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The case for Vietnam

Could it be part of your diversification strategy?

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.

Source: World Bank/Galileo Asset Managers

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.

Source: Galileo Asset Managers

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.

COMMENTS   7

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Vietnam is an interesting (and promising) case. Hollywood has allowed Vietnam to be stuck in a “war psyche” in a westerner’s eyes.

Go and view on Google the cities of Nha Trang, Da Nang, Dalat, others…and you stand in awe. They’ve developed at great pace, while progress in SA has been stagnating the past decade.

The cherry on top was when one views a You Tube vid of a passenger train between Da Nang and Hanoi. It’s so modern and safe, it leaves our Metrorail in shame!

Safety…yes, that’s one MAJOR difference.

Michael, very good point to your 2nd paragraph. I have enjoyed trips to the far east and the ethos of its people is inspiring

The ills of crime and corruption are everywhere but the willingness of people to live in shanty towns, toil very long hours and do this without the “noise” of entitlement begs belief

They sacrifice, toil & save first

I would hope that our relationship with Vietnam is premised on the understanding that our wildlife: rhino, elephant, pangolin, insects, snakes, abalone etc etc are NOT sources of export to their traditional crafts and medicine industries.

Just today a Chinese national was arrested in Mozambique on route to Vietnam with 9 rhino horns.
https://clubofmozambique.com/news/chinese-detained-at-maputo-international-airport-with-9-rhino-horns/

Unfortunately it appears that Vietnamis Chinas new unwitting conduit for all sorts of things …. it wouldn’t surprise me if Vietnam becomes a new and important trading partner of the US. Merely a back doorway for China to do business with the USA ( or should I rather say the DSA – Disunited States Of America!)

Vietnam is awesome…

As an investment though expect to pay PE ratio of 18 and you’re already late to the party. It’s also late in the bull market too.

So you’ll be buying high hoping to sell higher.

…and the state owns all the land. You want land? You get a lease.

Despite being a nominally communist country, there are important differences between Vietnam and South Africa. Among these are ;-
Despite the horrific Vietnam War, the Vietnamese do not look back, unlike South Africa.
The Vietnamese have a work ethic and are diligent, unlike many South Africans.
There are very few socialist freebies in Vietnam – the Citizens have to pay for things like education and healthcare.
The rail system is safe. We travelled from Nha Trang to Da Nang and Hue to Hanoi and felt completely safe. The trains are not fast due to the 1 metre gauge, inherited from the French.
We flew from Pnomh Penh to Siem Reap in Cambodia. The President of Vietnam, who was on a State visit to Cambodia flew on the same flight.No expensive private jets that the SA Presidents demand.

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