With China and India now looking expensive, fund managers such as Dragon Capital's CEO Dominic Scriven think investors would do well to join the likes of Samsung and Intel and venture into Vietnam - which he believes to be one of Asia's most promising frontier markets.
Vietnam specialist investor Scriven reveals in a recent report published by Clear Path Analysis titled ‘Investing in Frontier Markets’ that Vietnam has long been the 'China+1 investment choice' of the Japanese due to its favourable demographics, educated and cheap labour force, proactive government and domestically driven economy but investors further afield have yet to be lured by the country’s potential.
He argues that the markets of China and India are ‘a little less compelling' now on 17.5 and 18.8 times earnings respectively. 'There comes a time when they are not as exciting as they once were and the investing world’s eyes are turning elsewhere,' wrote Scriven.
Urging investors to consider Vietnam more seriously as an investment destination the Dragon Capital CEO continued: ‘Having grown 7.3% over the last five years and predicted to grow at 7%-7.5% for the next five, Vietnam is on a more compelling 8.5x 2011 PER and 16% earnings growth. This is attractive in itself but we also know that more than a third of the listed companies in the VNI have P/B<1, PE<10 and profit growth of more than 20% on average.’
When this is combined with the lower manufacturing cost base that the county offers Scriven believes Vietnam looks set to become 'a real competitor for anyone looking to do business in Asia.' 'That is why Intel and Samsung together with many big international companies have invested in Vietnam and plan to expand their factories further in the coming years’ he said.
Soo-Hai Lim, manager of the Barings ASEAN Frontiers fund shares this view. 'China is now looking too expensive for many multinationals so they’re looking for alternative bases. Vietnam is a popular choice particularly within the pharmaceutical industries' he said. Confident that the worst is behind the ASEAN region Lim added: ‘The effort that has gone into restructuring post the Asia crisis is really coming through. They’ve gone through a lot of deleveraging and governments and corporations look in robust shape.’
Although seen by some as a problem, Dragon Capital's Scriven thinks that the Vietnamese dong’s recent depreciation is in fact a positive phenomenon and one that gives the country 'an export advantage and competitiveness over other Asian countries whose currencies have appreciated on average 10%-15% over the last year.'
He also points to another of Vietnam’s little known buffers as a reason for investing; ‘Vietnam has huge hidden wealth- more than $50bn of gold and US$ are held privately outside the formal financial system. This helps Vietnamese hedge inflation, has created a huge net wealth effect and ensures strong retail sale growth during economic turmoil.’