May 19, 2022 – Investor Letter

To the investors,

The stock market in April and early May had seen significant corrections. The VN-Index at its lowest year to date fell 25% from its peak at the beginning of the year. Contrary to optimistic assessments of the macro environment and profit growths in most reports, the market had extremely pessimistic reactions.

Net selling by local investors started from forceful sanctions by State authorities on stock price manipulation activities. After the FLC event, we believe the manipulators have become more timid. This action by the State popped an asset bubble created by the manipulators, protecting retail investors from fraud. However, it also indirectly caused strong selling pressures on the market. It can be understood that many investors sold their assets, including good companies, when the junk asset bubble popped.

A second event is the tightening of the corporate bonds market, which has grown rapidly in recent years, led by real estate companies. The purpose was the same, to protect retail investors from shady assets. With the size of this market at around 200 trillion VND, accounting for roughly 2% of total credit, this is also a minor tightening of overall credit growth. However, the State Bank and the Government must do so deftly to cool down the real estate market but, at the same time, avoid the bubble popping which could lead to bad debt in the banking system. In a more positive view, Vietnam has had experience and special tools/solutions, including non-market but effective mechanisms, to handle bad debt. A few examples include the transfer of 0 VND banks to healthy financial institutions or the Ministry of Public Security forcing Thai Holdings to return 840 billion VND to Tan Hoang Minh.

The next punch knocking out local investors came from the panic when the US stock market fell after the Fed raised interest rates, even though this action had been discussed for several months. From a macro perspective, we believe the internal strength of the Vietnam economy are clearer and better than during the Covid period in 2020.

Looking back at the period from 2018-2019, the Fed also continuously raised rates to cool down the labor market. When Covid happened in 2020, as the economy suffered much more than its current state, the Fed reversed their policy to support companies and the workers. The substantial supply of liquidity during Covid helped the economy recover post Covid. However, its side effects again caused the heating up of the labor market. Coupled with the disruption of the supply chain and the war between Russia and Ukraine, these 3 factors led to severe inflation globally. We believe the economy will be able to recover from these issues. Compared to the issue of Covid in 2020, these 3 factors are less dangerous and there are clear solutions. The global economy will suffer in the short term, but not for too long. The Vietnam economy will face pressure from inflation and exchange rates. However, a silver lining for Vietnam is the manufacturing shift out of China, as well as the strong promotions for foreign investments by the Government.

Finally, recent fall in liquidity of the Vietnam stock market led us to a hypothesis of a decline in capital flow from new investors (locally called “F0”). This capital flow during the Covid period was a strong push for the Vietnam stock market to move from a very cheap level of 10x PE to an expensive level of 20x PE. This phenomenon was not exclusive to Vietnam but also at many other markets. Money was made too easily and people got rich quickly from crypto, meme stocks, startups… Many asset bubbles had been blown up in the recent cheap money era. When deleveraging happens, rates are raised, cheap capital dried up and these asset bubbles deflated. The knock-on effects of these bubbles are most difficult to predict out of all factors mentioned above. This uncertainty is the largest dark cloud weighing on the sentiment of global investors.

To predict the macro environment and the stock market is always difficult and with low precision. However, to invest successfully, we do not need to think about whether the market is right or wrong. The market shall always function in its own ways. Our job is to deal with the market like a business partner, to take advantage of the opportunities this partner presents and to decline the unreasonable offers. Overall, our view of the economic growth of Vietnam in the next 5 years is unchanged. The macro foundation of Vietnam is strong and our invested companies will continue to grow. Despite short term difficulties, large global corporations continue to shift their manufacturing activities to Vietnam. The VN-Index at the 1,200 level, PE forward 2022 around 12x, is at one of the most attractive levels in its history, showing a relatively low risk level. AP Alpha has a feeling that the market is giving us a similar opportunity as it did when Covid happened in 2020. The recovery, this time, will not be V-shaped after a few months as in 2020. However, this is one of the troughs in a 5-year time horizon.

How to predict the market and to bottom-fishing correctly?

In the Annual General Meeting of Berkshire Hathaway on 30th April 2022, an investor asked Warren Buffett if this is the bottom of the market?

Warren Buffett replied that he had deployed sizable amount of cash in the first quarter but it does not mean this is the market bottom. Buffett mentioned October 2008, during the darkest days of the financial crisis, when Lehman Brothers announced bankruptcy and the market crashed, he wrote an article for the New York Times with the title “Buy America” as a strong buy recommendation for stocks. Although the US stock market had tripled since then, 6 months after the article, the US stock market fell a further 25%. It was one of the few times Warren Buffett predicted and went bottom fishing in the market.

Warren Buffett also believes predicting the market in very difficult and is not a must-do for investors. With the advantage of always having cash outside of the market, what the investors should do is to accumulate more shares of strong companies when they become cheaper. Buffett believes this is a simple investment strategy and in the long term, will always prove to be the right decisions.

Back to the Vietnam stock market, even though the valuation of the market is at a reasonable and safe level, it is impossible to be 100% sure if this is the market bottom. However, we can know for sure that this is an opportunity in the next 2-3 years to accumulate more shares of companies with the strongest competitive advantages in Vietnam. It does not mean that it is the only opportunity or the best opportunity to do so. We do not need to be hasty or greedy at the moment. The most important thing we must do is to wait patiently and hold on to what we have, especially not to sell due to panic. If necessary, turn off the trading board, forget the market and do other things we love. The economy will continue to do well, life around us is still beautiful. Let’s enjoy life after 2 years of Covid as things start to return to normal.


As of 29/04/2022, the value of APF1 and APF2 are 34,144 VND/unit and 31,470 VND/unit, equivalent to a growth of 6.2% and 4.2% year to date, respectively.

Since establishment, the performance of the 2 portfolios are as follow: