturing headcount each year, with costs increasing by £0.5 million in 2020, £1.3 million in 2021 and £2.0 million in 2022. Also in light of the new contract award, and in spite of COVID hampering the trading environment, Group expected annual revenues now stand at £2 million, some £400,000 ahead of original market expectations.Surface Transforms response
Responding to the positive news, CEO Kevin Johnson stated:“This, truly game changing, award builds upon the recent trend of significant contract wins with mainstream automotive manufacturers. The award, which on its own, doubles previous revenue projections for FY22 and accelerates Surface Transforms’ transition into profitability and operational cash generation.”
“The Board is delighted with this award and want to particularly thank both our employees and the customer for their considerable efforts in concluding the work needed for nomination against the background of the Covid 19 pandemic and lockdown.”
“This is a very good day for Surface Transforms and we look forward to further extending our relationship with this major new customer and making further contract announcements with both OEM 8 and other, existing and new, customers.”
Investor notes
Following the uplifting news, Surface Transforms shares rallied by 86.69% or 21.24p, to 45.74p a share 14/09/20 12:00 GMT. This price represents a high point which bucks the trend for the company’s year-to-date, and far ahead of its 2020 low price of 14.00p on April 17. The company’s p/e ratio is currently -24.74.
Leading investors pile on net-zero pressure for world’s biggest polluters
Climate Action 100+ – a group which represents investors with a combined portfolio worth more than $47 trillion – has written an open letter to the world’s top greenhouse gas-emitting corporate bodies in a drive to encourage more companies to adopt net-zero carbon emissions targets by 2050.
The campaign, backed by 518 investor organisations around the world, wrote to 161 companies to convince them to implement 30 climate conscious measures which are set to be assessed in a new report due in the new year.
Among the demands is for companies to reduce their carbon emissions by 45% by 2030, compared to levels recorded in 2010.
The 161 companies which received Climate Action’s letter make up the vast majority of industrial greenhouse gas-emissions worldwide (up to 80%), and one of the new demands requires that companies release medium-term objectives to cut back on their carbon footprint while also demonstrating that their longer-term goals are achievable.
Climate Action said that companies’ responses would dictate how investors orchestrate business with them going forwards, “particularly for unresponsive or poorly performing companies”, and warned that there could be repercussions for those that fail to meet demands at future annual general meetings.
Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (part of the CA100+ coalition), commented on the news and welcomed the announcement of a new climate report in early 2021:
“Companies across all sectors need to take more ambitious action to ensure otherwise devastating impacts of climate change are avoided while they still can be.
“The benchmark will ensure it’s clear which companies are acting on climate change as a business-critical issue and embracing a net-zero future.
“Investors will be paying particular attention to those shown to be falling short”.
A number of household names make up the companies targeted by Climate Action’s campaign, including Royal Dutch Shell and BP. It comes amid a wider drive by climate-concerned investors to keep companies in line with the demands of the 2015 Paris climate agreement, as the burgeoning climate crisis gathers pace.
Last week, record-breaking wildfires cloaked the entire US state of California under a haze of red smoke. Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia University, heeded a stark warning in the Los Angeles Times:
“We’ve seen this long freight train barreling down on us for decades, and now the locomotive is on top of us, with no caboose in sight”.
If the USA decouples from China, Vietnam will be a winner
Sponsored by Vietnam Holding
In 2019 when US President Trump initiated the trade war with China, Vietnam emerged as a winner, with several multinational companies looking to relocate some or all of their manufacturing outside of China to mitigate political risk and avoid penalties and higher tariffs. This became known as a ‘China-plus-one’ strategy. In 2020, COVID-19, and Vietnam’s quick and effective responsive to the pandemic, further strengthened the case for including Vietnam as part of a diversified supply chain. Trump’s pre-election rhetoric of ‘decoupling from China’ included the need to identify alternative countries to supply inputs to the US economy. If this thinking persists into a second Trump term, or a first Biden term (and China bashing has bi-partisan support) then we can expect rapid expansion of investment in manufacturing capacity in Vietnam.
