JEFF PRESTRIDGE: Brave investors might try Vietnam

Few people understand how the Vietnamese stock market works better than Dominic Scriven. For more than 30 years, the former fund manager at M&G has immersed himself in the country. He has learned the language (not easy); married a Vietnamese woman; and setting up a successful investment company called Dragon Capital.

The business is thriving. It employs 150 people and has £4 billion in assets under management, all in Vietnam. Scriven is proud of the fact that Dragon Capital is the largest private investor in the Vietnamese stock market.

Last week I caught up with the 59-year-old – not in Ho Chi Minh City where he lives (too bad, although the last time I was in Vietnam I had my watch expertly removed from my wrist by a gentleman on a motorcycle) . Like a good son, he was back in the UK to see his mother on Mother’s Day.

Dragon Capital manages one of three investment funds listed on the London Stock Exchange that invest specifically in Vietnamese equities.

Called Vietnam Enterprise Investments (VEIL), it has a market capitalization of nearly £1.2 billion and has been listed in the UK since 2016. The two rival funds are VinaCapital Vietnam Opportunity (VOF) and Vietnam Holding (VNH, managed by dynamic capital).

“As investors, we have occasionally made forays into other embryonic equity markets in Asia, such as Laos and Myanmar,” says Scriven. “But we always came back to Vietnam. It’s a market we know well.’

The country is in good economic shape. Although the Western world is consumed by the threat of a full-blown banking crisis and recession, Vietnam marches on. The economy continued to grow during the pandemic years 2020 and 2021, and forecasts indicate growth could reach 6.5 percent this year.

The main growth engine of the economy is strong inward investment. In the eyes of many multinationals, Vietnam is the ‘new China’ with an abundance of cheap labour. For example, Nike and Samsung have expanded their production bases in the country. As a result, more than half of Nike’s shoes and 60 percent of Samsung’s phones are made in Vietnam.

With a vibrant tourism industry and a burgeoning middle class with money to spend, the economic signs are positive. From a stock market perspective, things are more cautious. Markets are not driven by economic growth alone – and stock prices have fallen in response to fears of a global recession and higher interest rates.

They have also come under pressure as they are seen as risk assets as opposed to safe havens such as gold. The result is that the shares of VEIL, VOF and VNH have been withdrawn by 24, 10 and 20 percent respectively in the past year. They could shrink further if the panic sweeping through the banking sector in the United States does not subside.

Scriven isn’t too worried. Stock markets never rise in straight lines – and he is confident that the Vietnamese economy will remain in growth mode while the stock market will prove rewarding in the long run. On a positive note, Vietnam could be granted official emerging market status, a badge it has eluded. When this happens — next year is Scriven’s best guess — the stock market will be on the radar of more investors, especially powerful international institutions.

The elephant in the room is Vietnam getting caught up in the big geopolitical issue that is Taiwan. If China invades, will Vietnam have to take sides – and if so, will it jeopardize an economic model based on foreign investment?

Vietnam is an investment market for the brave. Scriven’s business courage (and nous) have made him rich. But retail investors should approach Vietnam with caution.

Yes, invest a little regularly – not a lot at once – and think of it as a long-term investment. Or maybe just view Vietnam purely as a dream vacation destination.

Prepare for a bank branch culling like no other

The way we access high street banking is changing. And if an expert I spoke to last week is right, the banking landscape is on the verge of a major transformation. Much bigger than I envisioned.

According to my mole—whose identity I’ve promised to protect—we’re hurtling toward a future where the nation’s largest banks collectively have no more than 1,000 branches. To put this in perspective, they currently have about 5,000 of them.

Such a savage culling of branches (14 more were axed last week by Barclays) would be mitigated by the establishment of 2,000 hubs – community branches run by the post office that customers of all major banks could use. So far, four hubs have been opened and another 43 committed, including five new ones announced last week.

The financial math explains everything. Closing a branch saves a bank an average of £1 million over five years, but funding a hub over the same period costs £250,000. Closing 4,000 branches will therefore save banks £4 billion, compared to the £500 million needed to fund 2,000 hubs.

The banks would be £3.5 billion better off as a result. So for them it’s a financial no-brainer.

Crucially, legislation passed by parliament must ensure access to cash. Until this becomes law, the big banks are likely to back off from making significant branch cuts for fear of criticism.

But once Royal Assent is granted in the summer, we’ll see an autumn clearing of branches like we’ve never seen before.

You read it here first.

Amanda, we need total coverage

“Bad Rap”: Amanda Blanc

I was listening to Amanda Blanc’s Desert Island discs while running a few days ago. Blanc, boss of insurance company Aviva, is a remarkable person, who has fought misogyny at various stages of her career.

Although she was slightly younger than me, her choice of music struck a chord – particularly A Town Called Malice (1982) by The Jam and Tainted Love (a year earlier) by Soft Cell, which she said was mostly the only record she she would keep. Music very much from my childhood.

At the start of the programme, Blanc was challenged by presenter Lauren Laverne about insurers getting a ‘bad rap’ for not paying claims. Her answer was that Aviva paid between 98 and 99 percent. A few days ago, after the program aired, Aviva released its 2022 protection insurance claims data. Such coverage includes life insurance, critical illness and income protection.

On average, 98.3 per cent of claims were met, resulting in payouts totaling £1 billion to more than 50,000 individuals. So Blanc’s boast was justified.

Still, claim rates varied by policy type. The highest (understandably) was for life insurance where 99.4 percent of claims were granted – the 0.6 percent of claims rejected was mainly due to policyholders not providing accurate information when they applied.

The lowest was on critical illness coverage, where the claims success rate was 93.5 percent. Aviva said this was due to not meeting the disease definitions.

“The world doesn’t work without insurance,” Blanc told Laverne. Absolute. But insurance doesn’t work for customers (or their loved ones) any more when the coverage they’ve paid a small fortune for over the years fails them in their hour of need.

For example, because their cancer is not considered life-threatening enough. Until we get to 100 percent, protection insurance will remain a little tainted. Amanda, to you.

Unhappy driving

Reader Jeremy Shipton was not happy when he contacted me. His auto coverage was due to renew next month, and his insurer First Central wanted to raise his annual premium by 46 percent. “I’m the same driver,” he told me. “I have the same car and no traffic violations. I’m being punished for loyalty.’

It is understandable that he has now given his insurer the proverbial shoe. The result? He’s bought an identical cover for £113 less than First Central wanted.

Jeremy is now a happy bunny. Shop around like Jeremy – and be happy.