PXP Vietnam to Start Hedge Fund, Bets on Stock Market Recovery

Nov. 10 (Bloomberg) — PXP Vietnam Asset Management, which oversees $225 million, plans to start a hedge fund by early next year as it seeks bargains in Asia’s second-worst-performing stock market, said co-founder Kevin Snowball.

The PXP Vietnam Value Fund will raise as much as $200 million to invest in undervalued stocks, Snowball said today.

PXP, the initials of Phan Xi Pang, Vietnam’s highest mountain, is betting that the stock market will recover as inflation eases and the nation’s trade deficit widens at a slower pace. The benchmark VN Index may double to 750 by the end of 2009, Snowball said.

“In the long term, the story’s intact,” Snowball, 47, said in an interview in Ho Chi Minh City. “As long as the government handles the development of the economy and the market correctly – – so far they’re doing a very good job — then I think we’re fine.”

The index of 163 companies traded on the Ho Chi Minh Stock Exchange has lost about 60 percent this year, the biggest decline in Asia after China. It is set to rise to 500 by the end of the year “given continued diminishing volatility globally and macroeconomic stability,” Snowball said. The index rose 1.5 percent to 371.61 as of 9:30 a.m. in Ho Chi Minh City.

The Vietnam Value Fund will be PXP’s first open-ended fund, allowing investors to withdraw their money after a one-year lock- in, with restrictions on what can be redeemed at once.

The fund will have the “flexibility to use hedging when and where available, and if the manager feels it appropriate taking pricing and market conditions into account,” Snowball said.

Starting Small

PXP will initially raise as much as $20 million from “friends and family,” those that had earlier invested in its older funds and the firm’s own money, Snowball said.

“It will start small and then build its performance record before a full launch by early 2009,” he said.

The Blackhorse Enhanced Vietnam Inc., an open-ended Vietnam- focused hedge fund managed by Singapore-based Blackhorse Asset Management Pte., declined 51 percent through September this year, according to data compiled by Bloomberg.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profit from speculation on whether the price of assets will rise or fall.

PXP, set up six years ago by Snowball and Jonathon Waugh, currently manages three closed-end funds listed in Ireland that invest in publicly traded Vietnamese companies and those preparing to list on the stock exchange.

Right Timing

The PXP Vietnam Fund gained 38 percent in 2007, the best- performing Vietnamese equities portfolio, according to LCF Rothschild Emerging Market Funds Research. The fund outperformed the 23 percent gain in the benchmark stock index last year.

The funds have been hit by the stock market’s retreat this year. The PXP Vietnam Fund declined 67 percent, the Vietnam Emerging Equity Fund fell 67 percent and the Vietnam Lotus Fund lost 56 percent through October, Snowball said.

Vietnam-focused funds tend to have a “long-biased strategy,” said Kostas Iordanidis, head of hedge funds at Unigestion Holding SA, which invests $3.5 billion in hedge funds worldwide. The firm doesn’t have any investment in Vietnam funds.

“If you like Vietnam, it’s a great product, if you don’t like Vietnam, it’s a horrible product,” said Iordanidis, who is based in Geneva. “It will outperform on the way up and underperform on the way down, so it’s market timing.”

Interest-rate increases earlier this year and a subsequent slowing in inflation helped ease investor concerns in the second quarter that Vietnam was heading into a currency crisis.

Cheap Stocks

The central bank has cut interest rates twice, each by a percentage point, since Oct. 20, as the world tips toward a recession following the global financial turmoil. The benchmark stock index has risen 13 percent since hitting a two-and-half- year low on Oct. 28.

PXP’s funds sold some of their holdings during the third- quarter rally to raise cash. PXP started buying shares again during the market’s recent decline and is now fully invested, Snowball said.

“There are some very cheap stocks here; there are also some extremely badly run companies,” he said. “We’re at the beginning of the rally so that almost everything is going up; as we go higher there’ll be more discrimination.”

The Vietnam Value Fund will buy the shares of as many as 20 of the country’s biggest companies where it can find “value and growth,” Snowball said.

Hedge funds aggravated the sell-off in Vietnam this year as they dumped stocks to meet investor redemptions, Snowball said.

“We felt there was too much attention being given to what foreigners were doing in this market, but it seems to be hedge funds selling,” he said. “That’s not people taking a view on Vietnam particularly.”

Snowball moved to Vietnam in 2001, a year after the nation opened its stock market. He previously worked at investment banks for 17 years, including stints at ABN Amro Holding NV and Deutsche Morgan Grenfell.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.

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