Features

Vietnam defies Asia's economic gloom

While several Asian economies have been struggling, Vietnam is charging ahead.

916_MW_P05_Markets

Vietnam: not just a cheap version of China

While several Asian economies have been struggling, Vietnam is charging ahead. The economy grew by an annual 6.9% in the third quarter of the year. For now, Vietnam "is defying the stress in emerging markets as regional rivals grapple with trade war risks and a stronger dollar", says Sri Jegarajah on CNBC. Vietnam's economy is dependent on exports too, but its "geographical proximity to China and its historically strong political and economic links with Beijing are paying dividends".

Under pressure from US tariffs, Chinese manufacturers have started shifting production to cheaper locations such as Vietnam. Manufacturing wages are 40% lower than they are in China. This is reinforcing a trend that has helped Vietnam develop its manufacturing sector over the years: foreign companies moving in to take advantage of cheap production.

Another Communist dynamo

The boom started when the Communist government introduced market reforms in 1986, transforming the country into one of Asia's fastest growers. At first, Vietnam was seen as a cheap version of China with well-educated workers, and thus primarily suitable as a manufacturing base. But as foreign investment has soared and expertise spread, industry has moved up the value chain.

Vietnam benefits from a trade friendly administration, and "a desire to progress from being a frontier market to a more conventional investment destination", says Eoin Treacy on Fuller Money. Rules governing foreign ownership have been gradually liberalised.

The young, 90 million-strong population of which around 70% are between 15 and 64 will provide a large workforce and a source of consumption for years to come. Vietnam's middle class is expected to grow from 12 million in 2012 to 33 million by 2020. As a result of expanding consumption, retail sales grew by 10.9% to a record $130bn last year. Given this backdroop, it's no wonder Vietnam attracted a record $17.5bn of foreign direct invetsment in 2017.

Therefore it may not come as a surprise that valuations are high for the largest firms. Dairy firm Vinamilktrades on 23 times forward earnings, compared to 17 times for France's Danone, writes Clara Ferreira Marques on Breakingviews.

And if index provider MSCI upgrades Vietnam from a frontier to an emerging market, it could prompt inflows of up to $10 billion, given the larger pool of money benchmarked against the emerging market indexes. MoneyWeek's favourite Vietnam play, however, looks very reasonably priced. The Vietnam Opportunities Fund (LSE:VOF), is on a discount of 17% to net asset value.

Recommended

What China’s new red dawn means for Hong Kong
Chinese economy

What China’s new red dawn means for Hong Kong

China has once again moved to tighten its control over the former British territory and global financial centre. What will remain of the old Hong Kong…
10 Apr 2021
How to invest in Vietnam – an emerging market that shone in a difficult year
Emerging markets

How to invest in Vietnam – an emerging market that shone in a difficult year

Vietnam has been one of Asia’s most promising markets for a long time. Now it is shaking off the global coronavirus crisis and looking better than eve…
12 Mar 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
How Asia's RCEP deal has brought the return of free trade
Global Economy

How Asia's RCEP deal has brought the return of free trade

While Britain and the EU struggle to come to terms, 15 Asia-Pacific countries quietly signed the biggest free-trade deal in history. That’s a welcome …
25 Dec 2020

Most Popular

China owns a lot more gold than it’s letting on – and here’s why
Gold

China owns a lot more gold than it’s letting on – and here’s why

In a world awash with money-printing, a currency backed by gold would have great credibility. And China – with designs on the yuan becoming the world’…
21 Apr 2021
“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
House prices in the UK are still surging – here’s why it’ll probably continue
Property

House prices in the UK are still surging – here’s why it’ll probably continue

The latest UK house price data shows no letup in the country’s booming property market, with the biggest yearly rise since 2014. And there’s no end in…
22 Apr 2021