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Dragon Capital navigates Vietnam’s IPO wave

Dragon Capital navigates Vietnam’s IPO wave

Despite market volatility and the ongoing US-China squabble, it is an exciting time to be in the Vietnamese market.

Initial public offerings (IPOs), lifting of foreign ownership limits and a brand new derivatives market are driving the story for the emerging market star that gained 20% in the first quarter of 2018.

While the market fell in the previous quarter by 300 points to 900, investors seem optimistic about the IPO wave in the country. The VN Index is currently giving year-to-date returns of -7.34%.

In fact, the number of stocks on the Ho Chi Minh Stock Exchange has grown by 30 to 356 in a span of one year in a market backed by cheap valuations and an economy growing at over 7%.

International investors remained net buyers in the equity market in May, pouring in $1 billion in net flows, of which a whopping $1.22 billion went into a single IPO on the Ho Chi Minh Stock Exchange: Vinhomes.

The country’s largest real estate developer conducted the biggest share issue in Vietnam early May, reaching a market capitalisation of $13.5 billion.

However, it listed just when Vietnam’s equity market was nosediving, hurting shareholders. The stock, which listed for VND 114,700 ($5.01) has since fallen to below VND 110,000 ($4.8).

One such investor is Citywire A-rated Le Yen Quynh, portfolio manager of Dragon Capital’s Vietnam Equity Fund. Following the direction of the market, Le Yen’s fund fell 8.5% in the last three months, according to Citywire Discovery data.

Vinhomes is the tenth-largest holding for the Ucits fund, and accounts for 3.35% of the fund’s net asset value.

Meanwhile, Le Yen has avoided the IPO of Techcombank, the second largest private commercial bank in Vietnam, on high valuations.

‘Even though we think it's a solid bank, because of the valuations, we were very careful because it happened during a very hot time of the market,’ she told Citywire Asia.

The fund manager said that the pre-money valuation of the stock was close to three times price-to-book value, which dropped to about 2.7 times after the IPO.

‘They [Vinhomes and Techcombank] were very successful in the IPOs. A lot of foreign investors bought into the shares, but because the market corrected during the time they listed so the stock performance was not really good,’ she said.

The manager also participated in last year’s IPO of Vietnam Prosperity Bank, which contributes 6.61% to the fund’s net asset value.

The fund is growing its coverage as a result of the IPO wave. Previously, it closely covered 50 stocks, involving detailed forecasts and engagement with management teams, but with the growing number of companies coming to market, it has expanded the list to 60 stocks. It also added two research analysts in the last quarter.

The fund currently manages $95.5 million assets for foreign investors based in Europe, UK and Asia, including family offices in Singapore, and has total returns of 85.9% over the past three years.

Le Yen said she is awaiting further details for IPOs of mid-sized state-owned enterprises that are expected to take place later in the year.

The Ho Chi Minh-based portfolio manager is also looking forward to the further easing of restrictions around foreign ownership of domestic companies.

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