Even before the coronavirus pandemic, it was pretty obvious that President Trump was not a great fan of Chinese president Xi Jinping.
Covid-19 has intensified those tensions and prompted many companies across the world to question their reliance on China for supplies.
But cut-price clothes and component parts have to come from somewhere so big businesses have been looking beyond China to find what they need, especially as Chinese labour costs are nowhere near as low as they used to be. One of the key beneficiaries of this trend is Vietnam.
New force: Vietnam, whose striking dragon bridge in Da Nang is now a tourist attraction, has been driving ahead
Vietnam has been transformed in recent decades, generating economic growth of around 6 per cent per annum since the Millennium. An increasing number of international companies source goods from the country, the government is committed to growth and there is an expanding middle-class with money to spend.
The country has also fared far better than most through the Covid-19 crisis, with just a few hundred cases and no known deaths. The government took vigorous action early and a three-week lockdown was eased at the end of April, allowing people to return to work and restaurants, bars and shops to reopen.
Most experts believe that, even if Vietnam’s GDP growth is constrained his year, the long-term outlook is sound.
The VinaCapital Vietnam Opportunity Fund provides UK investors with access to Vietnamese economic expansion and the fund pays dividends too so shareholders can enjoy capital growth and income.
Known as VOF, the fund was set up in 2003 and originally joined AIM but it moved to the main market in 2016 and is now a member of the FTSE 250 index. The shares are £3.32 and should move higher over the coming years.
The group is managed by Andy Ho, formerly a director at UK life assurer Prudential. Under his leadership, VOF has developed a track record of success, investing in a wide range of local companies with long-term potential.
In many cases, Ho begins to invest in firms when they are still privately owned. Extensive checks are carried out on these businesses to ensure that growth plans are robust and sustainable.
If an investment ensues, Ho and his team often take board positions so that they are actively involved in the companies’ development. Over time, these firms are either sold, at which point VOF receives a share of the proceeds, or they list on the Vietnamese stock market, at which point VOF becomes a major shareholder.
The approach has delivered consistent rewards. Today, 80 per cent of the quoted companies in VOF’s portfolio began as private investments, which have been transformed into major corporations.
Construction group Hoa Phat, for example, was a private company valued at $400million (£315million) when Ho first invested in the business in 2007. Today the group is one of the top ten listed firms in Vietnam, worth more than $5billion.
VOF also has a sizeable investment in Vietnam’s largest jewellery group, Phu Nhuan Jewelry, which buys and sells gold as well
Another investment, in leading dairy company Vinamilk, dates back to 2005 when the firm was privately owned and valued at $500million. Today, it is worth more than $8billion.
VOF also has a sizeable investment in Vietnam’s largest jewellery group, Phu Nhuan Jewelry, which buys and sells gold as well. There is a strong tradition of gold investment across Asia and Phu Nhuan has benefited from this during the coronavirus pandemic, even as sales of traditional jewellery have waned.
Overall, just over half the group’s portfolio is invested in companies quoted on the Vietnamese stock exchange. These cover a variety of sectors, including banks, information technology, construction and food.
Around 40 per cent of the portfolio is devoted to private firms, where Ho and his team can invest in businesses early and reap the rewards as they grow. Covid-19 has thrown up some clear opportunities here, as business owners have become more willing to sell to a deep-pocketed and experienced operator, such as VOF.
Today the group is in talks with a number of firms in areas such as healthcare, education, food and drink and the manufacture of recyclable products – sectors that are likely to grow, almost regardless of the macro-economic climate.
Later this week, VOF is scheduled to update investors about its performance during May. The figures are expected to be good.
Over the years, VOF has invested in more than 200 businesses and built up a wide network of contacts across Vietnam so the group sees opportunities that others do not and times investments well.
A 5.5 cent (4.37p) dividend was paid last month and a similar amount is forecast for November, creating an annual payout of around 11 cents (8.74p).
Dividends are declared in cents because the dollar is the number one global currency but UK investors are paid in sterling.
Midas verdict: Investing in emerging markets is never risk-free but the Vietnam Opportunity Fund has proved its worth over the years and should continue to deliver, as the country expands and develops. At £3.32, the shares are a long-term buy. And the dividend is an attractive bonus.