Vietnam Property Fund Net Asset Value and July 2012 Update (5811J)

TIDMVPF

RNS Number : 5811J

Vietnam Property Fund

08 August 2012

Vietnam Property Fund Limited

"VPF" or "the Company"

NAV and July 2012 Update

Fund NAV Performance

The NAV per share closed at US$ 0.780 on 31 July 2012.

Investment Climate

Trade balance in July continued to be positive for the second consecutive month. Total export was US$9.6bn while import was US$9.5bn, resulting in a US$100m surplus. Quarter on quarter ("3m/3m") core export slowed from 31% in June to 28% in July, which was expected given the weakening demand from the US and EU, whilst 3m/3m core import accelerated from 11.5% in June to 15.5% in July. The acceleration of import does not constitute a problem as it was caused by materials import for export manufacturing and capital investment rather than consumption which, 3m/3m in July, slowed from -1.8% to -4.7%. We therefore believe that import growth will stabilise in the coming months and that export will continue to slow but that it will still grow at a faster pace than import until year end. In view hereof we revised our previously conservative trade deficit forecast from US$4.2bn to US$2.2bn for 2012.

As food and foodstuffs continued to decline, inflation in July was negative for the second consecutive month, 0.29% month on month ("m/m"). This reduced year on year ("y/y")inflation from 6.9% in June to 5.4% in July, raising concerns about deflation. However, whilst aggregated demand is weak, core consumer price index ("CPI") is still high at 7.4% y/y. In addition, 8 of 11 CPI components increased over the last two months. Hence, it is too soon to be concerned about deflation. It is likely that food prices have bottomed out due to bad weather in the US and Russia. We therefore expect that monthly inflation will be mildly positive again in the coming months. CPI y/y will decelerate further to below 4.7% y/y before seasonal effects will make it rise to around 5.5% in December.

Credit growth remained slow in July, +0.57% year to date, which is well behind the new credit growth target of 2012 that has been reduced from 12% to 8%. It is expected that credit will only expand 4%-5% this year which suggests a worse than expected economic growth in 2H12. HSBC's Market Purchasing Managers' Index ("PMI") dropped to 43.6 in July from 46.6 in June offering further indication that real economic activities have not improved. In view hereof the Government announced its fiscal stimulus package comprising 1) accelerated public spending in 2H12 (on average 50% higher than in 1H12), 2) reduction of income tax for small and medium enterprises (SMEs) by 30%, and 3) extension of the VAT payment delay from 6 months to 9 months. The accelerated public spending is not really new as the Government has traditionally always spent 50% more during 2H. However, thevalue-added tax(VAT) payment delay extension will be helpful. Given the modest stimulus, however, it is unlikely that GDP will reach 5% in 2012. The only other hope for economic growth is a steady decrease in lending rates. We believe that 15% for lending rates is still too high and consider that further reductions of policy rates are still required.

Investment Update

It has been a rather quiet start to the new financial year in the Vietnam property market with slow sales in almost all residential projects being the norm for this beleaguered sector. Delayed completion dates and funding problems continue to beset office and hotel projects in Ho Chi Minh City ("HCMC") and Hanoi. The latter issue has left a bit of a hole in the office market with the majority of completed and income producing office buildings either full or filling up with little new space expected to hit the market any time soon. This has left a sweet spot for the few developers who have planned and budgeted well and succeeded in completing the construction of their buildings. This is particularly true of President Place, a new green office building in District 1 of HCMC, which is due to complete next month and is already over 30% let at rents of up to US$35/m(2) per month. Whilst some may see this as lucky, for us it is just reward for a development team that has delivered a project on time and on budget which is as rare as the Bengal tiger in these parts.

Our Investment Committee has been busy this month with several new projects being taken to the first stage of our recommendation and due diligence process. We continue to explore our strategy of looking at alternative sectors away from the traditional residential and office with approvals to continue with an investment into a very well run development company at the Topco level, to negotiate terms on a logistics / warehouse business in HCMC and even to look into the prospect of a cemetery project. Whilst there are signs of distress in the market, often the projects that are introduced to us are so beset with concerns that we cannot consider progressing them. We still hear the old story of developers not wanting to sell a majority share in their projects but rather burden with further debt in the vein hope that the market may save them as opposed to selling out, cutting losses and getting on with the next deal. This will change. We are well placed to take advantage of either further distress or, for that matter, a recovery in the market through our strategic investment with the aforementioned developer. The next six months will we believe finally lead us towards full investment in a market that remains very difficult albeit much more attractive.

For further information including the full July Monthly Report please visit - www.vietnampropertyfund.com or contact:

Enquiries:

Rachel Hill

   Dragon Capital Markets (Europe) Limited |            Tel: [phone] 

Freddy Crossley

Seymour Pierce Limited (Nominated Adviser and Broker) | Tel: [phone]

This information is provided by RNS

The company news service from the London Stock Exchange

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