Vietnam's stock market surges ahead

While most emerging markets are sliding, Vietnam is surging. The VN Index has jumped by 12% to a four-year high of 560 this year, making it Asia's top performer.

Encouraged by the gradual recovery from a credit boom and bust, investors have given the small market a boost as the data have improved. GDP growth hit bottom in 2012 and is slowly recovering. The government has pencilled in growth of almost 6% this year, while inflation has fallen to around 6% from a high of 20% in 2011.

Credit growth is subdued due to bad loans still clogging up the banking system, but the government has set up a bad bank' to buy dud loans and thus allow banks to lend more.

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Exports grew by 15% in 2013, despite the weak global economy, and Vietnam's goods are also becoming more sophisticated. AsStandard Chartered notes, electronics surpassed textiles to become the country's top export last year. Foreign investment has held up too, thanks to Vietnam's cheap workers and huge domestic market of 90 million people.

Investors also hope that the 49% cap on foreign shareholdings in listed companies will be lifted soon. These stocks are expected to grow their earnings by 20% this year, yet the market's 2014 price/earnings ratio is 12, the lowest in southeast Asia, says Bloomberg.com.Attila Vajda of ACB Securities reckons the VN Index can hit 620 by the end of 2014.

Our favourite play, the Vietnam Opportunity Fund (LSE: VOF), is on a 19% discount to net asset value though it could get cheaper still if Vietnam is hit by the emerging-market sell-off too.