Leon Wilfan’s #1 Play In This High-Growth Market
Vietnam, a socialist republic most often associated with the war that took place here in the 1960s and 1970s, is now one of Southeast Asia’s fastest-growing economies and the focus of ambitious investors looking for high-growth markets.
The country today bears little resemblance to the Vietnam of the 1970s, and you don’t have to spend much time here to recognize how fast this place continues to evolve. The government continues to invest in infrastructure improvement and the business environment, and this is spurring an entrepreneurial revolution.
Small businesses are the backbone of any economy, and I see Vietnam turbocharging its GDP to become a true 21st-century economy.
In the decades following the war, Vietnam has progressed from a poor country to the lower-/middle-income nation it is today. The middle class now represents 40% of the population… and that number is set to increase to 90% over the next 10 years.
Demographically, Vietnam is in a golden period of population structure, meaning that more than 60% of its population is of working age (between the ages of 15 and 55).
The shape of a country’s age pyramid is one of the most important indicators in determining its long-term success and one of the reasons people are calling Vietnam the next China.
Other reasons for the moniker include its cheap labor force and the relocation of manufacturing and other labor-intensive industries from China to Vietnam.
In addition to its population, Vietnam has other vital assets. The land is rich in natural resources, including precious metals, rare earth elements, coal, oil, and gas, among others. Furthermore, its strategic geographic location affords it easy access to one of the busiest shipping routes in the world.
The government has been doing its part to aid development, putting in place reforms and amendments that have resulted in Vietnam climbing the ease-of-doing-business rankings to 68th place in 2017. Incorporating a business is now a straightforward process, as are reporting taxes and financials.
Moreover, the regulations were structured to invite foreign direct investment (FDI), one of the main reasons for the recent GDP boost.
To further cement its future, Vietnam joined several trade associations, both regional and domestic. These developments have resulted in MSCI considering promoting the country from a frontier to an emerging market. This promotion would allow many funds to include Vietnamese stocks in their portfolios and could push the local stock market even higher.
If you’re looking for exposure to Vietnam’s growing economy, the easiest and fastest way to gain access is to buy an exchange-traded fund (ETF) focusing on Vietnam. VanEck Vectors Vietnam and FTSE Vietnam are the two most popular and most liquid choices.
The problem with these ETFs is that they’ve had somewhat lackluster performances that don’t represent the Vietnamese economy as well as they should. Compared to the VN Index, which tracks the 304 largest stocks on the Ho Chi Minh City Stock Exchange, the two ETFs look like they’re trying to replicate a different country. I suggest you avoid them.
Instead, I recommend you look at VinaCapital Opportunity Fund (VOF) and Dragon Capital Group’s funds. VOF is by far the best-performing fund with a five-year annual average return of 25%. It has an experienced local team behind it that focuses on private business and state-owned enterprises (SOEs) before they go public.
Dragon Capital is Vietnam’s longest established independent asset manager and offers several funds, the most popular being Vietnam Enterprise Investments Limited (VEIL), which has a similar focus as VOF. You can trade both on the London Stock Exchange (LSE).
Vietnam has experienced a real estate boom in recent years, and the market might tempt you. I would caution against buying into it, however, unless you are looking at a long-time horizon (five years and above) or are looking for a place to live. The market has become oversupplied with prices booming beyond reasonable levels. I wouldn’t go so far as to say that the market will implode, but I do expect prices to stagnate for a few years as the market slowly absorbs the oversupply.
Leon Wilfan
