10/12/2018

​Vietnam – Investment Opportunities Abound

When we consider the emerging markets, Vietnam has been among those meriting a closer look since early this year. From late last year until now, around four or five mutual funds focusing on investment in Vietnam have been launched. Some investors might gain handsome profits, while others might face losses, especially amid the volatile market of late. For those who are interested in investing in Vietnam, but still reluctant to do so, this article will shed some light on this market.

 

Taking the lead among ASEAN countries

Of Vietnam's total population, persons of working age (15-54 years old) account for as much as 61.8 percent, the highest percentage in ASEAN. Given this demographic structure and its third-highest population in ASEAN (behind only Indonesia and the Philippines), Vietnam's economy will enjoy forward momentum over the long term. The Bloomberg Consensus as of September 20, 2018, forecasts that Vietnam will maintain its growth of around 6.7-6.8 percent until 2020 - the best performance among ASEAN's emerging markets. Major contributors to the brighter growth will be the industrial and service sectors, which have a larger share of the country's GDP. As a result, the country's GDP per capita has been rising steadily. Taking into account the share of labor in the industrial and service sectors over the past few years (Figure 1), it has evidently been rising. A growing number of Vietnamese laborers in the agricultural sector have recently migrated into the industrial and service sectors. This is a boon to GDP per capita, which has, in turn, led to thriving domestic consumption (Figure 2). Moreover, the government's infrastructure investment, which represents more than 5.5 percent of GDP (2017 data) – the highest in ASEAN – has also been a major boost for the country's economic growth. According to the United Nations Economic and Social Commission for Asia and the Pacific, the Vietnamese economy needs around 16.7 billion USD in infrastructure investment each year until 2025 in order to elevate its competitiveness in the region.

 

Vietnamese stock market – appealing to foreign investors

The Vietnamese government has made great efforts to reform its financial markets to be on par with international standards. To this end, the foreign ownership limit (FOL) in certain industries including banking and telecommunications, classified as non-restricted sectors, has been raised to 100 percent from the previous 49 percent. Moreover, privatization of state-owned enterprises is in the pipeline, as the government plans to reduce its shares in these enterprises via initial public offerings (IPOs) as well as sales of state-owned enterprises' assets to enhance capital market efficiency. As evidenced, Vietnam's foreign direct investment (FDI) has increased continually, and reached 14.1 billion USD (second to Indonesia) or 6 percent of GDP in 2017. Major foreign investors were South Korea and Japan, which relocated their production bases to Vietnam with the aim of re-exporting products to global markets. What's more, Vietnam has established free trade agreements with numerous countries, including the EU-Vietnam Free Trade Agreement (FTA), ASEAN Free Trade Area (AFTA), and a bilateral trade agreement with South Korea. 

 

As shown in Figure 3, the number of listed companies and market capitalization of Vietnam have been rising over the past three or four years. Daily market turnover has surged more than fivefold during the past five years. Furthermore, Vietnam's efforts to make its stock market earn emerging market status by 2023 will likely draw greater foreign investment into the country.  Currently, the Vietnamese stock market is classified as a frontier market – a less-developed market with lower market capitalization and liquidity, where certain investment regulations are still not up to global standards. Nonetheless, the Vietnamese equity market has passed the criteria in terms of asset size and liquidity, while its restructuring process is on the right track. Moreover, Vietnam has embraced the reform of state-owned enterprises, and investment-related laws and regulations. 

 

Vietnamese stock prices are currently attractive. Given that earnings per share (EPS) of Vietnamese listed firms are expected to rise by around 22 percent in 2019, the Vietnamese bourse will likely show a stellar performance, based on the EPS average of 7-13 percent of other emerging economies.

 

KAsset fund managers' field studies pave the way for investment in Vietnam

Even though the government has placed emphasis on financial market reform, market accessibility remains a hindrance. Further work is needed in currency liberalization and data disclosure in English. Retail investors may find it difficult to understand the market's nature and specific risks. Investing via mutual fund will be the right answer for investors seeking exposure to Vietnam. To gain insights into this market, especially the overall economic situation in the actual environment, KAsset fund managers have conducted field studies at the Vietnamese stock exchanges, and made company visits. In this way, we have an edge through our better understanding of this market, which will allow us to invest at the right time. Certainly, risk management is key. 

 

It's an opportunity for long-term, risk-taking investors

 

If you seek to thrive with growing Vietnamese companies and have a high risk profile, you should prepare your investment now. Vietnamese stock prices are presently more than 17 percent lower than their peak (data as of October 8, 2018). One thing you should bear in mind is that retail investors hold the largest share of the Vietnamese stock markets. Heavy selling may be seen if market sentiment turns negative, especially in times of global economic slowdown that could adversely affect the Vietnamese economy, which is highly dependent on exports. However, its exports still have room for growth, given that the country h​as established FTAs with many countries worldwide. Given their relatively low market turnover compared to neighboring countries like Thailand, the Vietnamese stock markets may experience a liquidity shortfall. Don't forget to consider a fund's liquidity when it comes to your investment choice; you should know if a fund is allowed to be traded every business day. Last but not least, the Vietnamese Dong's fluctuations merit close watch as it may be exposed to external uncertainties. Still, Vietnam's record-high international reserves and healthy exports may help ease any potential currency swing.

To cash in on this golden opportunity, KAsset would like to recommend K-VIETNAM as your investment alternative. The Fund focuses on Vietnamese stocks with brighter growth prospects. Most importantly, the Fund is managed by our team of fund managers with a wealth of knowledge and experience in the Vietnamese market. Risk management of the investment portfolio is of paramount importance. For interested investors, initial minimum investment is 500 Baht. Investment can be made easily via the K-My Funds application, or learn more from KAsset.

 

Investors should have a thorough understanding of the nature of the products, and conditions for returns and risks, before deciding to invest.

As of October 12, 2018, by Mr. Kittikun Tanaratpattanakit, Product Strategy Department, KASIKORN ASSET MANAGEMENT Co., Ltd. (KAsset)

 

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10/12/2018