2. Your capital Capitali z e d
Table of Contents
Chairperson’s Statement. .................................................. 3 Historical Performance........................................................ 9
Macro Review................................................................................. 4 Portfolio Summary................................................................... 10
Fund Director’s Message.................................................... 6 Extract of Financial Statements
(unaudited). ..................................................................................... 14
Important Note: This Annual Report is published to the Investors of Viet Capital Fund (Fund). This Report carries a variety of information which is all for informational purposes only and not based on the particular circumstances of any
addressee. The information herein is not construed an offer or solicitation to buy or sell the Fund Certificate or other securities in the Fund’s portfolio nor is it construed an advice or an expression of VCAM view as to whether a particular security
or financial instrument is suitable or appropriate for the addressee and meets his/her financial or any other objectives. As a result, VCAM shall not be liable for any loss and/or damages regarding results from its usage. The Investors should
therefore not rely solely on this Report and should obtain separate legal or financial advice in evaluating whether or not to buy or sell any securities or other financial instruments, including the Fund Certificate and other securities of the Fund’s
portfolio. All the figures are quoted in Vietnam Dong unless stated otherwise. Some figures may not total due to rounding effect
3. Chairperson’s Statement
Dear Valued Investor,
The year 2008 has seen a dramatic and painful decline
in both international and domestic stock markets, and our
funds have not been spared from the turmoil. Being an
investor in these difficult times can be unsettling because
there seem to be few safe havens from the uncertainty
created by the dramatic global downturn. Prudent risk-
management strategies such as diversification and high-
quality stock screening may have helped reduce losses,
but they certainly could not fully avoid them as the
breadth and depth of the decline was broad-based and
systematic.
fear. We continue to believe in the prospect of the
In times like these, taking a step back to gain perspective domestic Vietnam economy, and we are using our rigorous
and to absorb the lessons learned is important. Experience understanding of the market to position ourselves for
has shown us that the importance of top down economic capitalizing on the opportunities in it. Our business is
analysis cannot be underestimated, especially for a frontier managing our investors’ assets, and our long-term success
market like Vietnam – where the contagion effect can be is tied to our maximizing the value of our investors’ portfolio.
dramatically stronger, and market confidence is more fragile
and vulnerable to shocks. We have learned that during Please take a moment to read our annual report. Your
such financial downturns, emotional responses do not produce fund’s director provides a candid assessment of recent
good results and succumbing to the prevailing fear is not performance which will help you understand how the
prudent. Rather, maintaining a long-term perspective, fund is managed, and our perspectives for the upcoming
staying focused on fundamentals, and having discipline year. We know it has been a very difficult year for equity
are the keys to overcome such a systemic crisis. investors, and we thank you for your support and confidence
in Viet Capital. We look forward to your feedback, and we
This is what we are currently doing at Viet Capital. Our will continue to work hard to outperform the market and
research team rigorously analyzes global markets to indentify your expectations.
trends and important factors that will have an effect on the
domestic economy. Meanwhile, our experienced team of
analysts and portfolio managers continually examines our
portfolio holdings to make sure each of our funds’ holdings
still adhere to our core investment strategy and fit into our
value model in this market environment. Before we revise
our outlook or make a decision to buy or sell any position,
we rely on our own proprietary research and internal
Phuong Nguyen
investment process. This disciplined approach is a core
Chairperson
part of our values and what we expect to differentiate your
April 8th, 2009
performance over the long-term.
As painful as this downturn is, it has created attractive
opportunities for investors who can see beyond the
Annual R epor t 2008 3
4. Macro Review
A year ago, it would have been hard to imagine that a “Black Swan” was lurking
global financial markets – one of the steepest and most unpredictable declines
in a generation. While year 2007 ended with healthy worldwide economic expansions,
year 2008 ended with a global confession that the world economy has entered
the worst recession since the Great Depression.
