Why Vietnam Is Your Next Investment Destination?
Investment during the pandemic has proved challenging for investors across the globe. However, the Vietnam market has outperformed its other international peers, supported by GDP growth amid Covid-19 in 2020. Despite strict lockdown, hopes for this top-performing Asian economy are growing.
The pandemic has indeed dampened the high growth seen in early 2021 and the GDP growth for the first nine months is less than the market forecast at 1.4%. However, Maetha Peeravud, Assistant Vice President – Fund Management Group, BBL Asset Management, believes Vietnam’s economy has passed the lowest point
“Looking three to six months ahead, the outlook for the Vietnamese economy is positive,” he said. “The Covid-19 vaccination rate is increasing with large cities like Ho Chi Minh City and Hanoi already giving the first shot to over 90% of their population. Plus, the country has secured enough vaccines for the entire population, expecting to achieve herd immunity in the first or second quarter of 2022.”
Geographically, Vietnam has a strategic location for its high-performing export sector. With the focus on education, free trade agreement, and labour skill enhancements, the global supply chain has paid great attention to Vietnam, including Samsung, the South Korean multinational manufacturing conglomerate, which allocates over half of its mobile phone manufacturing capacity to Vietnam.
Bloomberg forecasts Vietnam's GDP growth at 7% in 2022, one of the highest in the Southeast Asian region. Maetha agrees with the positive outlook, identifying g three major big long-term themes.
First, urbanisation in Vietnam will lead to a demographic dividend, namely the economic growth resulting from a change in the age structure of the population.
“Over half of the Vietnamese population is under 35. They are of working age and will contribute to long-term economic growth. Plus, the number of workers in industry and service sectors is increasing while that in agriculture is decreasing, suggesting a major shift toward higher income generation. In addition, the country’s retail sales growth is continuously over 10%, more than GDP growth, reflecting rising income,” said Maetha.
Secondly, Vietnam is benefiting from industrialisation growth from foreign direct investment (FDI). Maetha explains: “Vietnam enjoys strong support in developing more advanced technology and high-skilled labour training from global technology companies, which will in turn help produce more premium products.
Foreign direct investment not only translates into less tariffs and growth among industrial estates but also elevates the entire supply chain, especially in the manufacturing and processing sectors. Now, the percentage of net FDI inflows to GDP in Vietnam is even higher than China or Thailand, thanks to “China+1 strategy” – which focuses on diversification by having a factory in China and another in a developing countries such as Vietnam.
The third factor contributing to Vietnam’s growth is digitalisation. “Along with its 5-year plan, Vietnamese government t also targets the digital economy share of GDP to grow from 5% in 2019 to 20% in 2025,” said Maetha.
He added that the Vietnamese government is planning a clear path for growth: “The government expects 6.5-7.0% GDP growth while supporting more higher-value added production coupled with growing digital economy. It is also developing digital infrastructure, such as more data centres, which provides more than 50,000 engineering graduates per year.”
Besides economic growth, the Vietnamese equity market is bullish with many catalysts. Jeff Suteesopon, ASEAN Equity Portfolio Manager and Vice President – Fund Management Group, BBL Asset Management, explains: “The market capitalisation of the three stock exchanges in Vietnam is around seven trillion baht, compared to Thailand’s 18 trillion baht, suggesting an opportunity to grow.”
“Furthermore, there used to be an issue of liquidity. But now, as a result of good performance during the Covid-19 era, average daily trading volume has significantly increased – from around 3,000 to almost 30,000 million baht or almost ten times in five years, 80% of which come from retail investors. Plus, brokerage accounts increased from two to three million accounts in only two years, compared to around four million accounts in Thailand.”
Another catalyst is its valuation. Jeff said, “Even with the strong rise in 2020 and 2021, the valuations of Vietnam stock are not too high. Forward P/E ratio in 2022 for the VN Index is only 13, compared to 16 on the Thai SET Index. Moreover, earnings growth is going strong. Forecast EPS growth of the VN Index in 2021, 2022, and 2023 is 25%, 18%, and 16% respectively.”
Most importantly, Jeff said the Vietnamese government is working on elevating its market from “frontier” to “emerging” which will attract more investment to the country. He added that many companies are filing for listing. So far, no telecom companies are listed in the Vietnamese market. As such, the IPO pipeline will boost sentiment.
Lastly, Jeff reassured investors who still have doubts over certain issues around Vietnam: “The politics in Vietnam is very stable, as is the Vietnamese dong, especially over the past three years, with good export growth and consequently strong foreign reserves.”
To seize the opportunity and reap the growth of Vietnam, BBL Asset Management is now offering its newly-launched Vietnam equity mutual fund, B-VIETNAM. The fund is expected to grow alongside Vietnam’s high growth, increasing trading volume, and foreign direct investment in one of the world’s most exciting manufacturing bases.
Jeff said the fund also benefits from active management. “The fund will invest in both ETFs and individual stocks. The ETFs have good liquidity, feature mainly large-cap stocks, and do not entail premiums due to foreign ownership limits. Meanwhile, having a higher proportion of small-cap and mid-cap stocks than the benchmark can enhance performance. Many mid-cap stocks are under-owned and have a lower P/E ratio. They can be real hidden gems.”
“Ultimately, we are seeking to invest in quality companies that have competitive advantages as well as cash to invest further in order to achieve higher growth,” concluded Jeff.
The IPO period is between 14-20 October 2021, available on the Bangkok Bank mobile banking application, in Bangkok Bank branches and through official agents nationwide.
Source: Bangkok Post