Profit Hunter “Slingshot Opportunity in Vietnam”

By Travis Johnson, Stock Gumshoe, March 19, 2008

This one comes in from our dear friends in the land of tea and crumpets, but this time it is for an investment that is relatively easy to buy either in the UK or the US (unlike that last UK-listed teaser company we looked at that owns the “torpedo technique”)

The teaser is for the Profit Hunter newsletter service from Manraaj Singh, which costs a whopping 396 Pounds Sterling — at the discount rate they’re selling it for today. Normally 495. For the non-forex aware, that’s about $800 if you’d like to subscribe.

Or, if you’d just like their best idea, read on!

The teaser is for a country that matches their five “slingshot” criteria for a market that’s going to go up rapidly in the near future — and they show plenty of little charts of the Chinese and Russian markets to prove that yes, sometimes these countries’ markets do go up remarkably quickly and almost exponentially. Taiwan, the Philippines, and South Korea are also mentioned as showing these same “slingshot” tendencies before their economies and markets took off in the fairly recent past.

The slingshot criteria are fairly comprehensible things that make sense: big infrastructure spending; “HUGE” foreign direct investment; young, educated, cheap workers; growing foreign trade; and “cheap but rapidly growing stock market.”

They take credit for recommending Wynn Resorts back in 2004 as a play on China, which certainly would have worked out pretty well for them.

And of course, “promises” abound: “forecasts aren’t a reliable indicator of future results, but if you get in before this country “slingshots”, I believe it could easily double your money within 12 months… and realistically soar to THREE times its current level by the end of 2009!”

Sounds good, right?

Well, the “mystery place that can return three times your money” is Vietnam, which they do eventually reveal in the ad.

But what they don’t reveal is the best way to play Vietnam’s emerging economy and stock market (which has, like the other emerging markets, had it’s ups and downs in the last few months).

For that, we get one clue:

It trades in London, but is denominated in dollars.

That’s it.

Thankfully, the mighty Gumshoe is on your side, and the powerful thinkolator is rejuvenated after getting several days off for a bout with the flu … so I can tell you that this “best way to play Vietnam” is almost certainly …

The Vietnam Opportunity Fund (VOF in London, VTOPF on the pink sheets)

I say “almost” just because they gave so few clues, but I cannot imagine that they would be recommending something other than this investment fund that trades on the AIM market in London. Any other investment in Vietnam would be fairly indirect, like the banks that have invested there, but foreign ownership of Vietnamese companies is capped so none of the foreign companies investing there get to control their local counterparts. And it is a relatively odd bird in that it trades in dollars on the UK’s AIM exchange.

(There have been several other closed end investment vehicles and mutual funds for investing in Vietnam, but many of them have disappeared in recent years or broadened their focus, and none are as liquid or easy to trade as this one, or with as long a track record.)

And the Vietnamese stock market, though it was the darling of the emerging markets last year, is still teensy compared to what most of us are used to. There are fewer than 200 public companies, and a few large firms make up almost the entire market. I would not personally try to pick individual stocks in Vietnam, at least not now (and probably not for years to come) — their system just isn’t transparent enough, nor do I necessarily trust the government to cut back on bureaucracy, support private ownership over the long term, etc. etc. That’s why it’s “emerging,” of course.

It does make sense to me that an investment fund with expertise in the area is a good way to invest in Vietnam, should you feel the need to focus your energies on that one market. Do keep in mind that Vietnam has “opened” to investment before, only to crash and burn and disappoint everyone (and it wasn’t all that long ago). So this is a far different cry from investing in the multinational powerhouses of South Korea or Taiwan, certainly, and I’d think that any investment in Vietnam should certainly be considered “risk capital” in the strongest sense of the term.

But that said, they are growing fast, their labor is even cheaper than China’s, they have good models to follow in China for the opening of their markets and the benefits that brings, and perhaps they will eventually get a handle on their wildly inefficient infrastructure and bureaucracy. Certainly there’s a huge potential, the question is whether it will be realized, and who will realize it (outside investors? The government? Future generations?)

This is essentially set up like a hedge fund — the fund charges a 2% management fee, which is pretty high but certainly not outlandish for a country-specific investment fund. They also take their 20% incentive fee from profits that exceed 8% in a year. So if the underlying fund gets a 20% return, your actual return would be about 16%. All of these fees are based on the Net Asset Value, not the trading value (think of this like a closed end fund — the net asset value is the worth of the holdings, the actual trading price on the exchange will be either at a premium or discount to the NAV).

As of the end of January, the shares were trading pretty close to their net asset value, at a small discount, but historically it has usually traded at a significant premium due to the fact that there are few competitors or other ways for US and UK investors to get into the Vietnamese market.

Details about the fund can be found at their adviser’s website if you’re interested in researching further. Their mandate is to invest at least 70% in Vietnam, and they’re allowed to spread 30% to any combination of China, Cambodia and Laos if they wish.

The fund has been around for a while, and writers were urging caution and reminding about the volatility in Vietnam the last time Vietnam was on every investor’s lips — here’s a 2005 Business Week article about them, and a Roger Nussbaum article about VOF from 2006.

