With remarkable efficiency, VietNam Holding has just published its interim report for the six months that ended on 31 December 2014. Over the second half of 2014 the fund generated NAV growth of 7.2% to reach $2.059 and the share price rose by 15.9% to hit $1.695, a 17.7% discount to NAV. They bought back 2.9m shares over the course of 2014.
The manager’s report doesn’t disclose which stocks contributed to performance but does have a detailed analysis of the manager’s views on the impact of the falling oil price on Vietnam the whole of which will end up in our monthly economic and political round up which we’ll publish next week but we have reproduced part of it here:
Impact of Low Oil Prices
The tumbling oil price has a negative effect on the state revenue, which is expected to decrease between USD 1.5 and 2.0 billion. This is in part because crude oil export revenues as well as taxes on the domestic production of oil and oil related products will be sharply reduced, and in part because the taxation of imported oil and oil-related products will also suffer from the low oil prices. The government estimates that for 2015 the absolute contribution will reach USD 4.3 billion, or 10.2% of the budgeted revenue. The state budget of 2015 was created with a crude oil price assumption of USD 100 per barrel.
On the other hand, as a net importer of refined oil products Vietnam will definitely gain from lower oil prices because of low inflation, sharp price drops in imported goods, and increasing GDP growth rates as forecasted by global financial institutions such as the IMF and the ADB. While all these are encouraging developments, the forecast made by the Frontier Strategy Group, a US advisory firm servicing emerging market business leaders, that if the oil price drops to USD 70 and USD 50 per barrel, Vietnam’s GDP would grow 8.5% and 10% respectively, could be unrealistic at least in 2015.
As companies and consumers benefit from the low oil prices, the government could very well end up being better off, despite the reduced income from oil revenue taxation. Fuel remains a primary input cost for many consumer goods and services, and the amount of savings brought on by the current oil prices could reach up to USD 6 billion. This in turn would translate to higher consumption and companies paying more taxes due to increased profits.
Inflation in Vietnam will also be affected by low oil prices. Decreased production costs will keep inflation low enough that the government could even ease monetary policy and cut interest rates which may further boost GDP growth.
Additionally, the manufacturing sector, which still has the largest impact on the country’s GDP, will most likely profit from the low oil prices. It is therefore less likely that Vietnam’s GDP will be negatively affected by the current situation on the world’s energy markets.
VNH : VietNam Holding thinks VietNam may benefit from oil price fall