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After a challenging year 2023, Vietnam’s economy is expected to grow around 6% this year. The International Monetary Fund (IMF) forecasts that the economy will grow by about 6.5% over the medium term and sees opportunities from digitalisation and green transition. Asset managers are also upbeat about the prospects of investing in Vietnam.
“Fast-changing Vietnam has all the ingredients to become one of Asia’s growth leaders,” says Roddy Snell, Investment Manager at Baillie Gifford. He sees Vietnam’s export strength as key to economic success.
“Others’ experiences taught Vietnam’s leaders that the only proven way to fund a sustainably growing domestic economy is through manufacturing goods for export. In other words, not by relying on commodities with their cyclical prices or by luring foreign finance, which floods in and out with every regional boom and bust,” Snell says.
He highlights some homegrown companies that present compelling investment opportunities, such as Vinh Hoan, the world’s largest producer of frozen pangasius, with global brands like Aldi as customers. “Its impressive managers explained their plan to move up the value chain by selling extracts such as collagen, a protein taken as a health supplement. They also discussed exploiting the firm’s freeze-drying expertise to supply other ingredients, such as dragon fruit for smoothies for global coffee chains,” Snell said after returning from a Vietnam trip.
Besides exports, other investment opportunities stem from Vietnam’s rapidly growing middle class. According to the OECD, Vietnam’s middle class currently accounts for 13% of the population and is expected to double by 2026.
Eastspring Investments highlights three sectors benefiting from the growing middle class: financials, consumer, and real estate. “Vietnam’s rapidly expanding middle class should drive the penetration rate of retail banking products and services. This, together with the strong loans demand from Vietnam’s manufacturing sector, is expected to lift loans growth,” says Ngo The Trieu, Head of Investments at Eastspring Vietnam.
Retail sales value is expected to increase at a CAGR of 6.4% from 2021 to 2027, reaching $167 bn. “We expect earnings in the consumer sector to be driven by more profitable product mix and revenues from alternative sales channels,” Ngo adds.
Shasha Li Mafli, Portfolio Manager at Banque Eric Sturdza, said after a recent trip to the country: “Each time I visit Vietnam, I see new chain stores springing up as very modern retail stores become more and more common every year. There is a wave of retail modernisation going on that highlights the dynamic growth in Vietnam’s middle class.”
Investing in Vietnam and potential bumps in the road
“Investing in Vietnam can be gratifying, but it also carries its share of challenges,” says Charles-Henry Monchau, Chief Investment Officer at Swiss financial group SYZ. Monchau names troubles in the real estate sector, export risks and the country’s environmental vulnerabilities as challenges.
As Monchau points out, Vietnam’s real estate sector has significantly contributed to the country’s debt burden due to a dramatic increase in bond issuances – from $12 bn in 2020 to $26 bn by the end of 2021. This spike was a response to the liquidity crises that hit overleveraged firms during the downturn caused by the Covid-19 pandemic. The situation worsened due to the global market impact following the Evergrande default and was further strained by geopolitical tensions and inflation, leading to regulatory reforms and higher interest rates, which tightened liquidity.
“Multinationals dominate the export sector, accounting for 75% of foreign sales. The domestic stock market is therefore overly exposed to banks and real estate developers (50% of equity market), who in turn are exposed to currency risks,” Monchau added.
Furthermore, Vietnam ranks as the third-most exposed country to flooding globally. This environmental risk necessitates significant investment in risk mitigation strategies.
