Why Vietnam Should Be on Your Radar
With Grexit fears rising and Chinese stocks nosediving, it’s understandable if you’re feeling a bit skittish about investing beyond America’s borders these days.
But those stories overshadow other tales of steady progress—including from some other countries in the Pacific Basin, the area covered by our new Pacific Wealth advisory.
One Pacific Basin nation the newsletter sees as a strong investment is Vietnam—which is marking 20 years of normalized relations with the US this week.
To say Vietnam has come a long way in that time would be a major understatement: consider that back in 1995, two-way trade between the US and its former adversary stood at just $450 million. Since then, it has surged 80-fold, to $36 billion, making the country America’s 26th-biggest trading partner.
Vietnam is now home to Asia’s fastest-growing middle class, with over two million citizens taking out membership annually, according to a 2014 study by the Australia-New Zealand Banking Group.
At the same time, the country is benefiting as China shifts its focus to domestic consumers in a bid to cut its reliance on exports, says Pacific Wealth analyst Benjamin Shepherd.
“China’s slow makeover is benefiting other countries in the Pacific Rim, as manufacturers that looked to China for cheap labor are finding better deals elsewhere,” he wrote in a June 12 article. “Vietnam, particularly, is luring many of those companies.”
Young, Skilled Workforce Attracts Global Giants
Indeed, the list of multinationals that have set up shop in Vietnam in the last few years reads like a who’s-who of corporate titans. It includes Ford Motor Co. (NYSE: F), Toyota Motor Corp. (NYSE: TM), Intel Corp. (NasdaqGS: INTC), Samsung Electronics (OTC: SSNLF) and tire maker Bridgestone Corp. (OTC: BRDCY).
For context, the average Vietnamese factory worker makes around a quarter of what his or her counterpart in China brings home, according to a March 2015 Economist article, and roughly 80% of what an Indonesian worker makes.
The Vietnamese workforce is also comparatively young, with the country’s 90-million-strong population’s median age coming in at just 29.2 years, according to the CIA World Factbook, compared to 36.7 years for China. (The United States, for its part, has a median age of 37.6.)
“The Vietnamese workforce is also quite well educated, with the country ranking 17th on the Program for International Development’s scorecard of countries whose citizens have 10th grade reading, science and math skills,” wrote Shepherd in the May issue of Pacific Wealth. “That puts Vietnam ahead of Australia, Austria and France.”
Trade Deal Could Bring Big Benefits
The country recently reported strong GDP growth in the second quarter, with the economy expanding 6.44% from Q2 2014. That was also up from a revised year-over-year growth rate of 6.08% in the first quarter, according to Bloomberg.
For the year, the World Bank forecasts GDP growth of 6.0% for Vietnam, rising to 6.2% in 2016 and 6.6% in 2017. That would bring the country inline with China, which is expected to post 6.7% growth this year and next, edging down to 6.6% in 2017.
The country also stands to gain from the Trans-Pacific Partnership, which moved closer to becoming a reality on June 23, when the Senate voted to grant President Obama “fast track” authority with regard to the TPP—something he’s pursued for years. Under fast track, Congress can’t block or amend the deal; it can only approve or reject it.
The TPP is a sweeping trade agreement being negotiated by 12 countries. In all, it covers more than 40% of global GDP. There are still issues to be hammered out, from the length of drug patents to the protection of Canada’s dairy industry, but Obama’s win does boost its odds of coming into force.
Shepherd, for his part, sees the TPP as a clear winner for Vietnam:
“For instance, more than a third of all apparel the United States imports come from Vietnam, amounting to about $7 billion in trade for the country,” he wrote in the May issue of Pacific Wealth. “Because the trade agreement essentially eliminates tariffs, those imports should suddenly become much more competitive.”
Meantime, the country’s communist-run government is continuing its economic reform program, recently announcing the elimination of the 49% cap on foreign ownership in Vietnamese firms (with the exception of banks and state-run enterprises). The change is slated to take effect in September.
The move should boost investment in Vietnamese stocks: according to Bloomberg, 30 of the country’s companies are currently up against their foreign ownership caps.
How to Invest
Even so, Vietnam remains challenging for individual investors to access. One option Pacific Wealth chief strategist Martin Hutchinson recommends is the Market Vectors Vietnam ETF (NYSE: VNM).
The fund holds shares of 29 companies that are either based in Vietnam or generate the majority of their revenue there, with 78.4% of its holdings headquartered in the country and 21.6% elsewhere, in nations such as the UK, Australia, Thailand and South Korea.
The ETF holds 43.5% of its $537.9 million of assets in the financial sector, with another 17.7% in energy. The remainder is spread across allocations of less than 15% to consumer stocks, industrial, material and utility firms. The fund’s expense ratio is 0.70%, and it yields 2.7%.
Your Roadmap to Big TPP Profits
The TPP could be signed sooner than anyone thinks. In fact, insiders close to the talks say the last few hurdles could be cleared this month!
The bottom line: The next news story you hear about the TPP could be about its signing. That means the time to act is now.
Martin Hutchinson has been following the TPP story for years, and he’s just released a revealing report that gives you everything you need to profit from the deal’s passage, including his favorite “trade pact picks” to buy now—before average investors catch on.
Get the full story here.