The most significant contributor to the global recession on a fragile economy that had been suffering since
is the liquidity crisis that grew out of the US subprime December 2007 – the official start month of the US
mortgage meltdown in mid-2007 and intensified markedly recession as defined by the National Bureau of Economics
during 2008. The bursting of the US housing market Research. European and Asian economies deteriorated
triggered a sharp increase in mortgage delinquencies as well. The UK faced bank failures, weak housing market
and foreclosures which in turn led to hundreds of and growing unemployment rate. Germany’s exports
billions of dollars in financial losses and write-downs on slumped in response to weakening status of emerging
mortgage-related securities. The scale and magnitude markets. In the meantime, Japan was still in face with
of the losses magnified in September of 2008 when deflationary pressures while consumption slowed down
Lehman Brothers filed for bankruptcy and several other visibly in China.
major-league institutions - including Merrill Lynch,
Goldman Sachs, Fortis and AIG – avoided bankruptcy by Condition of the Vietnamese economy in 2008 was
either seeking federal assistance or accepting takeover similarly challenging. During the first half of the year,
offers from competitors. Governments around the world prices of commodities, food and energy surged, with
responded with aggressive and unprecedented level many commodities reaching all-time highs; trade
of intervention – all with the goal of restoring global deficit stemmed from dependence on external supplies
confidence against the backdrop of systemic weaknesses of input material for the economy escalating to USD 14.2
and unbalances stemming from dependency on US billion in first six months. These factors had led to the risk
trade and budget deficits, lax control over banking of skyrocketing inflation. Overheated credit growth,
system and derivatives market, overleveraged corporate excessive capital inflows together with growing real
and private sectors. estate market bubble further facilitated the rise in
consumer price index. In response, the State Bank
Collapsing financial markets had a cascading effect of Vietnam implemented aggressive tightening
and took their toll on real economies worldwide. monetary policies by forcing banks buying treasury
Unemployment rose dramatically in the US, weighting bonds and raising interest rates and required reserves.
4 Vi e t Ca p it a l Fu nd
5. The measures took effect but have also put the banking property market and low aggregate demand deteriorated
system in a liquidity crisis which immediately spread corporate earnings growth. Worse, the meltdown of the
to consumers and enterprises, in turn led to meltdown stock market further weighted on earnings of companies
of the stock market, falling property market prices involved with financial investments. Around 30% of
and rising bad debt in the banking system. Despite listed companies on HOSE and HASTC bourses posted
the difficulties, the banking system was still able to negative year-on-year earnings growth in 2008. By the
successfully override the economic storm thanks to end of year 2008, many companies traded at 4 to 5 times
Government’s guarantee that no bank in the system lower than their 52 week high.
will collapse.
Although the fundamentals of Vietnam economy are still
During the second half of the year and especially after solid: high social stability, inflation under control and
September 2008, the domestic economy took a drastic stable banking system supported by pretty flexible and
turn along with the rest of the world. Commodity prices appropriate economic policies by the Government, the
plummeted back to earth, consumption decreased 2009 year ahead will be a challenging year for Vietnam
dramatically and exports started declining as global economy and stock market. Weaker international and
demand waned. As consequences, inflation eased; trade domestic demands, higher unemployment, exhaustion
deficit gap narrowed with USD 17.5 billion at year end; of private investments and rising protectionism will
FDI – which reached a record high of USD 64 billion finally have impacts on economic growth and corporate
registered and USD 11.5 billion disbursed – showed profitability.
signs of contraction as global risk aversion skyrocketed.
Government policies were quickly switched from
tightening to loosening monetary and fiscal policies to
deal with the risk of slower growth. As a result, banking
system was provided with adequate liquidity, interest
declined and many companies especially real estate
ones avoided a collapse.
Vietnam economy ended year 2008 with real GDP growth
for the year was 6.2% instead of the previously planned
8.0%; CPI ended at 20.0% from the peak of 28.3%; the
USD/VND exchange rate stabilized at 17,200-17,500 due
to stable FX policy, relatively solid foreign reserve and
the country’s low short-term external debt.
Given difficulties in the domestic and global macro
economy, domestic equities spent most of the year on
a downward trajectory that grew steeper as the year
progressed. For the year-end, domestic equity indices
were down approximately 66%. While anxiousness for
the economy’s structural issues, aggressive monetary
policy have driven down the market during the first
half of the 2008, ashes of US subprime mortgage crisis
pushed the Vietnam stock market over the cliff during
the last months of 2008. High cost of borrowing, frozen
Annual R epor t 2008 5
6. Fund Director’s Message
Year 2008 will be memorable to most investors as the most turbulent and challenging
year for the domestic stock market since its inception. The Vietnam Stock Market
lost over 66% of its value during the year as a deepening global credit and liquidity
crisis was threatening world financial markets and a systemic recession in
advanced economies was taking its toll on the domestic real economy. Even
relatively defensive and stable safe havens such as utilities and health care
sectors lost over 50% last year
In this harsh market conditions, our fund was not spared in the expanding 2007 economy became top losers in
from the turmoil and suffered a 57% decline. While our the contracting 2008 economy.
