VinaCapital Vietnam Opportunity Fund : VOF December 2017 Update

Performance summary

NAV per share:

Change (Month-on-month)

Total NAV (million):

31 December 2017

USD GBP The VN Index rose 3.7% in USD terms in December, to end 2017 at 984 points, capping off an extraordinarily good year for Vietnam's stock markets. During the year, the Index increased 48.4%, the

5.52 4.08 6.15% 6.25% 1,095.1 809.5

• Share price: 4.49 3.32

  Market cap (million):

  Premium/(discount)

  GBP/USD exchange rate as 30 November 2017: 1.35 GBP/USD exchange rate as 31 December 2017: 1.35 Source: Reuters

• 889.6 658.5 Corporaon of Vietnam (ACV: 29.2%), Hoa Phat Group (HPG: 13.7%), and Vinamilk (VNM: 11.7%). As a result, our capital market porolio saw a return of 51.1% for the 2017 calendar year. Our return this

-18.8%

-18.8%

Cumulave change (% change)

NAV per share (USD)

Share price (USD)

VN Index (USD terms)

MSCI Emerging market

MSCI Vietnam

3 mth 1 yr

13.4

3 yr

5 yr

• 32.1 68.7 111.2

  December: Capping off an exceponally strong year

  second-highest yearly advance in its history (in 2006, the Index rose 42.4% in USD terms), and placing Vietnam among the world's top performing stock markets in 2017.

  VOF's net asset value (NAV) per share was USD5.52, an increase of 6.2% over NAV per share price at USD5.20 from its closed business on 30 November 2017. The discount between share price and NAV per share widened slightly to 18.8%. Our capital market porolio, was up 8.7% in December, outperforming the Index, thanks to strong performances during the month in our top holdings such as Airports

  calendar year is largely due to stock selecon and having convicon or overweight posions in a number of core holdings (such as those menoned above) as opposed to simply owning the top 10-12 largest companies in the Index (the top 10 companies by market cap were up 63.5% on average in 2017).

  Aviaon is one sector we have favoured, and stocks such as ACV and VietJet (VJC: 8.7%) benefied from both a record number of internaonal arrivals over the year (13 million, up 29% over 2016) and growing numbers of domesc travellers. Robust retail sales (up 8.36% in real terms) played a role in the performance of companies such as VNM and Phu Nhuan Jewelry (PNJ: 10.0%), and movated us to take a pre-IPO stake in FPT Retail in the last quarter of the year. Meanwhile, banks have benefied from ample liquidity, low interest rates, and high credit growth, and over the past few months, we have parcipated in private placements in two up-and-coming banks: Orient Commercial Bank and, in December, HD Bank,

  12.7

• 32.6 79.5 144.6 one of Vietnam's most innovave and fastest growing banks. HD Bank listed on the Ho Chi Minh City

  22.5

• 48.4 69.8 117.8

  7.1

• 34.3 21.1 9.8

  35.8

• 60.7 46.5 60.4

• Stock Exchange on 5 January 2018. More informaon about our investment in HD Bank may be found

  here.

  The fund's December cash posion of 7% of NAV is a natural reflecon of the robust market, one in which we took some profit and our ability to reinvest in the capital market was somewhat restrained due tohigh valuaons. However, we connued to buy back shares and instuted a dividend as another way to generate returns for our shareholders.

  Annual performance history (% change)

  CY 2017 2016 2015 2014 2013 2012

  NAV per share (USD)

  VN Index (USD terms)

  32.1 25.5 1.2 8.4 15.3 19.1

  48.4 13.4 0.9 6.6 20.5 18.9

  Top ten holdings*

  Investee company

  Hoa Phat Group (HPG)

  Vinamilk (VNM)

  Airports Corporaon of Vietnam (ACV)

  Khang Dien House (KDH)

  Phu Nhuan Jewelry (PNJ)

  Vietjet Air (VJC)

  Quang Ngai Sugar (QNS)

  Eximbank (EIB)

