The exciting growth potential of Vietnam

Update: read Vietnam - Asia's most exciting market for more on investing in Vietnam.

There's little doubt this will be the Chinese century, economically and maybe also politically, says William Kay in The Sunday Times. But "many a flea lives off an elephant" and one of Asia's "most promising fleas" is Vietnam, which recently joined the World Trade Organisation.

The country has modelled its own economic reforms on China's example, adds Kay, quoting Ray Jovanovich, chief investment officer for Asia at Credit Suisse. So we could be about to see a rerun of China's success on a "smaller and thus faster-moving scale".

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Already, some 150,000 private firms have set up since Vietnam's first business, land reform and foreign investment laws were passed in 1986. A vigorous rate of privatisation called "equitisation" for political reasons means there will be no more than 300 remaining state-owned enterprises in a couple of years against 14,000 in 1990, reports Martin Spring in the On Target newsletter.

The rewards? The annual economic growth rate of more than 8% is the region's second biggest after China, while Vietnam has become a magnet for foreign capital as it mutates from communism to free enterprise and "seizes the benefits of globalisation". About $10bn of overseas investment poured in last year, mainly from Japan, South Korea, Taiwan and Singapore. Semi-skilled workers cost an average $73 a month to employ, against Thailand's $375.

For investors, "the most exciting thing" is Vietnam's growth potential "a vigorous entrepreneurial middle class has emerged", yet annual GDP per person is still only $790, compared with $3,420 in Thailand and $20,240 for South Korea. The stockmarket, opened in July 2000, has "exploded" over the past year, but a market capitalisation of about $14bn means it's still tiny in comparison to its regional neighbours.

Investors might consider Credit Suisse's Orient Fund, which invests across Asia; purer plays include Aim-listed Vinaland (VNL), Vietnam Holding (VNH) and the Vietnam Opportunity Fund (VOF), suggests Kay. But be prepared for a long haul with "regular shocks".