When George Bush arrives in Vietnam next weekend for this year’s meeting of the 21 members of the Asia-Pacific Economic Cooperation, he might find himself rather wishing he could transfer some of Hanoi’s vibrancy back home. While the US economy grew a mere 1.6% in the third quarter, Vietnam is currently enjoying annual growth of 8.4%. This rapid growth, coupled with “low labour costs and an industrious population”, has made Vietnam one of Asia’s biggest economic success stories, says the FT.
Over 15 years, the percentage of all Vietnamese living below the poverty rate of $1 per day has fallen from 51% to 8% – a feat not even China can match. And last week, after nearly 12 years of negotiations that produced a list of policy commitments running to 880 pages, Vietnam has become 150th member of the World Trade Organisation. There were many “bones of contention” picked over before this milestone was reached, says The Economist – the country’s textile export subsidies, which it has promised to eliminate, and its banking system that’s required to open up by next April, for starters – but the main point is that the talks ended in success for Vietnam.
This is not to say that Vietnam’s path to riches is a smooth one, says Fortune. Already Vietnam’s leaders are feeling a little shell-shocked by the “rough-and-tumble of the global marketplace”. It may be small and it may be a late developer, but Vietnam has been involved in trade skirmishes with some of the world’s dominant economies. Vietnam sells nearly nine times as many goods to the US as it buys, which doesn’t make the protectionist lobby there happy, and which has meant anti-dumping duties ranging from 26% on frozen shrimp to 64% on catfish exported from Vietnam.
Multinationals expanding into Vietnam have also had problems, says Keith Bradsher in The New York Times. There are “the same shortages of skilled labour felt in India and China”. Prudential and France’s Lafarge have seen a 30%-50% jump in salary levels for local professionals – if they can even find them. Congestion at ports and on roads, while less severe than India’s, is worse than China’s; and chronic corruption has hampered infrastructure development.
Still, these issues aside, the momentum for change is irreversible. Vietnam is a foreign investor favourite, says Fortune: institutional investors are “pouring into its fledgling stock exchange” and Merrill Lynch’s chief regional strategist, Spencer White, calls it a “ten-year buy”. Computer group
Intel has committed $300m to a new chip production plant that will open in 2008 and other foreign investors include sports giant Nike. Professionals who fled abroad when conditions were tough are returning to run many of the new ventures. The Finance Ministry’s proposed personal tax laws, likely to be approved in January, offer more tax breaks for the wealthy than the US does. And Vietnamese firms are rushing to list on the stockmarket before 31 December. To swell the numbers – just 52 firms are currently listed on Ho Chi Minh City’s five-year-old exchange and 16 on the newer Hanoi market (although a further 150-plus trade in the unregulated over-the-counter market) – tax incentives are being phased out ahead of what could be the part privatisation and listing of big state enterprises. So how can investors share in this growth story? We look at four ways below.
Four picks to reap the rewards of Vietnam’s boom
Merrill Lynch’s Spencer White likes banking group Sacombank, which focuses on the fast-growing small business sector, and ports group GemAdept, which should benefit from rapid growth in container traffic. But buying individual Vietnamese stocks isn’t easy for retail investors.
The good news is that several funds focus on the country. One is Aim-listed Vietnam Holding (VNH). The fund has assets of more than $100m, and focuses on buying into the privatisation of Vietnam’s state-owned enterprises.
Vietnamese investment bank VinaCapital manages two London-listed funds. The $171m Vietnam Opportunity Fund (VOF) focuses on domestic growth – stock picks include Vietnam’s top confectioner Kinh Do, and dairy firm Vinamilk. Meanwhile, the $205m Vietnam Real Estate Fund, or VinaLand (VNL), which launched in March, is a developer of residential, industrial and resort properties. Both funds invest at least 70% of their capital in Vietnam.
Another play, but only for investors with at least $100,000 to spare, is Dragon Capital’s Vietnam Enterprise Investments Limited fund, a closed-end fund listed in Dublin. Founded in 1996, it lost a third of its value in the first six years, but has returned an impressive 88% so far this year, against 73% for the benchmark Ho Chi Minh index.