  Coteccons (CTD)

  Petrovietnam Technical Services Corporaon (PVS)

  Total

  *Capital market equies

  % of NAVSector

  • 13.4 Construcon materials

  • 10.9 Food & beverage

  • 9.0 Infrastructure

  • 6.3 Real estate & construcon

  • 6.1 Consumer discreonary

  • 4.7 Industrials

  • 3.2 Food & beverage

  • 3.1 Financial services

  • 3.0 Real estate & construcon

  • 2.6 Mining, oil & gas

  62.4

  With Vietnam now prominently on the radar screen of many internaonal investors, we expect fund flows will be an important driver of returns in 2018, and several blue chips considered by some analysts to be at "full" or "fair" valuaons may get even "fuller" or "fairer" valuaons; as some investors learned in 2017, "expensive" is a relave word.

  Historical share price, NAV and buyback acvity

  10.0

  VOFsharespurchased(millions)

  9.0

  8.0

  7.0

  6.0

  5.0

  4.0

  3.0

  2.0

  1.0

  0.0

  2011

  2013

  2012

  Shares bought back

  VOF porolio by asset class

  2014

  2015

  VOF share price

  2016

  Monthly NAV

  6.00 5.00 4.00 3.00 2.00 1.00 -

  SharepriceandNAV(USD)

  2017

  VOF porolio allocaon by sector

  2.9% 1.1%

  Listed equity (64.7%)

  Private equity (7.6%)

  Real estate projects (2.9%)Unlisted equity (16.6%)

  Cash and others (7.0%)

  Operating assets (1.1%)

  Construction materials

  Food & beverage

  Real estate equities

  Infrastructure

  Industrials

  Consumer discretionary

  Financial services

  Cash and others

  Mining, oil & gas

  Real estate projects

  Agriculture

  Pharma & healthcare

  Operating assets

Quarterly GDP growth (%)

The Index traded at a trailing PE of 19.2 mes by the end of the year, versus 16.4 mes at the start, and in hindsight seems relavely "cheap" then. Having said that, with the market now more "top-heavy" (i.e., dominated by the large caps), we think that looking outside of this area could be a fruiul endeavour. During 2017, we deployed cash in some of the smaller listed companies, and we would not hesitate to invest more if the risk-reward is aracve.

2018 is looking to be another strong year. With a combinaon of growth and ample global liquidity, Vietnam is poised to see connued good equity growth. We look forward to capitalising on the opportunies in both listed and private equies, and connuing to deliver solid returns to shareholders.

Macroeconomic Commentary

Vietnam's surprisingly high, 7.7% yoy GDP growth rate in Q4 liſted the country's 2017 growth to 6.8%, which beat both the consensus forecast for 6.6% growth, and the government's 6.7% GDP growth target. Vietnam's GDP growth increased from 6.2% in 2016 to 6.8% in 2017, but inflaon actually fell from 4.7% in 2016 to 2.6% in 2017. These ideal "Goldilocks" economic condions (ie. the economy is "not too hot, and not too cold"), helped drive a near 50% increase in Vietnamese stock prices last year, as measured by the VN-Index.

The improvement of Vietnam's GDP growth in 2017 was primarily driven by an improvement in the expansion of the country's manufacturing output, which contributes 15% of overall GDP, from 11.9% growth in 2016 to a 14.4% rate of growth in 2017, and driven by a faster pace in personal consumpon growth from 8.3% in 2016 to an esmated 9.5% growth in 2017. The only notable factor holding back GDP growth last year was an 11% decline in oil producon volume, which lopped off about one-half a point from GDP growth.

The improvement in manufacturing output growth was fueled by an 10.8% increase in FDI disbursements in 2017, the majority of which was invested in factories and other producon facilies, and by a rebound in the producon of Samsung smartphones starng from Q2, following the disrupons Vietnam's largest FDI invested company faced when retooling its factories to ramp up producon of its new Galaxy 8 smartphone.

