Good Morning Vietnam: Asia’s other communist dynamo

In the mid-1980s, Vietnam came close to famine. But over the past few years, it has become known as Asia's other communist dynamo. It's "good morning at last" in Vietnam, as The Economist puts it.

Market reforms including deregulation and admitting foreign capital have underpinned annual growth rates, averaging 7.5% over the past five years. Exports have provided much of the impetus recently, rising by an annual 25% over the first seven months of 2006. Vietnam has become Brazil's main competitor in coffee growing and is even selling tea to China.

Vietnam also boasts a cheap, young and literate workforce half the population is under 25 and an underdeveloped banking system "on the cusp" of a shake-up, notes Carl Delfeld of Chartwell Partners in Forbes.

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Moreover, in a bid to drum up interest among foreign investors, the government is drawing up a securities law to improve disclosure standards and selling off state-owned companies with the aim of boosting the size of Vietnam's small stockmarket from 6% of GDP to 20%-30% by 2010. (Currently there are only 48 listed companies with a market value of $3bn and two firms account for almost half of the total.)

There is always a danger of reforms faltering and Vietnam is notorious for

its opaque bureaucracy; the thin market is also extremely volatile, with a 36% slide following a 100% upswing during the first four months of the year. But given the long-term potential, it's no wonder Merrill Lynch's chief regional strategist Spencer White called Vietnam a "ten-year buy" in February.

Delfeld says that valuations look appealing, with price/earnings multiples between eight and ten and earnings growth of 20%-40%. He highlights the Aim-listed Vietnam Opportunity Fund (VOF, $2.54) as one of the few direct plays. There is also Dragon Capital's Vietnam Enterprise Investments Limited fund, a closed-end fund listed in Dublin, but it requires a minimum investment of $100,000.