portfolio outperformed the broader market for the year
due to our risk-aware strategy, careful stock screening Facing a freefalling and illiquid market while having an
process and bias towards strong fundamentals, the overweight position in OTC asset class, we switched
magnitude and breadth of the market decline was too our short term objective from capital appreciation to
much for the portfolio to overcome. capital preservation and placed portfolio liquidity as
our primary objective. We took advantage of bull traps
The fund’s NAV was hit most by performance within the and bear market rallies to transfer our investments into
OTC asset class. Many of our investments have been cash holdings. We also limited our reinvestments targets
heavily marked down due to companies’ sensitivity to to highly liquid and dividend-paying stocks. Finally, we
movements in commodity prices and exposure to real implemented flexible enter and exit strategies in order
estate. During periods of weakening macro-economy to minimize short-term downside risk.
and decaying market liquidity, this asset class becomes
especially more illiquid relative to listed stocks and While the implementation of the tactics was not an easy
hence, is further discounted. As a result, strong gainers task due market illiquidity and the random occurrences
6 Vi e t Ca p it a l Fu nd
7. of bull traps, it still had a significantly positive effect on potential the market underestimates. Though we expect
our portfolio’s performance. Portfolio liquidity improved more choppy times ahead for the market, we are also
appreciably and overall exposure to aggregate macro- taking advantage of this opportunity to acquire high-
economic uncertainties was reduced. Consequently, quality businesses that we believe had been overvalued
NAV has decoupled and we outperformed the broader but are now undervalued, in our view. Hence, high portfolio
market despite our large position in illiquid OTC asset liquidity with emphasis on high-quality companies places
class. As of year-to-date, our portfolio has been placed in us in a secure position for the upcoming uncertainties
a more secure and flexible position. and at the same time allows us to be flexible for an
upturn when market confidence recovers.
As we look ahead to the rest of the year, the stock market
will likely continue to face a challenging environment As a final note, we thank you for the confidence and
in 2009. The primary reason is because the depth of the support you have in placed in us, particularly during such
global recession is still unknown and its true severity a challenging and turbulent time for stock investors.
on the domestic economy is yet to be determined.
Although the fundamentals of the economy and the
stability of the banking system are sound, it will take
some time for the stimulus packages and policies to take
traction and for the market to regain its confidence. In
the midst of these uncertainties, we confidently believe
that one thing has held true: markets do recover. And,
while this crisis is painful it has also created attractive
Linh Nguyen
investment opportunities for our dedicated research
Viet Capital Fund Director
team to identify and capitalize upon.
April 8th, 2009
The experience of 2008 taught us valuable lessons and
enabled us to adjust our investment process accordingly.
We are confident in our investment strategy for the
coming year – emphasizing rigorous research and
comprehensive analysis that incorporates views from
global economic trends down to firm specific details. In
particular, our asset allocation strategy follows a
risk-aware theme that seeks to minimize portfolio
volatility in the short term and at the same time provides
liquidity in anticipation of market recovery. Meanwhile,
our equity investment strategy as fundamental value
investor emphasizes on identifying companies with
resilient core business earnings, sound balance sheet,
and solid corporate governance structure but whose
Annual R epor t 2008 7
9. Historical Performance
- 66% -57% 418bil.
2008 Index Loss 2008 NAV Loss NAV 2008
VCF’s 2008 Performance
100
71
55
51
50 43
Dec ’07 Mar ’08 Jun ’08 Sep ’08 Dec’08
The VCF return in 2008 while disappointing in absolute terms (-57%) has outperformed the broad
market in relative terms. This figure takes into account the provision of VND 84.6 bil for Ngo Han
and Ha Giang and Ben Thanh in December 2008
VCF’s Performance since inception
175
150
131
100
119
64
54
50
Dec ’06 Mar ’07 Jun ’07 Sep ’07 Dec’07 Mar’08 Jun’08 Sep’08 Dec’08
Since inception, VCF has shown a more stable performance (net of fees) than the market. The Fund
has grown steadily in the uptrend while partially resisted against the downtrend, thus consistently
outperformed the gauge since Nov 2007
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD VNIndex
2007 1% 11% -1% -2% 2% 8% -5% 1% 7% -1% 11% 0% 32% 23%
2008 -9% -17% -7% -10% -19% -3% 5.5% 3% 0% -7% 1% -17% - 57% - 66%
The return is calculated on month by month basis. The YTD figures represent the annual return.