Dec-17

The strength in Vietnam's manufacturing sector was reflected by the fact that the mean monthly PMI survey readings for 2017 reached an all-me high. The country's PMI has now exceeded the '50' expansion-contracon threshold for over two years - although businesses are increasingly reporng difficulty in sourcing the raw materials needed to expand their output, which could pose challenges going forward.

Surveys of Vietnam's consumer confidence also hit all-me highs in 2017, which helped fuel the above menoned increase of personal consumpon, which was the other major factor that boosted GDP growth last year, as consumpon accounts for nearly two-thirds of Vietnam's economy. Consumpon was also buoyed by an esmated 65% surge in consumer lending last year, which raised the proporon of the banking system's overall credit extended to individuals from 12% in 2016 to 18% in 2017.

Despite a plethora of factors that drove growth in Vietnam higher last year, the country's headline inflaon rate actually fell from 4.6% in 2016 to 2.6% in 2017. That drop was aributable to a deceleraon of medical price inflaon from 56% in 2016 to 28% in 2017, owing to slower government mandated medical price hikes last year, but a 1.8% decline in food prices - which account for 36% of the CPI basket - also lopped 0.7%pts from the headline CPI rate in 2017.

Note that medical prices only account for 6% of Vietnam's CPI basket, but the steep deceleraon in medical price inflaon last year reduced the 2017 headline CPI rate by 1.7% points - although medical price hikes sll contributed 1.7% points to inflaon rate last year. Finally, Vietnam raised electricity prices by about 6% in December, which we esmate will eventually add 0.5% points to the country's inflaon rate, and we also expect global oil prices to increase by about 15% this year, which would boost Vietnam's inflaon by more than 1.5% points.

Macroeconomic indicators

GDP growth1

Inflaon (%)

FDI commitments (USDbn)

FDI disbursements (USDbn)

Imports (USDbn)

Exports (USDbn)

Trade surplus/(deficit) (USDbn)

Exchange rate (USD/VND)

2016

Dec-17

2017

6.2% 4.7% 24.4

• 6.8% 6.8%

  0.2% 2.8

• 2.6% 2.6%

• 35.9 44.4%

  15.8

  1.5

• 17.5 10.8%

174.1 176.6

19.9 19.7

• 211.1 20.8%

• 214.0 21.2%

2.5

(0.2)

2.9

22,720

22,665

0.2%

Sources: GSO, Vietnam Customs, SBV, VCB |1. Annualized rate, updated quarterly

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Mar Jun Sep	Dec	Mar Jun Sep	Jun Sep	Jun Sep	Jun Sep	Dec Mar	Jun Sep
2012	2013	2014	2015	2016	2017

Mar

Dec

Dec

DecMar

DecMar

Purchasing Managers' Index

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Cumulave registered and disbursed FDI (USDbn)

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Disbursed (YTD)Registered (YTD)

Monthly trade balance (USDm)

Y-O-Y

(1,000)

(1,500)

(2,000)

(2,500)

1,500

1,000

(500)

500

-

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Year-on-year and month-on-month inflaon (%)

YoY CPI

8 7 6 5 4 3 2 1 -

2016

MoM CPI

2013

2014

2015

YoY CPIMoM CPI

Source: GSO, Vietnam Customs, Bloomberg

1.2

1.0

0.8

0.6

0.4

0.2

0.0

(0.2)

(0.4)

(0.6)

(0.8)

