Good morning Vietnam
Adventurous investors who want to target countries with the highest growth potential might want to think about opening a position in Vietnam. This South-East Asian frontier market has largely been ignored as a source of investment returns, but it looks as though things are about to change as more people wake up to the exciting possibilities.
In 2015 Vietnam relaxed its 49% cap on the foreign ownership of some of its domestic listed companies as part of a wider ongoing package of market friendly reforms. The changes have helped to pave the way for a possible upgrade from frontier to emerging market status.
If Vietnam was to be reclassified it would be a real game changer and attract huge amounts of foreign investment into the local stock market. There is an outside chance that it could meet all the index provider MSCI’s criteria by the end of the year, although it would still need to go through the lengthy selection process and is nowhere near inclusion at the moment.
Vietnam is a major exporter of agricultural produce and a large producer of oil. It also has fast growing IT and manufacturing sectors. The economy has held up better than many of the others in the region and achieved annualised GDP growth of 6.4% in the three months to the end of September. The interest rate is 6.5% and forecast inflation is just under 5%.
Another reason to be optimistic is the favourable demographics as half of its 94 million population is under the age of 30 and literacy rates are up above 90%. Like many of the emerging markets it has a growing middle class that should help to support the development of the domestic consumer sector.
Despite all the positives it is still a one-party communist state, with the economy dominated by state owned enterprises including the banks. There have been some partial privatisations over the last few years, but the process has a long way to go.
It is also worth noting that the stock market is worth less than $100bn and that many of the local companies are relatively small and illiquid. You can get an idea of the extent of the problem when you realise that MSCI Vietnam contains just nine constituents.