This one holds some interest for me, and maybe I’ll end up buying in at some point (though not for three days at least, per my disclosure rules) — but I haven’t looked at it in any detail for several months … I like that it’s trading more in line with the Net Asset Value than it was in past years, but unfortunately that’s largely because the market has come down a bit. If you’re convinced that Vietnam will “slingshot” this might be the easiest way to play that directly … but, as always with these volatile little markets, caution, caution, caution.

The big risks to this fund, other than the fact that it’s tied to such a volatile, tiny market, are a few as I see it: First, that the fund (and probably the market) plods along for several years with middling returns in the single digits, and your returns are eaten up by fees; Second, that competition brings cheaper entries, maybe even ETFs, that will allow you to trade Vietnam much more easily and inexpensively (doesn’t seem all that imminent given the limited size and liquidity of the Vietnamese exchange, but with the ETF boom you never know); and Third, that the managers will stink and underperform the Vietnamese market overall.

I’d actually be inclined to give VOF the benefit of the doubt at this point and say that the real overriding risk is simply the market itself, since they fund has tracked fairly closely to the market over time. Over the past year it has moved up and down roughly between $3 and $4, with the current price at the low end of the range, and that downturn that brought us here is recent — it went from $3 to $4 pretty quickly at the end of last summer, and spent much of the fall coming back down to three bucks. So Singh is at least right in saying that the market has had a nice pullback … whether or not it’s going to recover and become a growth darling again is anyone’s guess (yours?)

If you’ve got Vietnamese thoughts to share, or anything else, please feel free to add your two cents. Happy Investing!

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9 Comments on "Profit Hunter “Slingshot Opportunity in Vietnam”"

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Pete Ewing
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Pete Ewing
March 19, 2008 11:25 am

I have owned this for awhile. I think it will eventually catch fire as Vietnam has the lowest labor in Asia and will eventually have a big run up. Whether that is next year or 2011 I don’t know but there will be a run that could be worth playing.

Gravity Switch
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March 19, 2008 12:53 pm

Thanks Pete. I tend to agree with you, though it may take a strong stomach. If BRIC is volatile, Vietnam may be volatility squared.

David G
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David G
March 19, 2008 9:07 pm

I am based in Singapore, and can relate my recent observations. Lot of my interactions here are with ex-pat type who move around every few years to various locations within APAC, usually working for some US, EU or Japanese MNC. There has been a noticeable trend recently of expat families moving to Vietnam, and the trend has increased in the last 6 months, especially for high volume electronic component manufacturers. My observations are anecdotal evidence at best, but I am inclined to think that Vietnam will catch fire economically, and that this will happen not too far in the future.

Kay Arekay
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Kay Arekay
March 20, 2008 4:43 am
Some excerpts from Business Week of 18-April-2005: Vietnam Is Hot. Don’t Get Burned: In late March more than 200 guests thronged the ballroom of the five-star Caravelle Hotel. The occasion? The inauguration by International Data Group Inc. of its $100 million IDG Ventures Vietnam (IDGVV) private-equity fund and the unveiling of its first two investments in local software enterprises. IDG isn’t the only group that has recently rediscovered Vietnam. In the past 18 months, a gusher of new money has flowed into that country. The Dublin-listed Vietnam Growth Fund, managed by Ho Chi Minh City-based Dragon Capital Ltd., raised $60… Read more »
Big Mo
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Big Mo
March 20, 2008 8:56 pm

I tried to buy some from $3 all the way to $3.20, even when the market said last trade was $2.90. Every time I did, it said my order was “cancelled”. I gave up, deciding I didn’t want it after all since things were acting suspiciously. Yes, I understand there is a buy/sell spread, but generally your buy order isn’t cancelled until the end of the day on a day order.

Gravity Switch
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March 20, 2008 9:16 pm
Hi Mo. I haven’t checked the volume on this one on the pink sheets, but it’s probably pretty low. One thing that often works for London listed shares is to buy first thing in the morning, when London and NY are both open, so that there’s a clear price. If you bid a couple percent above the London price on these kinds of shares you can often get a fill. That’s just a general observation, I haven’t tried to trade this one — maybe it’s not as liquid on the pink sheets as it used to be. Just checked —… Read more »
Big Mo
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Big Mo
March 21, 2008 7:34 pm

Hi Gumshoe,
I got an e-mail from my brokerage firm. The market maker required a 1,000 share minimum purchase. That’s why my buy orders didn’t go through. Since it’s a pink sheet stock, I wasn’t willing to invest that much in the stock.
P.S. Thanks for the helpful insights.

Lorachell
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July 15, 2008 7:24 pm

GumShoe. .I enjoyed reading your posts and admire your frankness.

I have been working in Vietnam for quite some time, and agree with most of your comments.

However, we must be careful of the media wash so to speak. To be on the ground here is a slightly different story.

Stay tuned for news from Lorachell coming soon regarding the stock markets in Nam.

Best,

Eric Stevens

Doug
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Doug
July 25, 2008 4:54 am

Whats Locrachell regarding?

Thanks

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