RNS Number : 1532M
Vietnam Property Fund
10 August 2011
Vietnam Property Fund Limited
"VPF" or "the Company"
NAV and July 2011 Update
Fund NAV Performance
The NAV per share closed at US$ $0.785 on 29 July 2011.
Vietnam's July CPI came in at 1.17% mom. This is higher than the consensus forecast of 0.8-0.9% and the historical average of 0.6%, resulting in inflation 14.6% ytd and 22.1% yoy. One of the main culprits was food & foodstuff that increased +2.2% during the month mostly due to a surge in the pork retail price. Ex-food CPI increased only +0.44% in July vs. +0.55% in June. However given the strong momentum of food inflation CPI is estimated to come in at around 20% at the end of the year.
Vietnam is a net agriculture exporter. Nonetheless Vietnam's food & foodstuff inflation is 2-3x higher than that of other emerging markets. This largely due to market structural issues such as an inefficient inventory and distribution system, lack of scale of cattle farming, as well as the absence of agricultural insurance, supervisory and inspection mechanisms. An example is the pork retail price that increased 100% ytd whilst wholesale prices only increased 50%, a topic that now has been tabled for discussion at the National Assembly.
Total credit growth has slowed down for some months now. Credit growth is at +7.6% ytd, money supply growth is up modestly at +3.6% ytd and total credit growth dropped -0.2% in July. Yet, inflation remains high. When a central bank's independence is limited, monetary policy is no longer the only tool in managing inflation. Instead fiscal policy and state sector investment inefficiency become equally important tools. In 2010 the Government therefore imposed a limit on non-core businesses of state companies, reducing the capital used for non-core businesses to 15% of paid in capital down from 30% previously. That explains a wave of divestments made by State Owned Enterprises ("SOE") recently despite the currently cheap valuations. Vietnam Post & Telecommunication divested its large holding in Maritime Bank and State Owned Commercial Banks are offering to sell their stake in other local banks. Investment as percentage of GDP has reduced significantly from 45% in 1H2010 to 38% in 1H2011 whilst the share of SOE investment in total investment dropped to 34% in 2011 from 43% in 2010. The newly elected Minister of Finance reconfirmed that SOEs need to cut down their investment and sell their non-core business.
Newly re-elected Prime Minister Nguyen Tan Dung delivered his inaugural speech which stated that the main tasks for the Government for the period 2011-2016 term were to tame inflation, stabilize the macro economy, restructure the economy and change the economic growth model. He also stressed the need to ensure social welfare, especially for the poor. This was the first time ever that the word "high growth" was not mentioned in a PM's inaugural speed; an encouraging sign given the current macro-economic conditions.
With the turmoil in the rest of the world the macro issues of Vietnam seem to pale into insignificance compared to the Greek Tragedy, the impending wider Sovereign Debt Crisis in Europe and US rating downgrade and a possible slow down in China. That said the real estate market in Vietnam is struggling. High interest rates are hurting borrowers and tight monetary policy is putting the brakes on credit growth with real estate lending seen as one of the major targets for the government to help achieve these cuts. Consequently there are a number of projects and developers out there who cannot sell or lease their buildings, especially residential apartments and offices, and are getting into serious problems with too much debt. Did Vietnam not learn from the Global Financial Crisis that too much debt eventually hurts? It would appear not. Whilst this may seem very gloomy for us real estate investors I am pleased to report that, at VPF, it is anything but.
It is true that our equity holdings have under performed over the previous months but we stand by our investments as the companies have fundamentally good land banks and projects that look nothing but very cheap at current prices. We will be holding these in the medium term and are still considering averaging down if the market gets much cheaper. Our main projects are not in the position to rely on massive pre-sales to fund the construction costs budget and can wait for the market to recover slightly in terms of liquidity before we launch. We try to position our projects to be defensive in the bad times so we don't get into distress. In short, we are under no pressure to sell. Now comes the interesting part. For the first time we have been receiving tentative calls from investors and developers who are willing to be realistic on price so desperate is their need for cash. Has the delay finally become distress in Vietnamese real estate? As VPF has some cash to spend we hope so. As more opportunities come onto the market we will use our network of contacts to make the most of this opportunity during this difficult time.
For further information including the full July Monthly Report please visit - www.vietnampropertyfund.com or contact:
Dragon Capital Markets (Europe) Limited | Tel: +44 79 71 214 852
Freddy Crossley / Laetitia McManus
Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: +44 20 7107 8000
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