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Sustainable Investingin Vietnam
Vietnam Holding Ltd.TBLI Asia, 27 May 2010
1
Large universe of investable companies
“Grow now, clean up later“
Quality of information is spotty at best
Government and market regulators lagging behind OECD
Few offshore listings
Local managers with limited ESG sensitivity
Language and cultural challenges
High ESG pressure
Rapidly increasing pollution
Neglect of human resource development
Low Transparency
The Emerging Market Challenge
2
86 million population and favorable demographics
Pragmatic policies avert overheating in 1H’08
Swift measures after global crisis in 3Q’08
Resilient despite lower exports and capital inflow
Export mix and new markets soften the blow
GDP growth at 5.5% in 2009
Attractive valuation and expected EPS growth
1,700 State-owned Enterprises to be privatized
Political stable and low social inequality
Sources: Fitch Report, HSBC, VNHAM, Economist Intelligence Unit
Vietnam
3
4
Economic Indicators
2005 2006 2007 2008 2009 2010e 2011e
Industrial production (% change y-o-y) 25.5 16 18.2 15.9 8.6 17.5 11.5
Exports (% change y-o-y) 22.5 22.1 22.7 29.9 -10.0 15.0 20.0
Imports (% change y-o-y) 15.7 33.4 41.2 28.5 -14.0 26.0 3.0
Total external debt (% of GDP) 23.8 22.9 23.4 23.6 24.5 25.5 25.0
Source: EIU Vietnam Country Forecast 2010
Limited 2009 damage to export success story
Agricultural price volatility explains discrepancy between export vs. production growth
Large amounts of imports linked to large direct foreign investments
External debt levels continue to be very well managed
5
Sources: GSO, Bloomberg, Credit Suisse
Foreign direct investment flow stays high
Disbursed FDI result in positive BOP
Inflation 9.2% y-o-y as of 30 April, 2010
Foreign Direct Investment Inflation
FDI and Inflation
FDI in % of GDP 2007 2008 2009
India 2.1 3.4 2.4E
China 4.0 3.8 1.6E
Vietnam 9.4 10.7 7.8
1,250
1,000
750
500
200
VNIndex
6
Source: Bloomberg 30 Apr 2010
USD bln Market Cap (left axis) Foreign Market Share 30Dma (right axis)
Price / Earnings At high 2007 : > 40
P/E Growth: > 20% p.a.
