Merrill Lynch last year called it a “ten-year buy”. According to Citigroup, it’s “the New Powerhouse of southeast Asia”. And the International Monetary Fund’s chief economist says it’s an “emerging China”. Vietnam is back in the news, says Manraaj Singh, emerging markets specialist at Profit Hunter, and this time it’s “for all the right reasons”.
GDP growth in Asia’s other communist dynamo has exceeded 7% for each of the past four years and the government has pencilled in growth of 8.5% this year. Deregulation and privatisation, along with buoyant exports helped by the commodities boom, have underpinned economic expansion, as has rapidly increasing foreign direct investment. Foreign investment jumped by 49% in 2006, with major international companies moving in: Intel is to spend $1bn on a semiconductor test and assembly plant, while Korea’s Posco plans to invest $1.13bn in new steel plants.
Vietnam is an attractive location for investors because manufacturing workers are the cheapest in the world, with an annual average wage of around $800. Per-capita income has doubled over the past 15 years and mounting wealth is boosting consumption. Throw in stable politics and the government’s commitment to market reforms, and it’s no wonder the stockmarket has appeared on investors’ radars.
The market remains small, with just 109 listed companies and average daily trading volume of about $50m. But 70 large state-owned companies are set to list by 2010 and analysts say the total value of listed shares could rocket from around $20bn to $45bn by the end of this year, says Singh. Taiwan’s stockmarket capitalisation jumped by 1,230% in the decade from 1983, a period of rapid development. Vietnam looks set for a similar spurt.
According to Vietnam fan Christopher Wood of broker CLSA, the market will reach “critical mass” in the next couple of years as listings increase. Global investment giants Merrill Lynch and UBS are due to step up their operations in Vietnam as liquidity improves, and investment guru Mark Mobius is eyeing up the market.
The Vietnam story is one of evolving capital markets as well as economic development. Stocks are up by 40% this year, although the market has recently eased back from a sharp run-up that saw too much money chase too few shares, a situation the impending privatisation programme is remedying. The market is currently on a price-to-earnings-growth ratio of about 1, with the largest 20 firms due to grow earnings by an impressive 26%.
The easiest way to buy into “Asia’s most exciting market”, says Singh, is via Vinacapital’s Aim-listed Vietnam Opportunity Fund (VOF). Deutsche Bank Securities and American Fidelity Corporation are among the heavyweights with holdings in the relatively small company (its market capitalisation is $784m), which was one of the first Vietnam funds. Having raised new capital last year, it is well placed to ride the privatisation wave. A recent pullback has left it reasonably priced in view of the market’s potential; it has been trading at a premium of 1.5%-10% of its net asset value of late. This long-term buy could double within a year, reckons Singh.