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Advisory Insights>
Vietnam: A tiny country with multitude of investment opportunities
By
Kristal Advisors
September 26, 2021
Made in China. In the past few decades, these three words have dominated global trade. The country became a force to reckon with, thanks to cheap labour and the government's focus on manufacturing.But lately, another Asian country, smaller in size, is emerging as a new centre of manufacturing: Vietnam.
After reunification in 1975, coming out of a lengthy war, Vietnam’s economy suffered a lot. It witnessed low-to-negative GDP growth, weak industrial production, demand-supply imbalances, massive national debt and soaring inflation.But the situation started changing after Đổi Mới (literal meaning: renovate) reforms in 1986. The reforms ushered in a change from a central command economy to a "socialist-oriented market economy".The reforms brought in incentives and opened the economy to foreign investments. The government also took measures, including a two-child policy, to improve the social status of the country.Eventually, these reforms bore fruit. The economy expanded with thousands of private enterprises setting up shops. Millions were lifted out of poverty.
The Vietnamese economy took a new lease of life after the 1986 reforms. Over the next few decades, Vietnam transformed into a lower middle-income country from being one of the poorest nations in the world.Since 1988, the GDP of the country has grown in the 5-10% range.Vietnam's deft handling of the pandemic meant that even in 2020, its 2.91% growth rate was one of the best in the world.Last year, the country saw an early revival of domestic activities and robust export performance. Its factories were open and the labour force working at near full capacity.The country's electronics manufacturing capabilities made it a major beneficiary of the work-from-home demand for gadgets.
Like any major economy, the services sector contributes the most to Vietnam’s GDP. Its share has been increasing in the last one decade.As of 2020, it is now at 42%, up from 37% in 2011. Tourism is a major services industry in the country. With picturesque hills, serene beaches and dense jungles, Vietnam is a favoured destination of backpackers.Agricultural and fishing, which used to contribute 46% in 1988, now make up 15% of GDP.While manufacturing, which generates most of the forex for the country, has a share of 17%, up from 13% in 2010. Vietnam is one of the largest producers of cashew nuts, rice, coffee and natural rubber.The nation is becoming a new manufacturing hub in Asia, especially for Korean and Japanese technology firms.Samsung, Foxconn, HP and LG make their products in Vietnam. Similarly, textile firms like Patagonia and The North Face manufacture most of their products in the country.
Vietnam has signed trade agreements with many nations and trading blocs. Trade agreements mean lower tariffs, lower taxes and other incentives that encourage the imports and export of goods.The country is a member of Asean and a signatory of Asean Free Trade Area (AFTA) and Trans-Pacific Partnership (TPP).It has also signed trade pacts with China, Korea, Australia, New Zealand, India, Chile and Japan. It has a bilateral trade agreement with the US and free trade agreements with the EU.Vietnam is currently negotiating a free trade agreement with Norway, Iceland, Liechtenstein and Switzerland.
Vietnam's Ho Chi Minh Stock Index that tracks 303 listed equities has returned over 100% since the market crash in March last year.In the Kristal universe, the VanEck Vectors Vietnam ETF (VNM) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Vietnam Index (MVVNMTR).The index includes securities of publicly traded companies that are incorporated in Vietnam or that are incorporated outside of Vietnam but have at least 50% of their revenues/related assets in Vietnam.
An established track record, thousands of aspirational firms that supply to clients world over and a superb growth outlook makes the country a good investing opportunity.Besides, a multi-country exposure is a good way to diversify your portfolio as well as increase opportunities for wealth creation.
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