Vietnam is a country of almost 100 million people and is a fast-growing economy with multi-decade growth rate in GDP of more than 6%. Much of this growth has resulted from an increasingly open approach to global trade since it became the seventh member of the Association of Southeast Asian Nations (ASEAN) in July 1995 and the 150th member of the World Trade Organization (WTO) in 2007. In the same month Vietnam joined ASEAN, the United States re-established diplomatic relations, putting the Vietnam War behind them and developing strong bilateral and economic ties. The opportunities for the development of the Vietnam Economy and for US enterprises to invest in the country had been identified in the late 1960s, as reported to me by an early investor in Vietnam Holding (LSE: VNH) who was stationed in Vietnam at the time.
2020 marks the 45th anniversary of the end of America’s war with Vietnam, the 25th anniversary of diplomatic ties between the two countries, and the US even congratulated Vietnam on its ASEAN chairmanship. Bilateral trade between the US and Vietnam has increased from US$450 million in 1994 to US$77 billion in 2019 and the US is now Vietnam’s largest export market.
Vietnam – the beneficiary of trade and foreign direct investment (FDI)
In 2019, Vietnam saw record levels of Foreign Direct Investment (FDI) – almost USD 20 billion. The coronavirus pandemic has impacted this in 2020, in part as there have been fewer flights into the country since the imposition of quarantine, but the trend is still very favourable. In the first eight months of 2020, FDI into Vietnam dropped 5.1 percent from a year earlier to USD 11.35 billion. The manufacturing and processing sector is set to receive about 48% of pledged investment.
Vietnam also enjoyed a record trade surplus in 2019 which has continued into 2020. In August the Trade Surplus was close to USD 4 billion, the largest monthly level since 1990, taking the surplus for the first eight months to USD 12 billion.
The combination of FDI, Trade Surplus and the significant inward remittances of money from the millions of Vietnamese who live and work outside of the country, contributed to a record level of foreign reserves, which is forecast to reach USD 100 billion by the end of 2020. This financial strength has helped Vietnam to buffer the impact of COVID-19, and to keep its currency, the Vietnamese Dong, stable against the US Dollar. Many analysts consider the Vietnamese Dong, and other emerging currencies, to be likely beneficiaries of a weakening US dollar. In a country where interest rates are around 3%, and with forecast economic growth of 2.5% to 3.0% (one of few economies with positive growth this year), Vietnam could attract further money flows.
What sectors to invest in to take advantage of Vietnam’s opportunities?
Vietnam’s per capita GDP has now passed USD 3,000. This is seen as an inflection point in an emerging consumer society. When Thailand reached this level, its per capita GDP doubled again in seven years, and when China reached this level it saw a doubling in five years. More money in the pocket of consumers, more choice in where and how to spend it, means the consumer sector and the companies operating in the space will see tremendous growth in the mid-term. The banking sector is also set to benefit as currently almost 70% of adults in Vietnam (that’s 50 million people) are unbanked. As affluence increases – and a further 35 million middle class consumers are added to the population by 2035 – omni-channel banking (branches, ATMs and online apps).
The rise in foreign direct investment means that there is greater opportunity for investment in the process of industrialization. The price of industrial land is set to increase and there will be greater domestic and foreign investment in infrastructure, which has a multiplier effect in emerging markets. Much of the investment is expansion of existing capacity and ‘green-field’ development of new capacity. Not only does this put money in the economy in the form of employment and consumption of materials (steel, concrete et cetera), but improved infrastructure makes the economy more efficient with faster transportation of goods, shorter commute times, lower costs and the opening up of new areas to live and work, and the industrial and residential services that this creates demand for.
The changing demographics and increasing levels of wealth also create a trend to more urbanization. This is reflected in the demand for better housing, demand for better utilities (clean water and electricity, the latter increasingly produced from wind and solar), modern transportation, healthcare and convenience stores.
