Vietnam: the buzz is back

Asia's Communist dynamo caused great excitement among investors in the 2000s before suffering a sharp downturn after a China-style lending binge. But it is gradually shaking off the hangover. Economic growth reached a five-year high of 6.7% last year, and both "foreign firms and investors are cheerful once more about Vietnam's prospects", says The Economist.

Foreign direct investment has risen to 25% of GDP, as Vietnam establishes itself as a low-cost manufacturing centre with wages around a quarter of China's. Global companies are also drawn to the obvious potential in its consumer sector: the country has a population of 93 million with a median age of 30. Dairy firm Vinamilk's sales are expanding at an annual rate of over 20%, while per-capita beer consumption is the third-highest in Asia after China and Japan.

Economic liberalisation continues: the government negotiated free-trade deals last year with Europe, Japan and South Korea, and is finally making progress on cutting red tape, says The Economist.The government has just unveiled its new leadership team, with the incumbent secretary-general, Nguyen Phu Trong, viewed as more conservative, retaining the top job.

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The prime minister, Nguyen Tan Dung, will stand down, a potential blow for reformists, says Capital Economics. However, the trend towards liberalisation is not expected to reverse. There's plenty to do, notably shaking up poor-quality, state-owned enterprises and improving foreigners' access to listed firms. But the long-term outlook remains encouraging, especially in view of the market's reasonable valuations. Investors could consider Vinacapital Vietnam Opportunity Fund (Aim: VOF), on a 31% discount to its net asset value.