Vietnam is fast emerging as the leading frontier market in the East-Asian region, according to industry experts.
Strong economic and social development over the past two decades has transformed what was one of the world’s poorest nations and with half the population under the age of 35, investment managers expect Vietnam to continue its growth trajectory.
Craig Martin, manager, Vietnam Holding, says: “Vietnam is likely to be the largest constituent of the MSCI Frontier Market index by the end of 2020 and already has many characteristics of an emerging market opportunity. Along with China it is one of the few growth stories of 2020 and is positioned for a strong 2021.”
Vietnam has benefited from more than $149 billion in foreign direct investment flows over the past 20 years, supported by accelerating supply chain migration from China, which has driven large increases in manufacturing during this period.
“Vietnam’s GDP per capita is expected to reach $5,000 by 2025, and by 2035 there could be a further 35 million middle-income consumers in the country. We think this provides exciting prospects for investors. Vietnam is a very open economy from a trade perspective, with more than 200% of its GDP in exports and imports,” says Martin.
Vietnam has also emerged as one of the more successful countries at dealing with the Covid-19 pandemic. It has registered just over 1,000 cases and 35 deaths, following early Government intervention.
Monetary and fiscal easing during the pandemic have been aggressive, with local government bonds now bearing negative yields. While tourism and hospitality have been affected, domestic consumption has rebounded and exports continue to grow.
Looking ahead, investment managers expect there to be growing opportunities for investors, driven in part by the rapidly expanding young and middle class demographics.
Emily Fletcher, portfolio manager, BlackRock, comments: “The young, relatively well educated, and increasingly connected population has helped steer change in how businesses interact with consumers. With over 51 million smartphone users, representing 80% of the population aged 15 years and older, awareness of mobile internet and usage has increased, sparking further evolution of retail services.
“Similarly, the global trend of improving health and wellness has not been lost on Vietnam, leading to shifts in nutritional preferences and the way people shop for food. Seen through this lens, consumer related industries remain preferred areas for investment.”
Gabriel Sachs, Manager, Aberdeen Standard Asia Focus, said the firm remains “very positive” on Vietnam and has been building positions in two companies over the past two years.
“At the moment we have almost 4% of the portfolio in Vietnam. The two companies operate in very different sectors – Nam Long is an affordable housing developer primarily based in Ho Chi Minh City and the other, FPT Corp, is a conglomerate which operates primarily in the IT services industry but has fast-growing telecommunications and education businesses. It is by far the leading tech company in Vietnam hiring a third or more of all computer science graduates in the country.”
China’s influence
Investment managers agree that China will also play an important role in Vietnam’s growth going forward.
Currently, Vietnam’s manufacturing sector accounts for less than 20% of Vietnam’s economy but contributed over 30% of GDP in each Asian Tiger economy during the peak of the Covid-19 crisis. According to Khanh Vu, co-manager, VinaCapital Vietnam Opportunity Fund, this indicates the extent to which Vietnam’s growth will be driven by the further development of the manufacturing sector and the Covid-prompted relocation of factories from China to Vietnam will accelerate this development.
Martin added: “China is an important trading partner for Vietnam. As China develops and grows, there is likely to be a demand for agriculture and aquaculture products from Vietnam, as well as processed food products.
“As the US rallies support for a bipartisan ‘us versus them’ approach to China, Vietnam is positioned to be an increasingly important alternative destination for manufacturing – which would further increase its foreign direct investment and hasten infrastructure development. The multiplier effect of this will also benefit the domestic market.”
