Investing in Vietnam’s Stock Market: An Interview with Shasha Li Mafli

Shasha Li Malfi is a seasoned investment professional with an impressive track record of achieving outstanding results in the financial markets.

Over the past 12 years, Shasha has consistently delivered an annual return of over 15%, after fees, demonstrating her deep expertise and strategic acumen. This remarkable performance outpaces the VNINDEX during the same period, reflecting her ability to navigate complex market conditions and capitalize on opportunities even in challenging environments.

Notably, Shasha has managed to outperform the market in every year except one, and even in that instance, she still demonstrated her resilience by mitigating losses better than the broader market.

In this interview, She highlights the challenges and opportunities in Vietnam, along with key lessons learned from over 20 years in the investment field.

What led you to focus on Vietnam as a fund manager?

My journey began as an equity analyst focusing on China's market around 2003. Over the next decade, I witnessed China's remarkable transformation into an upper-middle-income country, marked by rapid industrialization and urbanization. China became the world's factory, attracting large-scale foreign direct investment.

However, as China's market became crowded, I sought a new opportunity with similar growth potential. Vietnam, with its early-stage elements reminiscent of China a decade ago, caught my attention.

The hardworking Vietnamese people and the country's developing infrastructure and manufacturing base made me believe Vietnam could become the next Asian success story.

Why do you favour emerging markets (EMs), given their overall underperformance in the last decade compared to indices like the S&P 500?

It's true that rapid economic growth doesn't always translate into stock market returns. EMs often lack fully developed financial markets, with a strong presence of retail investors and entrepreneurs who pursue quick wealth.

This can lead to a lack of focus within companies, making it difficult to find pure sector plays. However, emerging markets are dynamic with rapid development.

As markets mature and institutionalize, there's a shift toward strategic, long-term business models. In such environments, selecting the right companies is crucial and active management can truly add value, as my track record in Vietnam shows.

Can you elaborate on your investment approach in Vietnam?

My approach blends top-down thematic focus with bottom-up stock selection. I identify long-term structural growth and changes and select investment themes, such as the burgeoning consumer sector as incomes rise.

Within these themes, I look for companies with strong management and sustainable business models, ensuring they'll thrive over the next 5-10 years. In a retail-driven market like Vietnam, stock prices can be highly volatile, extending significantly in both directions.

Therefore, fundamental valuation is crucial, which helps to build a margin of safety. I prefer buying quality stocks at reasonable valuation and avoid chasing overpriced assets.

Would you describe yourself as a value investor?

Not strictly. I align more with Growth at a Reasonable Price (GARP), focusing on quality companies at fair to attractive valuations. My typical holding period is 2-3 years, allowing me to look beyond short-term market volatility.

How do you handle positions that move against you? Do you set stop-loss limits?

I don't use hard stop-losses but monitor positions closely. If a stock drops around 20%, I reassess my investment thesis. Depending on the situation, I might reduce or even increase my position if I think it is a good buy. It's all about the context.

Managing a fund can be stressful, especially with market fluctuations. How do you cope?

The pressure of managing others' money is undeniable, especially during market downturns when investor concerns peak.

Over the years, I've learned to manage this stress by avoiding the rush into expensive stocks and building positions gradually. This disciplined approach, along with a focus on long-term gains, helps mitigate the problem to a certain extent.

How do you distinguish between a company being cheap for a reason and a good bargain?

The key lies in growth potential. Starting with a top-down view, I identify themes benefiting from structural changes. I then select companies within these themes, always asking if they'll be around in 5-10 years to capitalize on these changes.

Strong management and sound business models are crucial. In a market like Vietnam when volatility is really high, there are enough opportunities to buy good stocks at good prices.

Do you use sentiment indicators to gauge market mood?

In a retail-dominated market, sentiment indicators provide valuable insights into market liquidity and potential market floors.

For instance, if I want to buy a stock and observe that sentiment is weak, indicating that stock prices might decline further, I will wait to enter at a better price. That said, as a long-term investor, I don't let sentiment dictate my positions entirely.

What sectors do you currently favour in Vietnam?

I'm optimistic about the consumer sector as Vietnamese consumers gain spending power with rising incomes, similar to China in its early stages. I also like infrastructure and real estate sectors, particularly residential, industrial, and commercial properties.

Given recent challenges in Vietnam's property market, are you concerned?

I view the current slowdown as a short-term issue. With a young population, growing manufacturing sector, and relatively low urbanisation rate, the long-term demand for real estate remains strong.

How does travelling regularly to Vietnam help in your investment decisions?

I travel to Vietnam 1-2 times a year to visit companies, speak with management, and engage with locals. This allows me to quickly spot changes and new business models, as I have a fresh perspective compared to those based in the domestic market who see gradual changes daily.

It's crucial for me to personally speak with company management to understand their business and management style. When I arrive in Vietnam, from the airport to the streets, I immediately feel a familiar sense of home and observe the dynamic enthusiasm in the market.

How do Vietnam’s government policies influence your strategy?

I focus on long-term policy trends rather than short-term shifts. For example, regarding the property market, there is now an emphasis on social housing to ensure more affordable housing for people.

Vietnam is likely taking cues from China's current housing market troubles.

How about the central bank’s policies?

Central bank policies, particularly interest rates, are crucial as they affect companies' cost of capital. Following a recent economic slowdown, Vietnam's central bank has cut interest rates.

However, they also need to consider the Fed's actions, as quick cuts could lead to currency depreciation.

While Vietnam has a trade surplus, which eases currency pressure, many people hold USD. If the USD appreciates, it could trigger a shift towards USD holdings, amplifying currency movements. Therefore, maintaining the right balance is essential, and I closely monitor such policies.

What key changes do you foresee in the next decade?

The coming decade will likely be more challenging, with higher interest rates and inflation. This environment emphasizes the importance of selecting the right companies. Vietnam's role as a strong export economy will also make its market more cyclical and tied to global economic trends more than in the past.

What challenges do you face as a foreign investor in Vietnam?

Liquidity is the biggest challenge, with market turnover varying significantly between good and bad days, making it difficult to exit positions during downturns.

It's essential to closely monitor the market and diversify investments. Investing in Vietnam as a foreign investor requires more effort compared to developed market such as the US, including finding the right custodian bank. This process can be more complex for retail investors unless they have significant investments.

Consequently, many foreign investors prefer to invest through managed funds focused on Vietnam.

Do you hedge against currency risk? How does China's slowdown affect Vietnam?

I don't hedge currency positions, as the VND has been relatively stable. While China's slowdown affects sectors reliant on Chinese trade such material sectors and tourism, Vietnam benefits from shifting investment due to trade disputes, particularly in manufacturing.

What are the lessons you've learned over your 20 years in investing?

I would say:

• Pay attention to the economic and interest rate cycles, both locally and globally. Emerging markets can be highly cyclical and sensitive to these changes.
• Focus on finding the best companies at reasonable prices, and avoid chasing extended trends.
• It can be disheartening when a position is losing value, but if your investment thesis remains valid, it might be a good time to buy as a long-term investor.
• Diversification is crucial. Don’t put all your eggs in one basket.