ETF Returns broken down…continued

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Yesterday we went through the returns of the Vietnamese index in 1H2019. Key insights: foreign companies are important to the index, and these actually did quite well. But depreciation of the Korean Won (-4%) was negative Other than that, additions/changes to the index were somewhat important (6.6%).

Today I want to delve into the Vietnamese companies and their results. Within the Vietnam companies, there are five that really stand out for their outstanding performance:

VNM ETF COMPONENTS BY 1H2019 RETURN AND WEIGHTING. WEIGHTINGS ARE FOR THE BEGINNING OF THE PERIOD EXCEPT FOR THOSE WITH A * WHICH ARE END OF PERIOD. SOURCE: VAN ECK, VIETECON.COM

VNM ETF COMPONENTS BY 1H2019 RETURN AND WEIGHTING. WEIGHTINGS ARE FOR THE BEGINNING OF THE PERIOD EXCEPT FOR THOSE WITH A * WHICH ARE END OF PERIOD. SOURCE: VAN ECK, VIETECON.COM

  • Vingroup (VIC) - this is the biggest weight in the index (8%) and the largest in the market. The launch of the phone and the car are probably driving the solid 1H return, but its valuation is expensive at 92x P/E (even though of course P/E is not a good guide to future performance).

  • Vietcombank (VCB) - VCB is the largest bank with a weighting of 6%. The bank is growing quickly. Pre-tax profits were almost $800m in 2018, and the bank is guiding to $1bn by 2020, or 12% annual growth rate. The stock was up 32% in 1H, so it might be moving ahead of its growth trajectory. It is now trading at 4.1x P/B with an ROE of 21.9%.

  • Vincom Retail (VRE) - Right below VCB is Vincom Retail, which is 5% of the weighting and rose 19% in 1H2019. It is owned by Vingroup, as is VHM, which is also part of the index. Revenue was up 65% in 2018.

  • Hoang Huy Investment Financial Services (TCH) - We are starting to get to the smaller components of the index. TCH has just 1.8% weighting but was up 18% in 1H. The company is a conglomerate - it does financials, real estate, and trucks. In 2018, trucks made up about 87% of all revenue, but that’s changing as some real estate projects start to be delivered.

  • Vietnam Construction and Import-Export (VCG) - With a weighting of 1.6%, VCBG was up 21% in 1H. VINACONEX is a construction and real estate company. It looks like most of the stock’s rise is due to more property investment.

Looking at the ones that dragged down the results, it was mainly three companies:

VNM ETF WEIGHTED SECTOR RESULTS 1H2019. WEIGHTING BY YE2018 WEIGHTINGS FOR ALL BUT 2 STOCKS THAT WERE WEIGHTED BY JUNE 28 WEIGHTINGS. SOURCE: VAN ECK, VIETSTOCK, VIETECON.COM

VNM ETF COMPONENTS BY 1H2019 RETURN AND WEIGHTING. WEIGHTINGS ARE FOR THE BEGINNING OF THE PERIOD EXCEPT FOR THOSE WITH A * WHICH ARE END OF PERIOD. SOURCE: VAN ECK, VIETECON.COM

VNM ETF COMPONENTS BY 1H2019 RETURN AND WEIGHTING. WEIGHTINGS ARE FOR THE BEGINNING OF THE PERIOD EXCEPT FOR THOSE WITH A * WHICH ARE END OF PERIOD. SOURCE: VAN ECK, VIETECON.COM

  • FLC Faros Construction (ROS) - While the weighting of Faros is not in the top 10 (3.8%), it fell 19%. That had a significant impact on the index. The P/E is still very high (48x). Since November 2017, the stock has just fallen and fallen and fallen. The stock price back then was VND176k and is now VND23k. People have seen this stock as a risk to the index for quite some time: see this article in Barron’s and this article.

  • Bao Viet Holdings (BVH) - With a weighting of 4.6% and a decline of 12.5%, BVH also drive returns down. P/E continues to be high at 52x and a P/B of 3.8x. It’s an insurance company. Maybe the growth is not as attractive right now.

  • Thanh Thanh Cong (SBT) - SBT is a sugar company. Weighting is at 2.7% and the stock lost 13% in the half. It is part of a larger conglomerate. It’s not particularly expensive (15x P/E) and there is lots of growth on the revenue side (less on the profit side). But it is hard to find information on the company. I will have to look harder.

By sector, tech (the Korean companies) and health care (the Japanese company) and banks were the most impactful. In the chart above, we take the weighted returns of each sector to show the effect on the index.

Just a note here: Vincom Group makes up about 20% of the index. While the three companies are in different sectors, they clearly are important to each others (not to mention that Vincom conglomerates the other two). If Vincom starts to perform badly, then the index is probably going to underperform as well.

Correction: Finally, I said yesterday that the stock market was only up 8.8% compared to economic growth of c7%, but this is not like-for-like. It should be annualized, and on that basis the stock market is growing much faster than the economy. I do wonder, though, if economic growth and the stock market are correlated as much as people think. I would say no, but it’s something to look at. Some studies (pointed to here) have observed a negative correlation. Also, the impact of multinationals (which would be significant for VNM) is also a consideration.