Explore new frontiers
WITH the attention that has been lavished on China, it has been all too easy to neglect the region’s little dragons such as Vietnam. Investors fled these frontier markets during the financial crisis. In early 2008, Vietnam suffered from a combination of economic overheating and surging international commodity prices.
Standard Chartered analysts reckon that the conditions that originally put Vietnam on investors’ radar screens will return: “Foreign investors are attracted by abundant resources, such as cheap labour, oil and agricultural products. Political stability, an increasingly open economy and rising consumerism are supporting the country’s economic development.” Vietnam was one of just five Asian economies to maintain positive growth throughout the crisis – the others were China, India, Indonesia and the Philippines.
And while Vietnam’s stock market is not yet fully developed, it is rapidly becoming a serious financial platform and liquidity is steadily improving – volumes are now routinely reaching $250m-$350m per day while market capitalisation is now $36bn compared to just $0.7bn in 2005. It is slowly becoming a country that is more amenable to foreign investors.
Yet it is still not easy for investors of any size to get exposure to Vietnam’s secular growth story. Consequently, the typical route is through an Asian frontier markets fund such as Baring Asset Management’s ASEAN Frontier Fund, which has returned 9.6 per cent since its inception in August 2008. The Barings fund has a 3.2 per cent exposure to true frontier markets in Asia-Pacific, which includes Vietnam, Laos and Sri Lanka. It holds a stake in Vinamilk, the largest dairy products producer in Vietnam with a 40 per cent market share and which has a 4 per cent dividend yield. The fund is betting on a surge in Vietnam’s consumption of dairy products over the next decade.
However, for the brave long-term institutional investor looking for a purer play on the country, there are a handful of Vietnam-specific asset managers such as Dragon Capital.
Dragon Capital, which has offices in Vietnam and the UK, has been investing in Vietnamese companies for the past 15 years. Its largest fund is its Dublin-domiciled Vietnam Enterprise Investments Limited (VEIL) closed-end fund, which was launched in 1995.
It reckons that long-term outperformance will come from “closely aligning investments with the underlying economic growth drivers, which in Vietnam are predominantly in the domestic sector. This includes financial modernisation so banks account for 30.3 per cent of the fund and they will continue to be held as a strategic long-term overweight. Until 2009, the fund outperformed the market almost every year but is slightly down on the Vietnam $-index year-to-date.
Investors seeking an alternative growth market should actively consider Vietnam but remain cautious given that the financial market is still relatively immature.