While not yet officially an ‘emerging market,’ Vietnam’s economy bears all the attractive hallmarks of one. Its GDP is growing at more than 6 per cent per annum, its population of 95 million people is young and increasingly wealthy, and the country is attracting billions of dollars in foreign direct investment from multinational companies such as Samsung, LG and Microsoft.
Vietnam stands apart from its peers in that it has avoided many of the pitfalls that can deter investors. It has a stable government focused on further integrating into the global economy (Vietnam is party to the most free trade agreements in the region), and sound monetary policies that have resulted in a stable macroeconomy.
These and other factors have provided sound backdrop for the strong growth of the Vietnam Index (VN Index), the country’s benchmark, which is up more than 43 per cent in USD terms year-to-date as at the end of November. During this period, foreign investors have been net buyers of $1.2 billion of Vietnamese equities, spurred on by new listings from private companies, as well as an accelerated pace of privatisations of state-owned enterprises, and the sale of government stakes in privatised companies.
For years, the government talked about equitisations, but little progress was made and deadlines missed. When the current government took office last year, it made equitisation a priority, and has backed it up with action such as changes in laws, and not just rhetoric. Perhaps the best example of this: the December sale of the government’s 54 per cent stake in the country’s largest brewer Sabeco, which is expected to generate a minimum of $4.8 billion and is likely to attract interest from international strategic investors.
How can UK retail investors get exposure to Vietnam?
The VinaCapital Vietnam Opportunity Fund (‘VOF’) is a closed-end fund trading on the London Stock Exchange’s Main Market with a market capitalisation of over £630 million. The fund differs from others in that it has a multi-asset strategy, with a portfolio of listed stocks as well as unlisted securities and private equity investments. Over the past five years, VOF’s share price has increased by 206 per cent as at 4 December 2017.
Two of VOF’s largest holdings are Vinamilk (VNM) and Airports Corporation of Vietnam (ACV), both of which are good examples of the kinds of opportunities in the stock market today. The largest publicly traded company in Vietnam by market capitalisation ($11 billion), Vinamilk is the leading dairy company in Vietnam with a dominant market share across numerous product categories. In addition to strong domestic sales, Vinamilk also exports to several countries. Long one of VOF’s main holdings, the stock has risen 53 per cent since the beginning of 2017; the successful November sale of the government’s 3.3 per cent stake in VNM saw the stock rise sharply. As at the end of the third quarter of 2017, Vinamilk recorded year-on-year revenue and net profit growth of 11 per cent and 13 per cent respectively.
ACV manages and operates 22 airports across the country. Spurred by growing numbers of international arrivals and larger numbers of Vietnamese tourists able to take advantage of cheaper air travel, ACV is posting strong growth. From January-November 2017, ACV’s stock price increased 73.4 per cent, and its market capitalisation of approximately $8 billion would rank it among the top five companies on the VN Index when it moves there next year. The government has committed to reducing its stake to 65 per cent by the end of 2020 from the current 95 per cent. VOF invested in ACV during its equitisation in December 2015.
Looking ahead to 2018
Vietnam’s growth over the last few years has occurred in a more sustainable way than in the past, and the country is starting to realise its vast potential – something being noticed by increasing numbers of investors around the world. With economic growth in 2018 expected to be at the same levels as 2017, Vietnam is likely to continue to be one of the world’s fastest developing economies. The opportunities in the market are exciting, and investors keen to participate in a high-growth market should certainly put Vietnam at the top of their lists to consider.
Andy Ho is chief investment officer at VinaCapital.
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