Vietnam Property Fund Net Asset Value and October 2012 Update (7558Q)

TIDMVPF

RNS Number : 7558Q

Vietnam Property Fund

09 November 2012

Vietnam Property Fund Limited

"VPF" or "the Company"

NAV and October 2012 Update

Fund NAV Performance

The NAV per share closed at US$0.738 on 31 October 2012.

Investment Climate

The October Consumer Price Index ("CPI") came in at 0.85% month-on-month ("m/m"), much lower than the 2.2% m/m in September thanks to lower price increases in Healthcare and Education, but higher than the 0.36% m/m in October last year. As a result, CPI year-on-year ("y/y") rose from 6.5% in September to 7.0% in October. Recognising that sudden and large healthcare fee increases will strongly impact headline inflation and hit consumers hard, the Government has suggested to provinces not to adjust fees too fast. As a result Healthcare, which accounts for 5.6% of the CPI basket, slowed down sharply from +17% m/m in September to +5.9% m/m in October. Excluding Healthcare and Education, CPI increased 0.58% m/m in October which is lower than the 0.88% in September. Meanwhile Food and Foodstuffs increased modestly by 0.3%.

At the National Assembly meeting which took place in mid-October, the Government set the following goals for 2013:

   --          GDP growth at 5.5% (slightly higher than last year's goal of 5.0-5.2%) 
   --          Fiscal deficit of 4.8% of GDP (same as last year's goal) 
   --          Inflation of 7-8% (similar to the estimated year-end figure for 2012) 
   --          Trade deficit of below 8% of total export 

Given the expected 5.0% GDP growth this year, we believe that the goal of 5.5% GDP growth for 2013, which is lower than the 5.9% forecasted by International Monetary Fund, is achievable given that the short and long term goals appear reasonably balanced. At the National Assembly meeting, the Government also confirmed that it will stick with its original fiscal deficit target of 4.8% for 2012. However, considering the fiscal deficit after the ten months in the current year to date and the weak business conditions at present, it appears unlikely that the Government will meet its 2012 fiscal deficit target. Set against this background, the Government decided not to increase capital expenditures for development in order to leave some room for minimum wage increases and social benefits. We believe this to be a sensible decision as the fiscal multiplier effect for minimum wages is much higher than for public investment given the low efficiency of the state owned enterprises. It looks, however, unrealistic to simultaneously achieve GDP growth and fiscal deficit goals in 2013 unless the Government accelerates the economic restructuring to get out of the liquidity trap and improve the confidence of the private sector to encourage investments. Given the weak aggregate demand, we believe Vietnam should have targeted 4-5% inflation in 2013 instead of 7-8% in order to provide more room for monetary policies. The trade deficit goal for 2013 is US$10 billion assuming that export growth is 10% and import growth is 16%. This looks very much achievable as we expect export growth in 2013 to continue outpacing import growth, albeit by a smaller margin than in 2012. We are waiting for the detailed proposal provided by the State Bank of Vietnam to the National Assembly on 15 November on how to tackle bad debts.

Investment Update

Our view on the property market in Vietnam is that it is reaching its lowest point, probably since the Asia crisis back in 1997/98, with continued difficulties in sales, rentals and company governance. Further investigations of senior company officials at several listed real estate companies have led to poor performance in share prices although we believe that this will be short lived. Sales of residential units, particularly apartments for sale, remain virtually non-existent as buyers either cannot afford to buy or to wait for further reductions in prices. Many developers can no longer afford to continue construction and, as a result, the skyline of Ho Chi Minh City is full of stationary cranes. It is unlikely that many developers and land owners will be saved by a recovery in the real estate market. Distress is closer than ever here in Vietnam and it is therefore now the time to focus on opportunities and keep cash ready for purchases. We have finally seen some genuinely good value opportunities in the residential for sale sector to purchase cheap land and develop affordable town house and villa projects and we are confident that our patience will soon pay off. The market may be tough for most but our strong relationships with the best developers in Vietnam and healthy cash position stand us in a good position and will be beneficial going forward.

With our existing assets the story is not quite so positive but we believe we are not in as poor a position as most. In fact, our careful downside planning in the past, which has in the past been met with disapproval by other Vietnamese investors in this sector, are we believe helping to minimise distress. With our SSR project we have received a very good quote from a design and build contractor that will contribute to a reduction in the construction costs substantially, thereby making the project more affordable and taking advantage of economies of scale. Furthermore, we have been able to reduce costs to our JV company to a virtual minimum and we therefore don't need to launch sales whilst the apartment for sale market is weak. This will help to set us apart from our rivals who are being strongly damaged by interest accruals. We will, however, be ready to launch during the inevitable market recovery. It is tough here in Vietnam at the moment and we feel quite lonely on this emptying property investment playing field. It almost feels Darwinian in so far as natural selection removes more and more developers and investors from the game. Only the fittest will survive and at VPF we are very much still here.

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

Enquiries:

Rachel Hill

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

Tom Sheldon

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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