Investors, frightened by tighter monetary policy, began selling out of Vietnamese stocks after the central bank raised its key policy rates by one percentage point last month.
Vietnam’s benchmark VN stockmarket index has slid by 30% this year, say Nguyen Kieu Giang and Ishika Mookerjee on Bloomberg.
The sell-off means it is a good time to buy Vietnamese stocks. “There are a lot of high-quality companies with fantastic structural growth opportunities trading [far] below their historical averages,” says James Bannan of Coeli Asset Management. “It’s a great time to buy.”
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Vietnam: a growth champion
In the mid-1980s Vietnam was poor, but in 1986 the ruling Communist party initiated market-oriented reforms, says Vincenzo Caporale in The Diplomat. GDP per capita has increased “nearly tenfold from under $300 in the 1980s to $2,800 in 2020”. It has been “one of the quickest and most impressive periods of economic development in world history”.
Today the country is “a key part of the global supply chain for textiles, footwear, and electronic manufacturing”.
The International Monetary Fund has raised its 2022 growth forecast to 7%: Vietnam is poised to be Asia’s fastest-growing economy this year.
Hanoi has been a major beneficiary from growing US-China trade tensions, says The Economist. In 2019 it “produced nearly half of the $31bn-worth of American imports that moved from China to other low-cost Asian countries” in the wake of Donald Trump’s tariffs.
Vietnamese policymakers have also been savvy about attracting investment. “The country is an enthusiastic member of over a dozen free-trade agreements” and “fully reopened its borders in March”.
In 2020 Vietnam’s high-tech exports hit $101.53bn, up from just $3.01bn in 2008, says Megha Mandavia in The Wall Street Journal. China’s share of US tech imports has fallen by 10% since 2017; Vietnam’s has risen 6% over the same period.
The downsides of buying Vietnamese stocks
Yet “moving past assembly toward becoming a major location for the production of advanced components” will prove a much trickier task. Vietnam needs a better educated workforce and “significant new infrastructure investment” before it can compete with China’s “top-notch transport and power infrastructure, and its legions of engineers”.
There are other “downsides”, says Lex in the Financial Times. Exchange controls make moving capital out of Vietnam a headache.
Still, the country has “ample room” to grow: “GDP per capita is just $3,694, less than one-third of China’s figure”. Demographics bode well, too – more than 70% of the population is under 35.
With Vietnamese stocks trading on less than ten times forward earnings, it’s worth taking the plunge. MoneyWeek’s favourite play on Vietnamese stocks is VinaCapital’s Vietnam Opportunity Fund (LSE: VOF).
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