Investors excited by Vietnam - the “mini-China”

Vietnamese stocks have produced the best gains in Asia so far this year, with investors enticed by Vietnam’s ‘mini-China’ story”.

Vietnamese stocks have produced the best gains in Asia so far this year, says John Reed in the Financial Times, with the benchmark VN Index up 17%. A flurry of flotations has helped drum up excitement, but investors have also been enticed by Vietnam's mini-China' story". It's a communist state embracing the market and the global trading system, while "positioning itself as a hub for foreign manufacturing".

The long-term outlook is compelling. Vietnam, "unlike some of its neighbours heading into a demographic slump", has a young population driving demand for everything from beer to budget travel. As a result, the economy grew 7.4% at an annualised rate in the first quarter of this year. Its exports now exceed those of Indonesia, an economy almost five times its size.

However, being highly export-orientated is a risk given the mounting threat of protectionism and the risk of becoming embroiled in the US-China trade spat. It exports goods used in the production of items that China sells to the US, Steven Schwartz, senior director of sovereign ratings for Asia at Fitch Ratings, told the South China Morning Post. Still, higher US tariffs on Chinese products could also boost Vietnam's appeal as a foreign investment destination, says Ngan Anh in the VNExpress International. MoneyWeek's favourite Vietnam play, the Vietnam Opportunity Fund (LSE: VOF), is currently on a 20% discount to net asset value.

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