Investment Environment
Region Avg Vietnam VNH
17.73 13.04 10.2
Sources: Fitch Report, HSBC, VNHAM, Economist Intelligence Unit
Growth and ESG Development
7
GDP growth in past 20 years second only to China
Accelerates from 5.3% in Q4 2009 to 5.8% in Q1 2010
Growth causes ecological strain which is 10 yr delay compared to China
Deteriorating water and air quality
Disclosure standards applied selectively
Poor monitoring and limited institutions
Developing regulation and political agenda
Bottom-up social and environmental awareness developing
GDP Growth p.a. - BRIC vs. Vietnam
0
100
200
300
400
500
600
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
China Vietnam India Brazil Russia
7.2%
9.8%
6.6%
3.0%
1.7%
Vietnam Holding Asset Management Ltd.Engagement | Analysis | ESG Assessment
Vietnam Holding Ltd. ASrIA | UN PRI | CDP
Value Approach
Macro & Micro
Fundamentals
Due Diligence
Integration Engagement
Research Partnership
Investment Universe
SRI Strategy
8
Sector AnalysisESG IndicatorsExclusion
Key Issues
Call ScheduleRequest for Disclosure
Voting Policy
Action Items
Follow-up
Valuation
Analysis
Portfolio
SelectionINrate VNH Forum
Return
LeadershipKnow-How
Culture
Investment Analysis
ESG and Financial analysis
Investment context
Availability of market data Integrate ESG to investment process
Key Issues
Portfolio Assessment
ESG Grading
Core Indicators
Controversial Practices Proactive and progressing investees
Product Screening
Analysis and Data reveal ESG awareness
ESG Integration
9
Sector Approach
Key Issues Material Investment Proposal and Update
Actionable
Priorities 1. Investment Return
2. Compliance
3. Risk : reputation, disruption of business etc.
4. Opportunities: differentiation, new markets etc.
Monitor improvement through active engagement
Investment Process
10
ESG Assessment
GRADING SYSTEM
Controversial Practices
Score
Business Ethics
Labour
Human rights
Environment
Governance
Reporting
Sustainability Score
124 CRITERIA
38 CRITERIA
Sustainability Grade
PROACTIVE
IN PROGRESS
PASSIVE
clearly above Industry/region
average
average Industry/region
Average Industry/region
Controversial Practices Implications
LOW HIGH
BEST
WORSE
PASSIVE
PASSIVE
PASSIVE
Su
sta
ina
bility
ma
na
ge
me
nt
11
Criteria
124 Sustainability Criteria
INrate methodology
Benchmark
MSCI Emerging Markets Asia ex JP
Exclusion
Controversial Practices & Products
Exclusion
Clear Exclusion
Sin Stocks
Weapons and Defense
Child Labor and Forced Labor
Nuclear Energy
Potential Exclusion
Genetically Modified Plant Organisms (GMO)
Production and R&D
Distribution 0% Threshold
Usage
Continuous monitoring of controversial products and practices
12
5% Threshold
0% Threshold
Engagement
Direct Engagement
Encouraging disclosure of ESG topics
Board member and analyst call schedule
Monitoring and follow-up on key issues
Communicating rating and improvement
Engagement Cooperation
Investor opinions and information exchange
Voting with likeminded investors (investment pooling)
Filing AGM and EGM resolutions
Addressing larger corporate audience for sector and country issues VNH Forum
13
Wider Engagement
VNH Forum
Building ESG awareness
Senior executives from SOEs
& VNH investee companies
Showcase global best practice
Within Vietnamese context
Covered by local media
14
Forum Topic Partners / Experts Location Participants
Aug 07 Building Value with Corporate Governance
SCIC / HSG Hanoi 125
Apr 08 Strategic Management
SCIC / HSG HCMC 214
Sep 08 Board Management Practices
SCIC / HSG HanoiHCMC
120
Jun 09 Economic Crisis -Lessons Learnt
HSG HCMC 26
May 10 Long-term Value of Investor Relations
SCIC, Bloomberg / ASrIA , Boa Viet Securities, VCCI, JW Thompson
HanoiHCMC
ca. 210
State Capital Investment Corporation (SCIC)
Addressing ESG issues with a large corporate audience
VNH Forum co-organizer
Association of Sustainable and Responsible Investment in Asia (ASrIA)
ESG training workshop
VNH Forum partner
Vietnam Chamber of Commerce and Industry
Founding member of Business Council for Sustainable Development (BCSD)
VNH Forum partner
Vietnam Cleaner Production Centre (VNCPC)
Green Credit Trust Fund
Marketing assistance
Associations and Partnership
15
16
Performance factors:
Value Investment style
Sourcing in over-the-counter market
Corporate Governance emphasis
VNH Portfolio
25.9%
15.8%
15.6%
7.8%
7.1% 6.5%
5.5%
4.7%
4.1%
2.3%
2.1%
1.6%
1.0%
Distribution
Agro-chemicals & fertilizer Construction & Materials
Food & Beverage Health Care
Industrial Goods & Services Banks
Oil & Gas Automobiles & Parts
Personal & Household Goods Utilities
Retail Financial Services
Insurance
-80%
-60%
-40%
-20%
0%
20%
40%
Jul 07
Sep 07
Nov 07
Jan 08
Mar 08
May 08
Jul 08
Sep 08
Nov 08
Jan 09
Mar 09
May 09
Jul 09
Sep 09
Nov 09
Jan 10
Mar 10
May 10
Return on NAV Vietnam Holding -32% DWS Vietnam -43%
PXP Vietnam -46% Dragon VEIL -55%
FTSE ETFs -44%
VNH Foundation
17
Corporate Social Responsibility
Segregates profits from philanthropy
Separate staff & board
Identify projects for maximum benefit
Initial focus on Agent Orange victims
Identifying donors with similar objective
100% of co-sponsor‘s contributions flow to projects
Swiss supervision and Swiss tax exemptions for donors
Background
18
History
Founders: VietNam Holding Asset Mgmt Ltd. / Juerg Vontobel
Objective: Children-related philanthropy in South-East Asia
Incorporated: June 2007 in Zurich, Switzerland
Board: 1 Executive member, 3 independent members, no overlap to investment
Financials
Expenditures to date: CHF 410’000
VNHAM Donations: USD 820’000
Third-party Donations: CHF 115’700
Projects
19
Scholarships in Ninh Tuan Province
Scholarships for 1’720 children. Literacy rate only 74% in Ninh Tuan. Parents can’t afford
primary schools.
Orthopaedic Hospital in Danang
Equipment donation to increase annual operation capacity increase from 780 to 4000.
Training by staff of Bruderholz Hospital, Basel Land CH.
Handicapped Children in Quang Tri Province
Corrective orthopaedic surgery for 173 children in former DMZ. Operations performed in
Danang.
Children Home in Songklah Province, Thailand
Building and financing a functional centre for 30 homeless children and HIV orphans.
Keeping with our diversified value approach
Integrate ESG assessment on material issues
Actively promote best practices
Introduce systematic SRI approach to Vietnam
We improve value for shareholders
Actively engaging with enterprises
Promoting ESG awareness in Vietnam
Achieving superior investment returns
Financially supporting our VNH Foundation
Vietnam’s Integrated SRI Fund
20
21
Contact
VIETNAM HOLDING ASSET MANAGEMENT LTD.
Ho Chi Minh City1202 Fideco Tower81-85 Ham Nghi, District 1VietnamTel. +84 83 823 0465Fax. +84 83 823 4792
ZurichGartenstrasse 19CH - 8002SwitzerlandTel. +41 43 500 2810Fax. + 41 43 500 2815
www.vietnamholding.com | [email protected]
Thank you