Annual R epor t 2008 9
10. Portfolio Summary
Asset Allocation Movement in 2008
39% 17% 18%
2%
Cash
Listed
22%
OTC
38% 44%
59% 61%
1000 927
517 456
HASTC 399
500 315
VN-Index 323
181 148
112 105
Dec ’07 Mar ’08 Jun ’08 Sep ’08 Dec’08
Allocation by Sector
Cash 38%
Oil & Gas 5%
Healthcare 9%
Financials 11%
Industrials 21%
Basic materials 7%
Consumer goods 9%
0% 10% 20% 30% 40%
10 Vi e t Ca p it a l Fu nd
11. Major Movement Action Effect Top Holding Sector %
in 2008 Investment
DHG Reduced + DHG Healthcare 8.5
GMDv Sold + Ngo Han (*) Industrials 8.3
TRC Sold + Searefico Industrials 7.7
DQC Reduced + Eximbank Financials 7.1
Vinacafe Sold + PVDI Oil & Gas 5.4
VNM Buy + Masan Consumer Goods 5.4
VSC Buy - Ben Thanh (*) Financials 4.2
(*) The effect on NAV is calculated by comparing the (*) At revalued prices based on VCAM’s calculation
buying/selling price and the market price on 31/12/2008
Top Gain/Loss % NAV
Searefico - 7.7
DQC - 7.0
DHG - 6.3
Ngo Han - 5.1
Eximbank - 4.8
VNM + 0.1
PVD + 0.1
Including realized and unrealized gain/loss calculated
based on the price at the beginning and the end of 2008
and opening NAV of 979 billion.
Annual R epor t 2008 11
12. Portfolio Summary (cont.)
DHG Company Searefico Company
Year 2008 Year 2008
Charter 200 bil Charter 80 bil
Revenue 1,513 bil Revenue 392 bil
Earnings 137 bil Earnings 17.7 bil
ROE 18% ROE 6.1%
Debt ratio 1% Debt ratio 0.5%
Next year Earnings 157 bil Next year Earnings 16.5 bil
Hau Giang is a leading enterprise in the pharmaceutical sector Searefico provides industrial refrigeration system including
with annual sales accounting for more than 10% of total domestic consultation, design, equipment supply, installation and
production volume. The key competitive advantage of the maintenance. The company also specializes in mechanical
company lies beneath its nationwide distribution system & electrical business consisting of air conditioning system,
which has been firmly established, effectively controlled and electricity, automation for office and residential buildings,
developed. In 2008, despite unfavorable market conditions, hotels, industrial factories, and other construction projects.
the company managed to sustain sales growth at 19%, highest Searefico is the market leader in panel and industrial refrigeration
in the industry, and slightly improved profit margin from in Vietnam and one of the top players in mechanical &
9.0% to 9.1%. The company has invested in a VND 200 billion electrical with well-known projects such as Park Hyatt Hotel,
factory with more advanced technology to expand capacity Sheraton Hotel, Legends Hotel and Fideco Tower.
and meet increasing market demand
Masan Company Ngo Han Company
Year 2008 Year 2008
Charter 257 bil Charter 227 bil
Revenue 1,922 bil Revenue 843 bil
Earnings 381 bil Earnings 2.1 bil
ROE 38% ROE 0.82%
Debt ratio 12.7% Debt ratio 45%
Next year Earnings 500 bil Next year Earnings 21 bil
Masan is the market leader in the culinary segment of Ngo Han Joint Stock Company is the leading magnet
Vietnamese food industry with 30% market share. Masan’s wire manufacturer in Vietnam. Ngo Han produces round and
core products include soy sauce, fish sauce, instant noodle rectangular magnet wire of various sizes. Starting 2009, the
and seasonings; of which the brand Chin-su is now one of company will manufacture and sell busbars in Vietnam. The
the most popular brands to Vietnamese consumers. The company possesses approximately 40% of the domestic market.
company has broadened its direction by not only focusing on In 2008, Ngo Han produced and sold 5,812 tons of copper
premium niche market but also targeting mass market with cable and 253 tons of aluminum cable.
middle-end products. Masan is also planning to penetrate
into the lucrative noncarbonated beverages market in the
next few years.
