Each week, a professional investor tells us where he'd put his money.This week: Andy Ho of the VinaCapital Vietnam Opportunity Fund.
Southeast Asia has long been home to some of the world's fastest-growing economies, yet political issues and a perception that the region is dependent on China's fortunes have made some investors cautious about participating. But Vietnam is attracting increasing attention from around the world, and it is easy to see why: half of its population of 95 million is below the age of 35, while its growing middle class has more money to spend. This demographic picture is driving growth across many areas of the economy. Meanwhile, Vietnam's labour costs at roughly two-thirds of those in China have attracted investment from global manufacturers such as Samsung, LG, and Intel. Through the end of November 2017, registered foreign direct investment hit more than $33bn an 82% increase year-on-year.
With GDP growth for 2017 expected to come in at between 6.5% and 6.7%, Vietnam is one of the fastest-growing economies in the world. Continued growth in domestic consumption, healthy consumer confidence, infrastructure and real-estate development, and a stable macroeconomy, are all expected to fuel similar levels of growth in 2018. We tend to invest in companies benefiting from these dynamics, some examples of which I've listed below.
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Phu Nhuan Jewelry (Vietnam: PNJ) is the leading jewellery retailer in Vietnam with a sophisticated "omni-channel" retail approach that encompasses 249 shops and kiosks, as well as online sales and call centres. Gross profit for the first nine months of 2017 nearly equalled that for all of 2016, while net earnings surged 41.7% year-on-year, thanks to sales growth of 30% or more across key segments such as gold bars and jewellery, and silver jewellery.
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Hoa Phat Group (Vietnam: HPG) is Vietnam's largest steel company with leading market share in construction steel and steel pipes the building blocks for developing countries. In the first nine months of 2017 its revenue grew by 43% on the back of 32% growth in construction steel volume and a strong price rebound, leading to 21% net profit after tax growth.
With a record number of international arrivals and growing numbers of Vietnamese travellers, Vietnam is set to be the fastest-growing aviation market in the region. Leading this growth is VietJet Air (Vietnam: VJC), the country's first private low-cost carrier, which has only been operating for six years, but has already amassed a 43% market share. Its low fares have attracted passengers keen to spend less time in transit.A flight between the capital Hanoi and the commercial centre Ho Chi Minh City takes just two hours and can cost as much as the train, which takes nearly two days to cover the distance. VietJet currently offers 38 domestic and 35 international routes, and is poised for significant expansion thanks to a young fleet, low labour costs, and continued high-load factors (ie, its planes tend to be full see column). Most analysts expect to see 2017 revenue and profit after tax of $1.8bn and $180m, respectively.
