Why Vietnam is the star of Southeast Asia
Emerging markets should be a good source of income in the years ahead, with emerging Asia looking most appealing, and Vietnam the standout performer.
We have been gold bugs since 2001 (and still are). Another longtime favourite of ours is Vietnam. In 2005 we noted that it was Asia’s “other communist dynamo” (it still is). In 2007 the International Monetary Fund’s (IMF) chief economist referred to it as an “emerging China”. The IMF may have failed to forecast the global financial crisis in 2008, but that time it was on the money.
Vietnam piqued our interest because it seemed to be following in China’s footsteps with a ten-year delay. It embraced the free market in the mid-1980s, and since then has attracted attention as a cheap manufacturing base: wages are around a third of Chinese levels. It has also moved up the value chain as foreign investment and expertise has flooded in. Most Samsung smartphones are made there and it is a major electronics exporter.
There is also ample scope for consumption to expand given a demographic backdrop more favourable than China’s: almost 75% of the population are between 15 and 64. Annual GDP growth has eclipsed 6% over the past five years; GDP per head almost tripled between 2002 and 2018. It also seems to be coping pretty well with Covid-19. All this makes it the star of Southeast Asia, a region that many have written off as a perennial underachiever because recurrent political upheaval undermines solid economic prospects. Thailand, the Philippines, Malaysia and Indonesia have certainly struggled over the past few years, but as Cris Heaton points out in this week's cover story, there is still considerable potential here if you tread carefully. Valuations in these emerging markets now seem to price in much of the recent turbulence.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A broader point to keep in mind about emerging markets is that they are usually touted as sources of fast growth. Their rapid development is certainly impossible to ignore: they have grown so fast that they make up around 60% of global GDP today, compared with 48% in 2005 (measuring GDP in terms of purchasing power parity, which takes into account differences in the cost of living). Industrialised countries’ share is 38%. Still, several studies have noted that capturing emerging-market growth in equity returns often isn’t as easy as you’d think. Not only is there always the chance of political upheaval and economic mismanagement, but some of the fastest growers are often unlisted.
So it may be more helpful to think of emerging markets as a good source of income in the years ahead – especially now, with dividends in Britain and Europe butchered by the crisis. Emerging Asia looks most appealing in this regard. Growth tends to be brisker than in eastern Europe or Latin America (the latter is highly susceptible to commodity cycles), implying ample scope for dividends at least to keep climbing even if yields are not all that high.
It is the effect of compounding – the eighth wonder of the world, said Einstein – that makes reinvested dividends so crucial to healthy long-term returns. Cris looked at emerging Asia in a recent cover story and highlighted his favourite investment trusts to play the income theme: the Aberdeen Asian Income Fund (LSE: AAIF) and the Schroder Oriental Income Fund (LSE: SOI). That reminds me: emerging Asia as a source of income is another theme we have liked since 2005. What goes around comes around. Solid investment ideas, like Chanel suits, always come back into fashion.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
-
Christmas at Chatsworth: review of The Cavendish Hotel at Baslow
MoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
By Dr Matthew Partridge Published
-
Tycoon Truong My Lan on death row over world’s biggest bank fraud
Property tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
By Jane Lewis Published
-
Why undersea cables are under threat – and how to protect them
Undersea cables power the internet and are vital to modern economies. They are now vulnerable
By Simon Wilson Published
-
India's stock market drops - why it's thrown investors into frenzy
Nifty 50, India's stock market index, has dropped 8% from a September record amid concerns of an economic slowdown and foreign investors pulling out
By Alex Rankine Published
-
Warren Buffet invests in Domino’s – should you buy?
What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
By Dr Matthew Partridge Published
-
Should you buy JPMorgan's top emerging market trust?
The JPMorgan Emerging Markets Trust fund has outperformed its benchmark over the long term and offers good value
By Max King Published
-
Is India still a good investment?
India's long-term story is compelling, but after a spectacular bull run, warning signs are starting to show. Is investing worth the risk?
By Cris Sholto Heaton Published
-
4Imprint makes a strong impression – should you buy?
4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
By Dr Mike Tubbs Published
-
Invest in Glencore: a cheap play on global growth
Glencore looks historically cheap, yet the group’s prospects remain encouraging
By Rupert Hargreaves Published
-
Should you invest in Trainline?
Ticket seller Trainline offers a useful service – and good prospects for investors
By Dr Matthew Partridge Published