Ian Cowie: why I picked Vietnam and ditched China

Seeing is believing. So, when my new AirPods arrived in the post the other day, nobody was happier than me to see they were made in Vietnam.

Regular readers will know that I have been banging on for years about how Apple says it is transferring production away from China towards Vietnam and India. Now here is proof positive in the palm of my hand.

Never mind my personal audio affairs or the macroeconomics, this trend is having important effects for investors across Asia. Personal finance is “personal” first and “finance” second, so let me admit I am glad I dumped Fidelity China Special Situations (LSE:FCSS) at £2.27 per share in April 2020, horrified by what was happening to the Uyghurs, and used the cash to add exposure across India and Vietnam.

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Specifically, I had first invested in what was then known as Fleming Indian and now trades as JPMorgan Indian (LSE:JII), paying 63p per share in June 1996, for stock that now trades at £8.60. Yes, I know I had to nearly double my money over that period, just to preserve its original purchasing power. But a ten-bagger beats that and a share price that soars 13-fold is even better.

Sad to say, JII’s performance has been dreadful for the last decade. This investment trust languishes at the bottom of the Association of Investment Companies (AIC) ‘India’ sector over the last 10-years, five-years and one-year periods, with total returns of 164%, 30% and 0.9% respectively.

That prompted me to diversify into India Capital Growth (LSE:IGC) in September 2021, at £1.20 per share for stock that traded at £1.68 this week. For comparison, IGC’s focus on medium-sized and smaller companies has paid off, with total returns over the same three periods of 418%, 95% and 34%.

Neither JII nor IGC pays any income, which worries this investor whose prime aim these days is to pay for an enjoyable retirement. But, after a false start, I eventually had better luck elsewhere in Asia.

• Ian Cowie: India vs China, there’s no contest for my money
• Ian Cowie: I’d like to invest in Asia, but without China

Vietnam Enterprise (LSE:VEIL) was my first exposure to that country, when I paid 404p per share in July 2018. That did well enough, but I got fed up with the absence of any dividends and began selling at £7.61 in December 2021.

Then I exited VEIL altogether at £5.41 in October 2022, and reinvested the cash in VinaCapital Vietnam Opportunities (LSE:VOF), paying £4.26 for shares that cost £4.55 today. This investment trust benefits from a 2.4% dividend yield, rising at an eye-stretching 15% annual average over the last five years.

If that rate of ascent is sustained - which is not guaranteed, because dividends can be cut or cancelled without notice - it would double VOF shareholders’ income in less than five years.

For comparison purposes, VOF generated total returns over the usual three periods of 290%, 55% and 11%. So, in addition to a rapidly rising yield, VOF handily beat VEIL’s total returns of 16% over five years and -4% over the last year. VEIL lacks a 10-year track record with the AIC.

Here and now, FCSS hit the headlines this week because it has agreed a mega-merger with abrdn China Investment Company (LSE:ACIC). The good news is that FCSS is the AIC ‘China’ sector leader over the last decade and year, with total returns of 134%, 18% and 4.3% over the usual three periods. That beats ACIC’s meagre returns of 21%, -5% and -11%.

So the merger should be good news for ACIC shareholders. More selfishly, it’s also good news for this small shareholder because it reminds me that shifting some of my life savings away from FCSS, JII and VEIL toward IGC and VOF has been rewarded with better returns.

• Fidelity China Special Situations to benefit from merger with rival
• Fidelity China Special Situations: two of my favourite shares

From a moral perspective, I couldn’t keep my money invested in China. India and Vietnam both have their critics but neither has ever been accused of “genocide” by the American president, Joe Biden.

Without wishing to speculate about America’s presidential election that must take place next November, it is notable that the Republican favourite, Donald Trump, has repeatedly threatened to make China pay for the coronavirus pandemic, that recorded its first casualties at Wuhan before it crashed the global economy. He said: “It was China’s fault this happened. China’s going to pay a big price for what they’ve done.”

Coming down from the clouds of political rhetoric, this small shareholder is glad I escaped from any direct exposure to China more than three years ago. For a while, that felt like an expensive outbreak of ethics but now seems a wise move, whichever way I look at it.

Sometimes doing the right thing turns out to be the right thing to do. Diversification is always the simplest and surest way to diminish risk.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), India Capital Growth (IGC), JPMorgan Indian (JII) and VinaCapital Vietnam Opportunity Fund (VOF) as part of a globally-diversified portfolio of investment trusts and other shares.