Vietnam - Vietnam Outperforms, Time to Re-Invest?

While Vietnam was once the darling of Asian emerging markets, its star has waned in the last few years as the country was beset by runaway inflation, wild foreign exchange moves and infrastructure bottlenecks.

The default by a state-owned shipbuilder on foreign debt holders and the consistent underperformance of its stock market has also kept foreign investors at bay.

But look again, says Citigroup in a note. Vietnam’s stock market is one of the best-performing frontier markets in the world this year, up 23% year-to-date.

Part of the lift is from a general ‘risk-on’ mood that investors have adopted in 2012, sending many Asian stock markets, which were battered in last year’s rout, upwards.

Citi advises investors to take on a long-term view of the country, with its huge, youthful population and a rapidly expanding middle class. There are also more reforms on the horizon, such as more privatizations and easing of restrictions on foreign ownership, which right now keep some stocks from being too illiquid for foreign investors to trade. For example, the Ministry of Finance recently merged the two stock exchanges, and introduced new products such as derivatives as part of a reform drive.

The U.S. bank sees signs that the Vietnamese leadership has woken to the problems plaguing the country, including excessive property development, high inflation and inefficient state enterprises. Citi forecasts CPI inflation will lower to single-digits this year from 23% last year.

There are also M&A opportunities, says Citi, as Vietnam’s huge state-owned conglomerates dispose of some of their non-core businesses which they accumulated over the years. “Being a conglomerate is fashionable in Vietnam,” says Citi, but these behemoths are slowly learning that bigger isn’t necessarily better.

It’s not all positive, and investors need to be brave and patient. Vietnam’s banking sector remains impossibly opaque, as investors distrust government statistics on what the non-performing loan level is, for example. And Vietnam’s balance of payments deficit needs to be improved before it can gather enough foreign exchange reserves to guide its exchange rate policy. But for those looking for a relatively safer bet among frontier markets that include Bangladesh, Ukraine, and Argentina, Citi thinks Vietnam deserves to be given another chance.

Isabella Steger

The Wall Street Journal

Business & Investment Opportunities

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