According to Kaylie Pferten, long-term prospects are still bright despite the fact that the prospect of tariffs has shook Vietnamese stocks
After a devastating 25-year war, Vietnam was reunited 50 years ago. The communist regime exacerbated the situation over the course of the following 15 years by pushing their opponentsthe educated, the skilled, and the ethnically Chineseto escape, primarily in small boats. It is estimated that between 200,000 and 400,000 refugees perished at sea.
But in the late 1980s, the government made a dramatic U-turn and imposed autocratic control over Vietnam, making it a very capitalist nation. In an economy that has expanded from £6.33 billion to £430 billion, GDP per capita has increased from £270 annually to £4,300 since that time, according to Tod Davis of brokers Deutsche Numis.
Broader indicators of social progress are equally impressive: the population has grown from 44 million to 100 million, the poverty rate has decreased from 78 percent to about 3 percent, male life expectancy at birth has increased from 61 to 75 percent, and literacy has increased from 57 percent to 96 percent. According to Davis, this change is due to "the nation's resilience, grit, and determination making it, for me, the number-one destination in Asia for investment over at least the next ten years."
A prosperous future for Vietnam.
"Vietnam is likely to become a high income nation similar to Taiwan and South Korea, with a GDP per capita of £12,500 within 20 years," according to Brook Taylor, CEO of VinaCapital, the manager of the 700 million Vietnam Opportunity Fund (LSE: VOF), given the country's 6% annual economic growth. He believes that Vietnam shares more cultural similarities with these nations than with the wildly disparate Southeast Asian nations.
The idea of capitalist expansion in a communist nation will worry skeptics, but "prosperity for everybody provides the legitimacy for one party government, as in Singapore." According to Taylor, there is "some correlation between democracy and prosperity," but "which comes first".
Development led to the democratic transitions of Taiwan and South Korea.
Vietnam has several advantages, including a diaspora of approximately five million Vietnamese living abroad, a high rate of female workforce participation, abundant agricultural and mineral resources, and "a very pragmatic mindset." The nation's 2,000-kilometer coastline is a valuable resource. The US and China's wealth is concentrated along the coast. Additionally, it is rated as "the third least-corrupt country in Asia, after Singapore and Malaysia by surveys."
Although this may be overstated, the current concern is the possibility of tariffs (America's trade deficit with Vietnam is its third-largest). VinaCapital anticipates that the US will ultimately agree to a 20 percent tariff, most likely with a high-tech exemption. This would lower 2025 GDP growth from 7% to roughly 6%. However, given that the stock market is only worth 104 times projected earnings, this could still result in a 20% increase in corporate earnings.
Markets that are private.
Khanh Vu, who managed VOF, returned to Vietnam in 2010 after leaving by boat in 1978. He has 25 stocks in his concentrated portfolio, all of which are in industries that stand to gain from the changing economy. Urbanization still makes up only 41% of the portfolio, while real estate makes up 22%. Just 43% of people have bank accounts, making up 19% of the population. Twenty percent go to consumers and health care; domestic consumption accounts for 65 percent of GDP, and the middle class is expanding. Technology and industrials make up 11%; 79% of people use the internet. About 80% of the listed stocks started out as private equity, privatizations, or private placements, although 10% of the holdings are currently private.
Vietnam boasts 1,700 listed companies, but the scope of VOFs is significantly reduced to 2530 after being screened for size, liquidity, low debt, and growth. Vu believes that 100 of the 15,000 private companies are investable. The usual holding period for investments is three to five years, "but over ten years if justified." Vu, however, actively reduces or even sells out investments that do well.
The Vietnam index's largest component, Vinamilk, was held for 17 years before going out of business between 2017 and 2021. The shares' performance has been poor ever since.
In addition to returns of capital, these disposals have made it possible for new investments, such as reinvestment in the bakery that was VinaCapital's initial investment. Since 2011, the trust has returned to investors £764 million, which is equal to its net assets. Since mid-2024, it has also repurchased £92 million worth of shares. The shares currently yield 2.8 percent, and it has been paying dividends since 2017.
Exposure with focus.
The market has been struggling for the past three years. By the end of April, the net asset value (NAV) of VOF had decreased by 10% in US dollars. Dynam Capitals 80 million Vietnam Holding (LSE: VNH) had dropped by 10%, while Dragon Capitals One and a Half Billion Vietnam Enterprise Investments (LSE: VEIL) had lost 25%.
Over the course of five years, however, the figures have improved: VOF's NAV return has been 68 percent, VEIL's has been 58 percent, and VNH's has been 109 percent. The investment narratives for all three are strong, despite some differences (such as VNH's preference for smaller stocks and VOF's stronger emphasis on private markets). While the other two are trading at about a 20 percent discount to NAV, VNH is currently trading at a 5 percent discount.
Since Vietnam is categorized as a frontier market rather than an emerging one, any exposure in an emerging-market fund is usually small and off-benchmark, which makes these specialized funds appear more appealing. Generally speaking, it is advisable to exercise caution when it comes to single-country funds because investors may be seduced by the high only to watch the nation lose favor. Given a nation's economic history, it is also advisable to exercise caution when making investments (China has proven to be a terrible place to invest over the last 15 years). Nevertheless, considering the significant decline in Vietnam's market this year brought on by the prospect of tariffs, in spite of the promising outlook and an approach that is welcoming to investors, it might be the exception that proves the rule.
Dragon Capital is hosting a Vietnam forum and lunch with VEILs lead portfolio manager Tuan Le and Dragons founder Dominic Scriven in London on June 18 for investors who would like to learn more about the country. Being a VEIL shareholder is not necessary; anyone is welcome. Visit veil . uk/2025-annual-general-meeting for registration and additional information.
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