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Manners opened the positions at the end of last year and is still buying, with a view to taking exposure up to 10%-15% of the Asia and Asia Smaller Companies funds.
“The Vietnam stock market has been in a five-year bear market – it looks like an Asian crisis-type decline,” Manners said.
The small-cap focused Hanoi index has seen a peak to trough fall of 88% between March 2007 and January 2012, while the main index, the HCM, has fallen 66% from March 2007’s peak to a low in 2009. The currency has also plunged 33% fall between 2008 and 2011.
“The currency has declined in value, which has been one reason people have fled the country generally as a place to invest,” the manager said.
“There were good reasons for the market to be falling last year – there was a huge inflation spike of 23% at its peak in the first quarter of 2011, but the annualised rate of inflation is 10%. Interest rates can fall dramatically in that circumstance, so it allows room for the market to rise.”
Manners said the median P/E of Vietnamese stocks is about 4.5 times 2012 earnings, and there are plenty of stocks on a P/E of two and with a 10% dividend yield. Some stocks are even offering a yield as high as 50%, she added.
“If interest rates start falling, the market could double from here.”
She has been focusing on domestic opportunities, including small banks, fertiliser companies, confectionary, and software.
However, Manners conceded there are several risks to Vietnam’s investment case.
“Risks may be that the government loses momentum in its progress towards reform. One of the other things to be aware of is that the currency could weaken further. You cannot pretend the market in liquid, but the value outweighs the risk. This is one of the most interesting opportunities I have seen in years.”
Elsewhere in Asia, Manners said she is uncertain on the outlook for China, as investors fret over the possibility of a hard landing. “I am agnostic on China. If you start digging deeply, it doesn’t look good, but we are going to get to the point where valuations are so cheap that risk/reward is to the upside.
“Price to book on the Shanghai index is at an all time low, but return on equity is much higher. We are close to being at a point where, historically, it looks daft.”
The two largest weightings in the Asia fund this year are to Hong Kong China at 35%, and ASEAN at 45%-55%. She will also hold 5%-10% in gold owing to the huge appetite for the commodity in India and China, and the same amount again in technology from across the Asia region, which Manners said has become very cheap in the last 12 months.