Vietnam - Emerging market investors should not overlook Vietnam

Most investors know all about the headline-grabbing BRIC countries - Brazil, Russia, India and China. But there's a tendency to overlook the investment possibilities in smaller emerging nations. One such emerging market is Vietnam.

Like its neighbour to the north, China, the economy of this Communist nation is becoming more and more market-oriented. This opening of its economy is leading to the birth of rising middle class in the country. The economy, measured by GDP, has been growing at an average of more than 7 percent a year during the past decade.

Retail sales in Vietnam have been expanding at an even faster pace since the government unleashed pent-up demand. Total retail sales reached $75 billion in 2010, up 25 percent from 2009.

According to market research firm Nielsen, rural residents make up about 70 percent of Vietnam's population but account for just 30 percent of retail sales. These people are not only poorer, but are also located in still difficult to reach parts of the country.

Only three cities have a population of more than 1 million people and, outside these main urban areas, the retail sector is dominated by small mom-and-pop stores. But with disposable incomes rising and infrastructure gradually being upgraded, the rural market is where the future growth in retail sales will be.

That belief has sent companies such as Unilever NV ADR (UL) and Procter & Gamble (PG) on the hunt in Vietnam. Unilever's sales in the country have been growing at an average of 18.5 percent a year over the past decade with sales in Vietnam hitting $700 million last year.

Vietnam's consumers have also awakened the spirits of companies like Diageo ADR (DEO) which in January agreed to take a 24 percent stake in Halico, Vietnam's biggest producer of spirits like vodka. Not to mention that in April private equity firm KKR paid $159 million for a 10 percent stake in Masan Consumer, the country's largest producer of fish sauce.

How to these companies reach those remote consumers? One answer is advertising on television. Vietnam has one of the highest rates of TV ownership in Asia. As the country modernises, other forms of advertising will become viable too.

Unfortunately for US investors, the choice is rather limited when it comes to pure plays on Vietnam. The only option at the moment consists of one exchange traded fund - the Van Eck Market Vectors Vietnam ETF (VNM). It is down nearly 40 percent year-todate offering long-term investors a nice entry point to begin investing into Vietnam.

Disclosure: the writer had no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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