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Shasha Li Mafli, fund manager of the Strategic Vietnam Prosperity Fund with Eric Sturdza Investments, explains in this interview why now is a good time to invest in Vietnam, Asia’s “Sweet Spot” as she says. Mafli also draws a parallel to China, arguing that Vietnam has a lot in common with the People’s Republic.
AsiaFundManagers.com: Vietnam is increasingly taking over functions from China in the manufacturing industry. How sustainable are the effects of the “China plus one” strategy of international companies?
Shasha Li Mafli: Vietnam is experiencing rapid industrialisation and urbanisation, and at the same time, is a direct beneficiary of the global corporate trend to diversify supply chains and outsource production, and so limiting dependence on China.
Unless the strategic competition that exists between the US and China changes fundamentally, we see no reason for international corporations to reverse a China Plus One response. Nevertheless, Vietnam is highly dependent on the global economy and China. Should global economic growth and China’s economic development continue to deteriorate, it would also be less favourable for Vietnam’s development.
AsiaFundManagers.com: Vietnamese equities have outperformed the broader emerging markets since 2018. What were the key factors?
Shasha Li Mafli: Thanks to higher government investments in infrastructure, and as a result new spending on many major projects, stocks in the materials and energy sectors have benefited. These sectors should continue to experience strong growth and re-rating.
In addition, Vietnam has over the past few years and continues to gain market share within the global export and manufacturing spaces, whilst also being an attractive Foreign Direct Investment (FDI).
AsiaFundManagers.com: How has this performance impacted valuations? What can we expect from Vietnamese equities in the current environment?
Shasha Li Mafli: Equity valuations look attractive with the VN Index trading at 10x forward price/earnings, one of the lowest ratios in Asia. Corporate earnings, reflecting the country’s improving economy, are projected to reach low double-digit growth in 2024.
Retail and consumer stock valuations also look attractive. In 2023, some firms in these sectors experienced the challenges of slower consumer spending as a result of a weaker economy, higher inflation and its associated impact on living costs. However, recent economic data indicates that growth and consumer confidence are improving.
The rising middle class in Vietnam with their increasing spending power is a theme that remains intact, with more favourable valuations. Based on this dynamic, consumption is the largest theme in our portfolio.
AsiaFundManagers.com: Vietnam’s demographic profile is unique. Over 60% of the population is under 30 years old. What exactly are the opportunities for investors?
Shasha Li Mafli: Vietnam’s remarkable economic growth this century is in part a result of its young, well-educated population of 100 million, and a skilled, productive labour force. The country also benefits from stable, business-friendly economic policies, and political stability. With a plethora of trade agreements and robust infrastructure, the economy is moving up the value chain – from agricultural exports to textiles – and to electronics, which now represent more than one third of the country’s exports by value.
AsiaFundManagers.com: Eric Sturdza Investments recently launched the Strategic Vietnam Prosperity Fund. What is your investment approach? What do you do differently from other Vietnam equity funds?
Shasha Li Mafli: In my 20-year career, I have focused on Asia’s equity markets and developed a deep understanding of its markets, both at the macro and micro level. At the same time, I have witnessed first-hand China’s growth from an emerging market to the world’s second-largest economy. While China’s transition was relative unique, there are parallels between Vietnam and China’s development. We believe that Vietnam is poised to experience growth similar to China’s over the past 15 years. This provides foreign investors with exceptional opportunities during the economic transition phase.
The Strategic Vietnam Prosperity Fund offers investors access to an equity market that is well positioned and experiencing considerable long-term economic growth. We focus on growth sectors of the Vietnamese equity market, through a proprietary investment approach leading to a differentiated investment portfolio, with construction undertaken in an independent, benchmark agnostic manner.
We analyse the fundamentals of Vietnamese companies in order to selectively seize opportunities and build a concentrated portfolio. We favour high-growth companies with high levels of cash flow, favourable valuations and stable or rising dividend payments. We find these primarily in sectors that we believe are undervalued by the market. These companies should also have a solid capital and ownership structure. Ultimately, our aim is to invest in growth-at-a-reasonable-price (GARP) stocks.
AsiaFundManagers.com: Which sectors of the Vietnamese economy do you focus on? Where do you currently find investment opportunities in Vietnam?
Shasha Li Mafli: As mentioned earlier, retail and consumer stocks offer fantastic investment opportunity, driven by Vietnam’s young population, rising wages and growing middle class. Another attractive sector is infrastructure, where investments by the government are supporting opportunities in the materials and energy sectors.
We are also optimistic about the real estate market. Over the long term, urbanisation is driving demand for affordable housing in cities; industrialisation is boosting the need for industrial space and retail modernisation is increasing the demand for commercial property. In the last six to eight months, interest rates have fallen, improving liquidity conditions and supporting this demand for real estate. We plan to continue allocating to this theme.
AsiaFundManagers.com: Vietnam is considered a frontier market. There is talk of an upgrade to an emerging market by 2025. What effect would this step have on investment flows and valuations?
Shasha Li Mafli: The Vietnamese government has set itself the goal of transforming the country’s economy into an Emerging Market by 2025, and of increasing market capitalisation to 100% of GDP from today’s 56%. It is already one of the fastest-growing economies in the world, with an impressive 6-7% annual GDP growth over the last two decades.
The government’s economic ambitions have implications for financial market development. The State Bank of Vietnam has cut interest rates, in a move to boost the economy, and we expect pro-growth policies to continue. There are already improvements to market liquidity and higher trading volumes as a result. At the fiscal level, public debt is 37% of GDP, which will allow the government to continue to invest in the country’s infrastructure while Foreign Direct Investment, especially into manufacturing, remains strong and is positive for growth and employment.
AsiaFundManagers.com: The Vietnamese stock market is lagging behind international standards in terms of accessibility. What needs to happen to make Vietnam’s financial markets more attractive for international investors?
Shasha Li Mafli: Vietnam is already proving attractive for foreign investors. FDI into Vietnam rose by nearly one third to around $37 bn in 2023.
As outlined above, many of the elements for increasing international investment into Vietnam are already in place, or in the pipeline. The country has a target for market capitalisation, categorisation as an Emerging Market, multiple trade agreements and diversified trade partners, political stability and consistent economic policies, infrastructure investments, and a young and educated population earning low wages by international standards. The country has tremendous growth potential.
We are convinced that combined, these factors will continue to support investments into the country.
Shasha Li Mafli
Portfolio Manager
Banque Eric Sturdza SA
Shasha Li Mafli is an Asian investment specialist with 20 years of Asian investment experience. Before joining Banque Eric Sturdza SA as a portfolio manager, she was portfolio manager with GL Funds – acquired by Bellecapital in 2016 – where she initiated an Asian thematic investment approach within the firm, and launched the Vietnam strategy in 2012.