2017

Board of Directors	VinaCapital Investment Management Ltd
VOF's Board of Directors is composed enrely of independent non-execuve directors.
Member Role	Member Role
Steven Bates Non-execuve Chairman Marn Adams Non-execuve Director Thuy Dam Non-execuve Director Huw Evans Non-execuve Director	Don Lam Chief Execuve Officer Brook Taylor Chief Operang Officer Andy Ho Chief Investment Officer Duong Vuong Deputy Managing Director, Capital Markets
Fund informaon
LEI	2138007UD8FBBVAX9469
Bloomberg	VOF LN
Reuters	VOF.L
Fund summary
Fund launch	30 September 2003
Term of fund	Five years subject to shareholder vote for liquidaon (next vote to be held by December 2018)
Fund domicile	Guernsey
Legal form	Exempted company limited by shares
Investment manager	VinaCapital Investment Management Ltd, with sub-delegaon to VinaCapital Fund Management JSC
Structure	Single class of ordinary shares trading on the Main Market of the London Stock Exchange plc
Auditor	PricewaterhouseCoopers (Guernsey)
Custodian	Standard Chartered Bank Vietnam
Custodian and Administrator	Northern Trust Internaonal Fund Administraon Services (Guernsey) Limited
Registrar and Transfer Agency	Computershare Investor Services
Brokers	Numis Securies (Bloomberg: NUMIS)
Base and incenve fee	Base fee of 1.5% of NAV. Incenve fees are based on two separate pools of investments: direct real estate and all other investments. The incenve fee paid equates to 15% of the increase in the NAV of each pool during the year over a hurdle of 8%. The total amount of incenve fees paid in any one year is capped at 1.5% of the pool's NAV
Investment objecve	Medium to long-term returns through investments either in Vietnam or in companies with a substanal majority of their assets, operaons, revenues or income in, or derived from, Vietnam
Investment objecve by geography	Investments will be in Vietnam or in companies with at least 75 per cent of their assets, operaons, revenues or income in, or derived from, Vietnam at the me of investment
Dividend policy	It is the intenon of the Board to declare semi-annual dividends, normally declared in April and October, for the foreseeable future of an amount of at least 4.8 US cents per share, or the equivalent in UK pence. This amount is approximately equal to 1 per cent of VOF's net asset value at 30 June 2017. As and when circumstances permit, it is the Board's intenon to increase the dividend. Dividend payments will not necessarily be fully covered by income and, as such, may represent a return of capital to shareholders. Sharehold- ers should note that the change in dividend policy is in addion to the Company's share buyback programme, which has been the primary mechanism for aempng to control the share price discount to net asset value.

" 2018 VinaCapital Group. All rights reservied.

Important Informaon

This document, and the material contained therein, is not intended as an offer or solicitaon for the subscripon, purchase or sale of securies in VinaCapital Vietnam Opportunity Fund Limited (the "Company"). Any investment in any of the Companies must be based solely on the Admission Document of that Company or other offering document issued from me to me by that Company, in accordance with applicable laws.

The material in this document is not intended to provide, and should not be relied on for accounng, legal or tax advice or investment recommendaons. Potenal investors are advised to independently review and/or obtain independent professional advice and draw their own conclusions regarding the economic benefit and risks of investment in either of the Companies and legal, regulatory, credit, tax and accounng aspects in relaon to their parcular circumstances.

The securies of the Companies have not been and will not be registered under any securies laws of the United States of America nor any of its territories or possessions or areas subject to its jurisdicon and, absent an exempon, may not be offered for sale or sold to naonals or residents thereof.

No undertaking, representaon, warranty or other assurance, express or implied, is given by or on behalf of either of the Companies or VinaCapital Investment Management Ltd or any of their respecve directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the informaon or opinions contained in this document and no responsibility or liability is accepted by any of them for any such informaon or opinions or for any errors, omissions, misstatements, negligence or otherwise.

No warranty is given, in whole or in part, regarding the performance of either of the Companies. There is no guarantee that investment objecves of any of the three Companies will be achieved. Potenal investors should be aware that past performance may not necessarily be repeated in the future. The price of shares and the income from them may fluctuate upwards or downwards and cannot be guaranteed.

This document is intended for the use of the addressee and recipient only and should not be relied upon by any persons and may not be reproduced, redistributed, passed on or published, in whole or in part, for any purposes, without the prior wrien consent of VinaCapital Investment Management Ltd.

Investor Relaons/Communica[e-mail] [phone]www.vinacapital.com

Broker

Numis Securies [phone]