Vietnam stocks have soared 25% since early August alone, underscoring the promise of that Asian nation. A special report jointly developed by U.K. affiliate MoneyWeek Magazine and our experts here at Money Morning explores the factors fueling Vietnam's long-term potential.
Vietnamese stocks have rocketed over the past few weeks, gaining 25% since early August. The recent rush into emerging markets has boosted near-term investor sentiment, while the long-term story remains compelling. Vietnam has posted gross domestic product (GDP) growth of more 7% a year for four straight years, and should grow by about 8.5% this year.
This is no surprise to those who follow Vietnam's growth. Many analysts predict Vietnam will be the country that emerges after the current wave of emerging economies mature and their growth rates slow down. A big factor in Vietnam's favor is that its economy is growing soundly, instead of at rates that border on out of control.
Deregulation and privatization, along with booming commodities markets and steadily increasing foreign direct investment (FDI) have buttressed the nation's economic growth. Higher real incomes are fueling consumption. Car ownership, for example, is now up to 5% of the population.
The boom is evident from the growth rates at Sacombank, Vietnam's biggest private-sector bank, notes Christopher Wood of CLSA, a provider of brokerage and investment-banking services in the Asia-Pacific market. The brokerage firm expects loans and pre-tax profits to grow by 90% and 130% respectively this year. And Vietnam's population of 85 million still only has six million bank accounts.
Property ownership is on a roll. And the privatization of major state-owned firms is becoming an important factor in the market's recent upswing, Wood says. Between 20 and 30 banks - including the four major state-owned banks, telecom firms and some infrastructure companies - are expected to hit the market over the next three years.
All this activity should give Vietnam's tiny stock market a big boost in value and raise the profile of this "truly exciting market," Wood and other experts say. The leading stocks, as a group, are trading at about 25 times earnings, but this multiple is matched by projected profit growth, making Vietnam appear reasonably valued on a "PEG ratio" (price/earnings to growth rate) basis, Wood says.
Unfortunately, in spite of this financial allure, U.S. investors will for now have to take a rain check on Vietnam, as the country doesn't have many companies that have registered their shares with the U.S. Securities and Exchange Commission. Nor is a Vietnam exchange-traded fund (ETF) currently available in the U.S. market.
Indeed, until a direct profit pathway is paved, investors may have to take the road less traveled, tapping into the many big-name foreign players plunking down major money on Vietnam projects. Key among them:
- U.S. chip giant Intel Corp. (INTC) committed $605 million for a test-and-assembly factory in February 2006, and has boosted its total Vietnam commitment to $1 billion.
- Korean steelmaker POSCO Ltd. (PKX) plans to invest $1.13 billion in new steel plants.
- Athletic-shoe innovator Nike Inc. (NKE) is responsible for more than 130,000 Vietnamese jobs.
In total, foreign investment in Vietnam jumped by 49% in 2006. And much more is expected, due to Vietnam's brimming potential. Consider these alluring statistics:
- More than half its population is under 25 years old.
- At 2%, its unemployment rate is among the world's lowest, trailing only Azerbaijan, Cuba, Iceland, Andorra and Liechtenstein.
- Its labor and production costs are roughly one-third that of China's, making Vietnam a worthy rival in the contest for new production sites.
- It shrugged off the 1997 "Asian Contagion" financial crisis and averaged 5.5% growth for each of the next two years - while other nations in the region saw their own economies shrink.
- And it became a member of the World Trade Organization late last year.
The next step is for Vietnam to open its stock market to U.S. investors. And that may happen sooner than many experts expect.
Money Morning Associate Editor Mike Caggeso contributed to this report.
News and Related Story Links:
- China Post:
Vietnam's Economy Grows 8.16%. - Money Morning Investment Analysis:
The Market that will Emerge After the Emerging Markets. - Money Morning Investment Analysis:
The World's Leading Electronics Manufacturer Makes Its Move In Vietnam. - China View:
Vietnam to Make Bigger Online Game Revenues. - Wikipedia:
The Economy of Vietnam. - Money Morning Special Research Report:
Global Investing: Has Wall Street Rigged the Game? - Money Morning Special Research Report:
International Investing: Why U.S. Investors are "Boxed Out" of Big Global Profits. - Intel.com:
Vietnam Properties. - CBRonline:
Intel to Spent $1 Billion to Build New Vietnam Factory.