Plenty of vim in Vietnam

Many Asian economies struggled last year as money flowed away from emerging markets. Vietnam, however, has continued to thrive.

930_MW_P05_markets

Two-thirds of Vietnam's population is under 35

Many Asian economies struggled last year as money flowed away from emerging markets and the trade war between China and America undermined confidence. Vietnam, however, has continued to thrive.

In 2018, foreign direct investment (FDI) into the Vietnamese economy reached a new record of $19bn, up 9% on2017, according to Capital Economics. This marks a near-100% increase since 2009.

Foreign companies are shifting production away from China in order to avoid tariffs imposed by the US. Vietnam is a handy destination because of its proximity to the Middle Kingdom, and also because its manufacturing wages are 40% lower than they are in China, which gives it a competitive advantage.

For years now, foreign companies have moved in to take advantage of cheap production. This influx of foreign manufacturers has created new jobs and tax revenues.

The manufacturing sector continued to be the strongest segment of the economy in 2018, with output up some 13% from the previous year, according to HIS Markit.

There are also "signs that foreign companies are generating positive spill-overs", with foreign firms galvanising local production, says Capital Economics: exports from

domestic companies have increased by 50% over the past couple of years. The sector has become increasingly sophisticated and high-tech over the past few years. For example, South Korean giant Samsung makes most of its smartphones in Vietnam.

This isn't simply about manufacturing. The 95 million-strong population means there is a large domestic consumer market, and that there will be plenty of consumers and workers in future. Two-thirds of the population is under 35.

No wonder then, that according to official estimates, Vietnamese GDP rose by 7.1% in 2018, the best performance since 2007. Even with "its many boom-bust cycles," Vietnam's GDP has grown by more than 5% a year on average since 2000, says William Pesek in the Nikkei Asian Review, and its current vigour means it "offers shelter from the coming global storm".

Very good value

Meanwhile, MoneyWeek's favourite Vietnam play, the Vietnam Opportunity Fund (LSE: VOF), which invests in both listed and unlisted companies, as well as debt, is on a discount to net asset value (NAV) of 16%.

Recommended

An investment trust that gives exposure to frontier markets
Investment trusts

An investment trust that gives exposure to frontier markets

An investment trust investing in small, illiquid emerging markets has disappointed, but deserves another chance, says Max King
26 Oct 2021
How rising interest rates could hurt big tech stocks
Tech stocks

How rising interest rates could hurt big tech stocks

Low interest rates have helped the biggest companies to entrench their positions. But what if rates rise?
25 Oct 2021
Andrew Hunt: why it's a great time to be a deep value investor
Value investing

Andrew Hunt: why it's a great time to be a deep value investor

Merryn talks to Andrew Hunt, author of Better Value Investing, about his adventures in the market's dark underbelly, looking for the hated and neglec…
22 Oct 2021
Back on track: why you should invest in railways
Share tips

Back on track: why you should invest in railways

Rail transport suffered a severe blow in the pandemic. But while post-Covid-19 working patterns may reduce revenue, trends in technology, long-distanc…
22 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
Emerging markets: the Brics never lived up to their promise – but is now the time to buy?
Emerging markets

Emerging markets: the Brics never lived up to their promise – but is now the time to buy?

Twenty years ago hopes were high for Brazil, Russia, India and China – the “Brics” emerging-market economies. But only China has beaten expectations. …
18 Oct 2021