Vietnam’s Economic Growth and Investment Opportunities
The Economic Landscape
Vietnam, despite being under communist rule, has taken a remarkably market-oriented approach similar to its northern neighbor, China. This strategy, termed ‘economic reform 2.0’, is proving effective. In the first half of this year, Vietnam’s economy achieved an impressive growth rate of 7.3%, with forecasts suggesting the potential for double-digit growth in the coming years. This vibrant economic backdrop has fueled the stock market, coinciding with robust domestic consumption and industrial output.
Investment Trusts in Focus
The thriving economy has generated solid returns for three major London-listed investment trusts dedicated solely to Vietnam: Vietnam Enterprise Investments Limited (VEIL), Vietnam Holding, and VinaCapital Vietnam Opportunity. Over the last year, these trusts have reported notable share price increases: VEIL surged by 19.7%, Vietnam Holding grew by 5.5%, and VinaCapital recorded a 6.6% rise.
Among these, VEIL stands out as the largest trust, managing £1.5 billion and operated by Dragon Capital, Vietnam’s preeminent private asset manager with over three decades of experience. With approximately £13 billion in assets under management across Southeast Asia, nearly a third is allocated to Vietnam, focusing on capital growth rather than income generation.
Resilience Amidst Challenges
Interestingly, VEIL and its management have navigated recent economic headwinds, including a 20% tariff on Vietnamese exports to the U.S. introduced by former President Trump. Thao Ngo, one of VEIL’s managers, reassures that this tariff has had minimal impact on the stock market due to the nature of the companies listed, which are largely focused on domestic consumption rather than on exports.
According to Ngo, only 1.5% of revenues from listed companies connect to U.S. exports, which is why market sentiment remains buoyant. The persistence of GDP growth, marked as the most robust in nearly twenty years, is promising for sustained performance in the stock market.
Market Dynamics and Future Outlook
Vietnam’s ambitious economic plans, led by General Secretary To Lam, are paving the way for further reforms aimed at transforming the nation into a high-income economy by 2045. The ongoing shift towards more liberal economic policies presents an attractive environment for investors.
The VEIL portfolio includes 42 stocks with a significant focus on the banking sector, where financial institutions like Techcombank and Asia Commercial Bank are key players. Techcombank is lauded for its innovation and diversified wealth management services, while Asia Commercial Bank, the first private bank in Vietnam, continues to grow its consumer lending capabilities.
However, despite the favorable market conditions, VEIL shares currently trade at a double-digit discount compared to the estimated value of its underlying assets. This situation prevails even while the trust actively repurchases its shares.
A potential market shift lies in the possibility of Vietnam’s stock market transitioning from ‘frontier’ to ‘emerging’ market status. Such an upgrade could enhance interest from international investors and is anticipated as a potential scenario in the near future.
Investment Considerations
VEIL has an annual charge of 1.85% and is categorized as BD9X204 on the stock market. Experts recommend that investors consider this trust as a component of a diversified investment portfolio, given its niche focus and inherent risks. As with any investment, understanding the potential for growth within emerging economies like Vietnam is essential, alongside the awareness of market volatility and fluctuations.
Vietnam’s proactive economic strategies, along with its burgeoning financial markets, present a unique enthrallment for investors looking for opportunities beyond traditional markets. The evolution continues, and the potential for strong returns remains a tantalizing prospect.