Look through the emerging markets collectively known as the Civets (Columbia, Indonesia, Vietnam, Egypt and Turkey) or Vista (Vietnam, Indonesia, South Africa, Turkey and Argentina) and you’ll soon notice that the developing market worth considering is Vietnam. The others, especially recently, pose investment challenges for various political or economic reasons.
Eleven years after the Vietnam War ended in 1975, and similar to the Chinese economic reforms of 1978, Vietnam launched its Doi Moi reforms. The Saigon stock exchange was opened 25 years after Vietnam turned communist, in contrast to China, where the Shanghai stock exchange was started 40 years after China became communist. The Vietnamese economy has been growing at just over 7% on average since the 1990s.
South Africa had a stock exchange and market economy structure long before Vietnam did. In fairness, comparisons can only start in the 1990s after Vietnam adopted a market-based economic structure. It also coincides with South Africa’s economy opening up to the world and the majority of its citizens post the sanctions era.
The indexed graph below shows the GDP per capita in US dollar purchasing power parity (PPP) terms since 1990. The comparison is based on PPP$ to account for currency differences and differing costs of living for a similar basket of goods and services between South Africa and Vietnam. The growth is more remarkable given that Vietnam is not as well endowed with natural resources as South Africa but percentage-wise boasts a literacy rate in the high 90s.
Manufacturing and services appear to be the dominant economic theme in Vietnam.
A visual comparison of the MSCI USD charts for the South African and Vietnamese markets doesn’t suggest a correlation decoupling, but a closer look shows some interesting differences. In the immediate post global financial crisis period, the Vietnamese market showed more positive sentiment and lately it again seems to be performing better than South Africa.
The South African market has also been about 3.5 times more volatile over 10-week periods in the last 10 years. That said, Vietnam is an alternative diversification option for South African savers to consider having in their portfolios. Naturally, this market should not be your only offshore investment but rather a portion.
Vietnam has some risks in that its political system is still communist in nature, but this is no different to China. Vietnam also has a slightly lower credit rating of BA than South Africa’s at BAA3, however the sentiment towards improving ratings is currently in favour of Vietnam.
Investing into Vietnam via pure passive exchange-traded fund (ETFs) poses a risk of exposure towards its state-owned entities, which are not performing as well as its privately-owned companies. Investing in Vietnam by buying into active managed funds might therefore be a better option.
Pragnesh Desai is CEO of Galileo Asset Managers.