(Pictured: Ha Thanh Tuan)
As emerging markets continue their price recovery, notwithstanding a little stuttering by the Chinese economy, frontier markets, too, are attracting attention again. One of the darlings of Asia prior to the start of the global crisis, Vietnam, is looking more promising.
According to a recent newsletter by Asia Confidential’s James Gruber, a former fund manager and stockbroker specializing in Asia, the IndoChinese region, particularly Vietnam, offers some of the best opportunities over the next decade. Gruber says institutions have started to take notice.
The main Vietnamese stockmarket was the best performing in Asia ex-Japan over 2013 – up 22 per cent. However, it had previously been among the worst. It slumped about 80 per cent over 18 months from the end of 2007 as the whole economy was disproportionately impacted by the GFC. GDP fell from 8.5 per cent in 2007 to a little above 5 per cent in 2009.
But several things have changed investor sentiment since then, especially the promise of further reforms including cleaning up the government-owned banks following a credit bubble and relaxing foreign investment ceilings. Economic growth has also picked up to about 6 per cent and reforms in neighbouring Myanmar and continued, although slower, growth in China and Thailand are helping Vietnam. Vietnam has one of the best demographic profiles in the region, with 70 per cent of the population under the age of 45.
Recent foreign direct investment has focused on high-tech industries, such as electronics, rather than the previous concentration in textile manufacturing. Japan and Korea have replaced China and Taiwan in leading foreign direct investment.
Ha Thanh Tuan, a former leading Vietnamese stock analyst and CFA who moved to Australia last year, says there are still several issues that foreign investors need to be aware of as the ceiling on foreign ownership in Vietnamese stocks is lifted from 49 per cent to 60 per cent. These are:
- liquidity can be tight, with many state-owned enterprises prevailing
- transaction costs can be high compared with western norms
- the currency has been volatile, although with a curtailment of inflation and improved terms of trade in the past two years, this appears to be less of an issue
- governance issues, such as a lack of independent directors, unclear management remuneration packages and related-party transactions.
Tuan says: “Investors may find it beneficial to have partnerships with local fund managers or recruit on-the-ground experienced analysts if they are looking for diamonds in the rough.”