RNS Number : 2906B
Vietnam Property Fund
13 April 2012
Vietnam Property Fund Limited
"VPF" or "the Company"
NAV and March 2012 Update
Fund NAV Performance
The NAV per share closed at US$0.758 on 30 March 2012.
GDP growth dropped from 5.6% in 1Q2011 to 4% in 1Q2012 which is the lowest level in 3 years. This reminds us of 1Q2009 when GDP growth was only 3.3% but still managed to reach 5.5% for the full year on the back of a strong 2H2009 recovery. Industrial & Construction was the main driver for this slow down as prolonged credit tightening played havoc in the property market, causing a sharp reduction in growth from 5.7% in 1Q2011 to only 2.9% in 1Q2011. Services were a smaller factor, declining from 5.9% in 1Q2011 to 5.3% in 1Q2012.
Vietnam started deleveraging in 2011 and reduced total credit to GDP from 137% in 2010 to 117% by end of 2011. This brought, not unsurprisingly, also a reduction in GDP growth. According to a McKinsey study covering 45 historical cases on the impact of deleveraging on GDP growth following a recession, GDP growth is expected to bottom out within 2-3 years from the commencement of deleveraging. Hence GDP growth may be expected to bottom out in 2013. However, given the low household debt, we believe Vietnam's economy may bottom out sooner and reach its bottom in 3Q/4Q2012 or early 2013.
The Consumer Price Index ("CPI") peaked at 23.1% in August 2011 and has trended down since. The March 2012 CPI came in at 0.16% month on month ("m/m") which is the lowest m/m inflation in the past 20 months, resulting in inflation of 14.2% year on year ("y/y") and 2.5% in the year to date ("ytd"). This is much lower than market expectation which anticipated that the 10% hike for petroleum prices should result in a 1-1.2% m/m inflation in March. Even though many analysts expect the second round effects of the petroleum price to affect April inflation, we believe that April m/m inflation should be lower than 0.5%. That means that headline CPI is expected to reach 10.8% in April and to drop to 9% in May. Total credit growth has slowed sharply for some months now. At the end of March 2012, credit growth even turned negative, i.e. -2.1% ytd, moving the worry from capping lending growth to stimulating it. Given the accelerated downward trajectory of inflation, we expect the State Bank of Vietnam to start accelerating its easing policies soon.
1Q2012's preliminary trade deficit was reported at only $250m, or 7.2% of 1Q2011. Given that exports and imports are highly correlated as most of the exports produced in Vietnam depend on imports we are keenly monitoring the outlook of export for the rest of the year (as the final negative impact might be delayed). We expect trade deficit to continue reducing and estimate it to reach $7bn in 2012 compared to $9.5bn in 2011.
1Q2012 has seen a good recovery in the stock market with the VN Index increasing by 25.5% by the end of March. We have finally seen some good performance from the majority of our listed equities with all but one showing positive growth for this period. Notable increases come from Hoang Anh Gia Lai +38% ytd, DIG +61% ytd and SacomReal +63% ytd which goes some way to recovering ground from the disappointing performance of 2011. It is still, however, a tough environment for those in the real estate sector although we are finally seeing the first glimmer of hope. Our patience to find the right deals and the patience of our investors not to force VPF into full deployment at the wrong time has paid off leaving us with cash at a time when equity capital is hugely valuable. There may be a light at the end of the tunnel but the tunnel is too long to save everyone. We are seeing more and more good deals from land owners and investors who are being put under extreme pressure by the banks and their other lenders. They need cash now and are finally beginning to accept that they have to take a haircut on project values in order to get cash fast. Watch this space as VPF is close to agreeing terms on a couple of opportunities.
Oversupply is still a big issue in most mainstream sectors with office and residential still struggling. A number of the luxury residential development projects that have been unable to sell apartments over the past 12-18 months have now decided to convert the unsold units to serviced apartments now that the projects are complete and ready for delivery. This is leading to oversupply in one of our previously favoured sectors which will no doubt drive rents down. It is, however, worth noting that, when the market recovers for residential for sale, the landlords are likely to sell their units which could lead to a serious dearth of serviced apartments at a time when they are likely to be needed most. At VPF, we continue to consider alternative investment opportunities with convertible mezzanine debt, healthcare and education being our favored areas today. The next 9 months in Vietnam are going to be very interesting in real estate and if the macro picture keeps on improving then we are going to be able to take our pick of opportunities and partners.
For further information including the full March Monthly Report please visit - www.vietnampropertyfund.com or contact:
Dragon Capital Markets (Europe) Limited | Tel: +44 79 71 214 852
Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: +44 20 7107 8000
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