Vietnam Property Fund Net Asset Value and November 2012 Update (4589T)

TIDMVPF

RNS Number : 4589T

Vietnam Property Fund

13 December 2012

Vietnam Property Fund Limited

"VPF" or "the Company"

NAV and November 2012 Update

Fund NAV Performance

The NAV per share closed at US$0.73 on 30 November 2012.

Investment Climate

The HSBC Vietnam Manufacturing Purchasing Managers' Index ("PMI") increased to 50.5 in November, up from 48.7 in October. Although the PMI only increased marginally, the latest figure was the highest since September 2011. The improvement in operating conditions was reflected by a return to growth in both production levels and new orders during November. The production index continued to increase to 51.3, a steady improvement from the low of 41 in July. New orders increased despite a drop in new export orders, which means that the demand is domestic-led. Another positive indicator is that employment showed the fastest monthly increase in 20 months, which means that more firms anticipate a recovery soon. Imports of vehicles and vehicle parts improved also and motorcycle imports showed improvement too, from -66% quarter on quarter ("3m/3m") in September to -45% 3m/3m in November. Automobile imports growth has stopped falling in the period since July. However, the backlog of work index is still indicating low capacity utilisation while the output price index still shows contraction. We will need to see whether the PMI will continue improving in the months ahead before we can safely call a sustainable recovery.

In a recent meeting, the Prime Minister ("PM") stated that the Government will accelerate the restructuring of state owned enterprises & banks and that it will aim to contain inflation below 6% in 2013, which is lower than the target of 78% approved by the National Assembly. This is without doubt an encouraging signal from the PM as it implies supportive Government policies. If this target can be attained the Government will have more room to maneuver with its monetary policy, especially as the forex and gold markets are now stable. In our opinion, a 6% target, however, is tough but feasible given the current weak aggregate demand. To achieve this target the Government will need to improve domestic food supply and avoid sudden shocks to healthcare and education prices. Lending rates are still high at between 14-16% while interbank rates are below 4-5%. We believe this implies that lending rates could go down much further as and when the banking system liquidity is solved thoroughly and inflation is reduced further. However, room for further fiscal stimulus is small given the low efficiency of the public sector and the current high level of budget deficit.

The State Bank of Vietnam (SBV) has bought US$8 billion year-to-date ("YTD") to increase forex reserves, implying that current forex reserves should be above US$21 billion. Next year we expect exports to continue to outpace imports and the balance of payments to show again a surplus of more than US$6 billion. We also forecast CPI year on year ("y/y") will accelerate slowly to 9-10% until Q3 2013 given its low base in 2012, but then it will go down to below 8% y/y again in Q4. We therefore expect the Vietnamese Dong (VND) to remain stable in 2013.

Investment Update

As we move towards the end of a very challenging year it is worth highlighting that distressed opportunities are now available in the real estate market in Vietnam for the first time since the inception of the fund. The market is still very weak from an end user point of view, as indicated, by example, through flat or negative office rental growth and residential sales remaining very slow. We do, however, get the feeling that there is quite a lot of pent up demand waiting for the market to bottom out. The number of distressed, or at least reasonably priced, projects increases on a weekly basis and whilst the majority of these are essentially uninvestable for foreign investors such as ourselves (due to issues relating to ownership/title, land compensation, debt/banking or local partners) there are good deals to be had. The banks themselves have even started to contact us to try to off-load some of the projects they hold as collateral over non-performing loans. Going back to the question of demand, anecdotal evidence suggests that there is a potential wave of investors and owner occupiers who would consider buying villas, townhouses or apartments when there is a general consensus that the market has bottomed out. We expect that this may happen in 2013. There is not going be a wholesale recovery in every subsector although we feel the polarised nature of the residential market will favor well located luxury villas - especially with river frontage - or affordable townhouse units with land and freehold title. The hugely oversupplied mid to high end apartment subsector will continue to underperform for some time. To succeed the focus must be on Vietnamese buyers as the Vietnamese still want to own land, not apartments. Land prices are now low enough that we feel comfortable to be able to deliver good quality units at prices that salaried professionals will be able to afford.

We have managed to source a number of interesting projects and the background work we have put in this year is beginning to bear fruit. It has been a very frustrating 2012 for the VPF team as struggling sellers have continued to maintain unrealistic prices for what we consider distressed products. We have therefore spent the year concentrating on building and maintaining relationships so that we can push the button quickly on the best deals when they come forward. We have found it hard to find good development partners with a solid track record of delivery and sales but we are confident that we now have a small but strong stable of excellent partners to call on when the right projects come forward. It is our conclusion that not having an 'in house' development team here at Dragon Capital has been the right move as we can select a development partner who we think will be most appropriate for each scheme as opposed to picking our projects based on our expertise. We anticipate that in the run up to Christmas this period will be a busy period for VPF's Investment Committee as we carefully select the best projects and benefit from the empty playing field we are currently standing on. We believe our strategy of focusing on distressed assets is proving to be the right one.

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

Enquiries:

Rachel Hill

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

Tom Sheldon, Richard Thompson

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

This information is provided by RNS

The company news service from the London Stock Exchange

END

NAVTJBMTMBTBBPT