How to invest in Vietnam?
Many of the world’s sovereign wealth funds, and large global investment firms have significant investments in Vietnam. For most individuals living outside of Vietnam, it can seem to be a daunting process to invest. To buy Vietnamese stocks directly you need to have a trading code, a local bank account and a custodian for your shares. You need to bring in foreign currency, convert to local Vietnamese Dong, and then select some stocks to buy, or buy a local exchange traded fund (ETF). This is possible, but by no means easy or realistic for most UK investors.
Another way is to buy a passive ETF listed in the UK. While this can appear to be a relatively low-cost way to try and get some exposure to Vietnam, it can have some unintended consequences. One of the problems in this approach is that many of the ETFs are ‘synthetic’ in that they don’t actually hold the underlying stocks, but instead, try to replicate the performance of an index using derivative instruments, or participatory notes that try to track the performance. This can lead to significant differences in the performance of the ETF and the Vietnam market as a whole, as reflected in an index. Another problem is that there is no active stock selection or little screening in an ETF, meaning that you get the good, the bad, and the ugly. With more investors seeking sensibly to align their investment objectives with their desire to invest responsibly, an active fund that applies sound Environmental, Social and Governance (ESG) screening and monitoring may be a better choice.
Once such fund is Vietnam Holding (LSE: VNH), a closed-ended investment company listed on the London Stock Exchange. VNH has been a signatory of the United Nations Principles for Responsible Investing (UNPRI) for over a decade, and features ESG thinking into its investment decisions. It was recently awarded top marks by the UNPRI. VNH is an actively managed fund, supported by a Vietnam-specialist fund manager with a team of 12 professionals on the ground. It is entirely invested in Vietnam, with a portfolio of 24 leading companies, following the core themes of Industrialization, Urbanization and Domestic Consumption. Over the last decade the fund’s Net Asset Value has outperformed the Vietnam All-Share index (VNAS), increasing by 90% versus 46% for the VNAS.
Shares in Vietnam Holding can be bought and sold through your stockbroker or wealth management advisor. There is no minimum investment size and the Company publishes its performance (movements in the value of the underlying portfolio of stocks) on a daily basis. A three-to-five-year investment horizon is recommended for investors.
This article was written by Craig Martin, Chairman of Dynam Capital Limited. Dynam is the Guernsey regulated fund manager for Vietnam Holding (LSE: VNH). Investors should do their own research or consult with their advisors before making a decision to invest in stocks, and the value of investments can go down as well as up.
Vietnam – the beneficiary of trade and foreign direct investment (FDI)
In 2019, Vietnam saw record levels of Foreign Direct Investment (FDI) – almost USD 20 billion. The coronavirus pandemic has impacted this in 2020, in part as there have been fewer flights into the country since the imposition of quarantine, but the trend is still very favourable. In the first eight months of 2020, FDI into Vietnam dropped 5.1 percent from a year earlier to USD 11.35 billion. The manufacturing and processing sector is set to receive about 48% of pledged investment.
Vietnam also enjoyed a record trade surplus in 2019 which has continued into 2020. In August the Trade Surplus was close to USD 4 billion, the largest monthly level since 1990, taking the surplus for the first eight months to USD 12 billion.
The combination of FDI, Trade Surplus and the significant inward remittances of money from the millions of Vietnamese who live and work outside of the country, contributed to a record level of foreign reserves, which is forecast to reach USD 100 billion by the end of 2020. This financial strength has helped Vietnam to buffer the impact of COVID-19, and to keep its currency, the Vietnamese Dong, stable against the US Dollar. Many analysts consider the Vietnamese Dong, and other emerging currencies, to be likely beneficiaries of a weakening US dollar. In a country where interest rates are around 3%, and with forecast economic growth of 2.5% to 3.0% (one of few economies with positive growth this year), Vietnam could attract further money flows.
