Vietnam's equity market is up by a fifth this year and there's scope for more. In the 2000s, Vietnam was often referred to as Asia's other Communist dynamo'. A Chinese-style bank-lending binge led to a nasty slide but now the economy is gradually recovering.
GDP grew by 6.2% year-on-year in the third quarter of 2014, compared to 5.2% in the second. In the past 20 years, annual growth has averaged 7%. "The worst of the slowdown may now be behind us", reckons RBS.
The Bank of Vietnam has cleaned up local banks enough to spur lending, says Michael Shari in Barron's. It created a bad bank' to take dud loans off banks' balance sheets, freeing space for new loans.
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The rescue is far from over: credit growth remains weak at 4.5% a year between January and August, compared to the central bank's 12%-14% target. So there are clearly still many bad loans clogging the system. But beyond the banks, things look promising.
Higher interest rates have squeezed out inflation, which peaked at over 25% in 2011, allowing the Bank of Vietnam to cut rates. Exports rose at 14.1% a year in the first nine months of 2014 due to cheap labour manufacturing workers are on roughly a third of the Chinese wage rate, notes Shari.
Manufacturing now makes up a fifth of an economy that once relied on raw materials such as oil and rice. Exports are also becoming more sophisticated, with electronics eclipsing textiles as Vietnam's top export in 2013.
Samsung will soon have 60% of its mobile phone production there. With 94 million people, there's room for domestic consumption to grow. As a result, foreign direct investment continues to rise, up 4.5% in the year to September.
There is still plenty to do. Red tape and corruption remain problems, and one irritation for investors is the difficulty of accessing the market. The government recently pulled back from plans to raise the limit on foreign share-holdings in local firms above 49%.
Still, given reasonable valuations and the promising long-term outlook, Vietnam is worth a look. The PXP Vietnam Fund (LSE: VNF) trades on a discount to net asset value (the value of its underlying portfolio) of 7% and holds only listed stocks.
The Vietnam Opportunity Fund (LSE: VOF) is on a discount of 22% and invests in stocks, unlisted firms and other assets, such as debt and real estate.
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