12 Vi e t Ca p it a l Fu nd
13. Ben Thanh Company Eximbank Company
Year 2008 Year 2008
Charter 88 bil Charter 7,220 bil
Revenue 302 bil Operating Income 1,974 bil
Earnings 16.7 bil Earnings 723 bil
ROE 7.2% ROE 7.4%
Debt ratio 22% NIM 3.7%
Next year Earnings 17.7 bil LDR 67%
Ben Thanh Trading & Service JSC (TSC), the flagship member Bank for Import and Export of Vietnam, Eximbank, is the largest
unit of Ben Thanh General Company (Sunimex), involves in real joint stock commercial bank in Vietnam with total charter
estate, trading in commercial field, handicraft, merchandises, capital of VND 7,222 bil. Eximbank provides consumer and
and home appliances. The company controls several properties corporate banking services, corporate and consumer deposit
in prime locations in District 1, specially around Ben Thanh and lending, trade financing, as well as international settlement
market on Le Thanh Ton and Le Loi streets, with total land area and clearing. Eximbank is a leader in trade financing with a
of 5,500m2. In additional, TSC also manages 69 shops at Ben wide network of 120 branches. In 2008, Eximbank met its
Thanh market and 54 shops at Dan Sinh market, and holds target of having profit before tax and provision of VND 1,317 bil.
large stakes in other potential companies.
Ha Giang Company
Year 2008
Charter 10 bil
Revenue 56 bil
Earnings 25.5 bil
ROE 39.8%
Debt ratio 34%
Next year Earnings 20 bil
Ha Giang Mechanical & Mining Company operates in extracting,
processing, and marketing antimony ore from Mau Due and
Bo Moi in Ha Giang Province. The total antimony reserve of
the two mines is 50,000 tons. In 2008, Ha Giang recorded
revenue of VND 56 bil and earnings of VND 25.5 bil.
Annual R epor t 2008 13
14. Extract of Financial Statements (unaudited)
Balance Sheet (for the period ended 31/12/08)
2008 2007
VND’000 VND’000
A. Assets
1. Cash and cash equivalents 144,137,270 24,176,631
2. Investments in securities 238,594,997 990,737,384
3. Receivable from investment activities 13,671,120 860,725
4. Other receivable 23,346,050 7,342,401
Total assets 419,749,437 1,023,117,141
B. Resources
I. Liabilities 1,446,648 43,823,828
1. Payable for investment activities - 14,930,201
2. Payables to Fund Management Company and Supervising 1,302,633 28,893,609
Bank
3. Other payables 144,015 18
II. Equity 418,302,789 979,293,313
1. Capital contribution 768,900,000 768,900,000
1.1 Contributed capital 792,000,000 792,000,000
1.2 Capital surplus (23,100,000) (23,100,000)
2. (Accumulated losses)/retained profits (350,597,211) 210,393,313
Total resources 419,749,437 1,023,117,141
Off balance sheet items
2008 2007
VND’000 VND’000
Securities at par value 85,263,320 84,634,570
14 Vi e t Ca p it a l Fu nd
15. Income Statement
2008 2007
VND’000 VND’000
A. Realised operating result
I. Realised (losses)/ income from investment activities (79,873,948) 61,149,743
1. Dividend income 10,666,321 2,658,738
2. Interest income from bank deposits 13,385,199 15,762,026
3. Bond interest income 5,233 -
4. (Losses)/ income from securities trading (103,930,701) 42,728,979
II. Expenses (19,100,540) (51,188,324)
1. Fund management and performance fees (17,723,231) (50,071,313)
2. Asset supervision and management fees (590,774) (792,740)
3. Audit fee (343,296) (96,966)
4. Fund meeting and conferences expenses (29,091) -
5. Brokerage fee (394,890) -
6. Consultant fees - (184,651)
7. Other operating expenses (19,258) (42.654)
III. Net realised operating (losses)/gain for the year (98,974,488) 9,961,419
B. Unrealised result
I. Unrealised gains - 220,789,608
1. Gains on securities investments revaluation - 220,789,608
II. Unrealised loss (462,016,036) (20,357,714)
1. Loss on securities investments revaluation (462,016,036) (20,357,714)
III. Net unrealised (loss)/profit for the year (462,016,036) 200,431,894
Net (loss)/profit for the year (560,990,524) 210,393,313
Annual R epor t 2008 15
16. Your ca pital Ca pitalize d
www.vietcapital.com.vn
Head office
Unit 2, 19/F, Centec Tower
72-74 Nguyen Thi Minh Khai Street
Dist. 3, HCM City, Vietnam
T +84 8 3823 9909 F +84 8 3824 6329
E info@vietcapital.com.vn
Hanoi office
16 Ham Long Street
Hoan Kiem Dist., Hanoi, Vietnam
T +84 4 3944 7990 F +84 4 3944 7991