What sectors to invest in to take advantage of Vietnam’s opportunities?
Vietnam’s per capita GDP has now passed USD 3,000. This is seen as an inflection point in an emerging consumer society. When Thailand reached this level, its per capita GDP doubled again in seven years, and when China reached this level it saw a doubling in five years. More money in the pocket of consumers, more choice in where and how to spend it, means the consumer sector and the companies operating in the space will see tremendous growth in the mid-term. The banking sector is also set to benefit as currently almost 70% of adults in Vietnam (that’s 50 million people) are unbanked. As affluence increases – and a further 35 million middle class consumers are added to the population by 2035 – omni-channel banking (branches, ATMs and online apps).
The rise in foreign direct investment means that there is greater opportunity for investment in the process of industrialization. The price of industrial land is set to increase and there will be greater domestic and foreign investment in infrastructure, which has a multiplier effect in emerging markets. Much of the investment is expansion of existing capacity and ‘green-field’ development of new capacity. Not only does this put money in the economy in the form of employment and consumption of materials (steel, concrete et cetera), but improved infrastructure makes the economy more efficient with faster transportation of goods, shorter commute times, lower costs and the opening up of new areas to live and work, and the industrial and residential services that this creates demand for.
The changing demographics and increasing levels of wealth also create a trend to more urbanization. This is reflected in the demand for better housing, demand for better utilities (clean water and electricity, the latter increasingly produced from wind and solar), modern transportation, healthcare and convenience stores.
How to invest in Vietnam?
Many of the world’s sovereign wealth funds, and large global investment firms have significant investments in Vietnam. For most individuals living outside of Vietnam, it can seem to be a daunting process to invest. To buy Vietnamese stocks directly you need to have a trading code, a local bank account and a custodian for your shares. You need to bring in foreign currency, convert to local Vietnamese Dong, and then select some stocks to buy, or buy a local exchange traded fund (ETF). This is possible, but by no means easy or realistic for most UK investors.
Another way is to buy a passive ETF listed in the UK. While this can appear to be a relatively low-cost way to try and get some exposure to Vietnam, it can have some unintended consequences. One of the problems in this approach is that many of the ETFs are ‘synthetic’ in that they don’t actually hold the underlying stocks, but instead, try to replicate the performance of an index using derivative instruments, or participatory notes that try to track the performance. This can lead to significant differences in the performance of the ETF and the Vietnam market as a whole, as reflected in an index. Another problem is that there is no active stock selection or little screening in an ETF, meaning that you get the good, the bad, and the ugly. With more investors seeking sensibly to align their investment objectives with their desire to invest responsibly, an active fund that applies sound Environmental, Social and Governance (ESG) screening and monitoring may be a better choice.
Once such fund is Vietnam Holding (LSE: VNH), a closed-ended investment company listed on the London Stock Exchange. VNH has been a signatory of the United Nations Principles for Responsible Investing (UNPRI) for over a decade, and features ESG thinking into its investment decisions. It was recently awarded top marks by the UNPRI. VNH is an actively managed fund, supported by a Vietnam-specialist fund manager with a team of 12 professionals on the ground. It is entirely invested in Vietnam, with a portfolio of 24 leading companies, following the core themes of Industrialization, Urbanization and Domestic Consumption. Over the last decade the fund’s Net Asset Value has outperformed the Vietnam All-Share index (VNAS), increasing by 90% versus 46% for the VNAS.
Shares in Vietnam Holding can be bought and sold through your stockbroker or wealth management advisor. There is no minimum investment size and the Company publishes its performance (movements in the value of the underlying portfolio of stocks) on a daily basis. A three-to-five-year investment horizon is recommended for investors.
This article was written by Craig Martin, Chairman of Dynam Capital Limited. Dynam is the Guernsey regulated fund manager for Vietnam Holding (LSE: VNH). Investors should do their own research or consult with their advisors before making a decision to invest in stocks, and the value of investments can go down as well as up.