Good Morning, Vietnam: Look to This Awakening “Asian Tiger” For Growth
Okay, class, sit up and pay attention. Which emerging market has racked up the world’s second-fastest growth rate since 1990, modernized its rural economy, and lifted millions of people out of poverty?
Bueller… Bueller… Anyone?
No, not China. Say hello to Vietnam. That’s right, the very same “communist” nation that embroiled the U.S. in a bitter Cold War-era proxy war from 1955 to 1975. Vietnam, once a byword in America for military quagmire and social division, is now a major trading partner with Uncle Sam and the rest of the world.
Rising geopolitical tensions in recent weeks are spooking investors away from Southeast Asia, but remember the old Wall Street adage: be greedy when others are fearful. Below, I explain why Vietnam is an “Asian tiger” that’s about to roar. I also pinpoint the easiest and safest play on the country.
To be sure, Vietnam is at loggerheads right now with China. As I write this, the two ancient antagonists are engaged in yet another round of squabbling over undersea oil drilling rights in the South China Sea.
China last week abruptly left high-level negotiations over territorial disputes in the region. Beijing is miffed that Hanoi is holding fast to an oil exploration tract in the South China Sea. Exacerbating the confrontation are Hanoi’s recent overtures to Chinese rivals the U.S. and Japan.
China claims more than 90% of the South China Sea, but its neighbors beg to differ. Regardless, it’s likely that China and Vietnam will soon overcome these temporary sticking points and resume doing what these two “Marxist” countries like best: making money.
Let’s set the table with the always astute observations of Jim Pearce, chief investment strategist of our flagship publication Personal Finance. Jim also serves as chief of portfolio strategy for Investing Daily. Jim strongly recommends that investors diversify into international holdings:
“If my expectation for a stock market correction later this year comes true, we may see an increase in demand for foreign companies that are less affected by political and economic events in the U.S.”
As erstwhile developing stars such as Brazil and Russia lose their footing, Vietnam is emerging as the Asian continent’s next growth engine. This spectacularly scenic country beckons investors who are wary of overbought equities in developed markets.
Case in point: Vietnam’s VietJet airline recently inked a deal for a firm order of 100 Boeing (NYSE: BA) 737 MAX 200 passenger airliners worth $11.3 billion. Delivery of the Boeing airplanes is slated to run from 2019 until 2023. The Boeing deal marks the biggest commercial aerospace contract in Vietnam’s history.
The fast-growing airline also signed a $3.04 billion deal for engines made by Pratt & Whitney, a unit of United Technologies (NYSE: UTX), for the 30 Airbus (OTC: EADSY) A321 planes that VietJet ordered in 2015. In a volatile global equity market in which investors are skittish, Vietnam offers an overlooked chance for long-term, market-beating growth.
As with China, Vietnam is a mercantile nation that’s only communist in name. With a population of more than 90 million, the country has generated a growth rate of about 7% per person since 1990, the world’s second fastest behind only China.
As Vietnam continues to make infrastructure and industrial investments, it appears to be on course to sustain this growth rate, which puts it in the same league as South Korea and Taiwan.
Vietnam’s economy is nominally socialist but it’s becoming less dependent on a top-down command structure and state-subsidized conglomerates, and more tailored to free market forces. The government encourages economic competition among its 63 provinces, invests heavily in education and training, and launched several initiatives to foster innovation such as technology industrial parks.
At the same time, the government has started to acquire important positions in the United Nations and shown an interest in maintaining geopolitical stability. As China rattles its saber in hotly contested areas such as the South China Sea, the U.S. is focusing less on Europe and paying closer attention to China’s increasingly nervous neighbors in Asia.
The Pentagon’s “Asian pivot” has put once ignored countries such as Vietnam into the spotlight, which entails the economic stimuli of additional foreign aid and weapons purchases. In the final days of his administration, President Obama lifted the U.S. embargo on lethal weapons purchases to Vietnam, opening the door for Boeing and other aerospace/defense behemoths to strike lucrative deals.
The right baskets of stocks…
As foreign firms and tourists flock to Vietnam, now’s the time to get in on the action, before the investment herd catches on.
The purest play is through the VanEck Vectors Vietnam ETF (NYSE: VNM), the only exchange-traded fund exclusively focused on stocks of companies based in Vietnam.
With net assets of $286.42 million, VNM seeks to track the performance of the Market Vectors Vietnam Index. VNM offers exposure to publicly traded companies either based in Vietnam or with annual revenue that stems at least 50% from Vietnam.
The ETF’s portfolio is well diversified among several industry sectors, with the highest weightings in consumer defensive, real estate, financial services, and basic materials.
Several other Asian ETFs have struggled so far this year, but VanEck Vectors Vietnam boasts a year-to-date return of 10.74% and a current yield of 2.23%. The expense ratio is a reasonable 0.67%. As commodity prices rise and global economic expansion remains on track, VNM provides both growth and a hedge against U.S.-based risks.
Got any questions or comments? Send an email to: firstname.lastname@example.org. Every Monday, I answer reader letters in my Mailbag issue. — John Persinos
Your tour guide for income…
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