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Over the summer school holidays my wife and I took our four young children to Vietnam for a family holiday. We were looking for something out of the ordinary to give our kids a different cultural experience and to stretch the boundaries.
And did it deliver in spades!
The country is all the things you have heard…..and then some; but also it is potentially an investment destination for those looking for exposure to the long term growth story that is “emerging Asia”.
Vietnam is a young dynamic country with a population of 93 million spread across major cities with a beautiful countryside, it is coastal hugging country in South East Asia bordering China, Laos and Cambodia.
It has a very young population demographic with:
- 41% of the population under the age of 24
- 24% under the age of 14 and
- only 5.7% over 65.
This is a population demographic that mature Asian countries like Japan can only dream of and presents opportunities as well as headaches for a still fairly rigid communist regime.
The lifestyle of the population differs greatly from the still traditional rural dwellers on rice farms in the country’s rural interior to the river dwellers of the Mekong Delta in the countries south to the more westernized urban centres of Hanoi and Ho Chi Minh.
The large cities are huge, vibrant, busy and noisy. The capital Ho Chi Minh has 10 million people and is growing rapidly as the Asia wide drift to the city from countryside grips Vietnam.
The cities hum with life and are eclectic places of lights and smells to fascinate all travellers. Getting around is easy – just jump on a scooter. There are reportedly 53 million registered motorbikes (scooters are preferred) in Vietnam and I reckon we saw (or heard) a fair amount of them over our two weeks travelling the country from North to South.
The major cities are as congested as the country side is (comparatively) sparsely populated and scooters are the perfect way to travel – even if you have mum dad and two kids on a Honda Wave.
The country has had a well documented and troubled past being dominated, conquered, colonized or occupied over the past two millennia by numerous nations from the Chinese, to the French and more recently the Americans. The nation that has now emerged is still centrally planned by a communist government but with a growing capitalist market based economy. The authorities like the control they have but realize the desire of their citizens for rapid material advancement like their Chinese neighbours to their north.
GDP growth has picked up after the GFC to be above 6% over recent times – contrast this with the sub 1% growth in Europe. Per capita income has risen from a woeful $100 in 1986 to $2,000 by the end of 2014 (Source: The World Bank)
The economy has transitioned over the past two decades from one heavily dominated by farming for domestic consumption to one where manufacturing is becoming larger, servicing the economy as it matures and the population gets wealthier.
Whilst still a major producer and exporter of rice, seafood, coffee and nuts, it is increasingly manufactured goods that are creating employment for the younger population.
As China’s population becomes more affluent and older there has been a demand for higher wages leading to a decline in basic manufacturing jobs which have been forced offshore to cheaper locations.
This has led increasingly to Vietnam (as well as other nations in SE Asia) attracting foreign capital to build manufacturing plants for complex products like TV’s, telephones, along with other digital and bluetooth equipment. Vietnam is the second largest manufacturer of these classified “broadcasting equipment” pieces in the world; behind China.
Likewise textile manufacturing in Vietnam is a large industry – next time you buy a t-shirt, pair of trousers, dress or sports shoes check out where they are made- chances are they are not “Made in China” but more likely Vietnam, with its cheaper work force.
We found the tourist sector booming with many other westerners seeking the experiences we were looking for, which has in turn seen the services sector accelerate over recent years.
This is a very labor intensive sector providing good, well paid jobs for younger Vietnamese but also earning hard foreign currency for the country to be used to import higher-end manufactured goods to add to the nations capital stock
Investing in Vietnam
To gain exposure to an emerging market is higher risk but over time potentially very rewarding. Yearly returns for the main Vietnam VN Index since 2009 have been;
- 2009 56.76%
- 2010 -2.04%
- 2011 -27.49%
- 2012 17.69%
- 2013 21.97%
- 2014 8.12%
- 2015 6.12%
Investing in the country should only be done as part of a well diversified international portfolio. You can gain access by investing in companies that are listed in Vietnam or companies that operate there and are listed elsewhere.
There are a number of large Australian listed companies operating in Vietnam. ANZ has a growing footprint in the country (I saw a number of ANZ Branches in the capital) and its Vietnamese operations – where it is one of the largest foreign banks – is a part of its major expansion into Asia over recent years.
The Vietnamese share market is fairly new, having only opened in 2000 and can be very volatile. Gaining exposure to it is best done via a well diversified emerging market fund – but even then a lot of these funds only have minor exposure to Vietnam directly.
Hudson approved funds that have exposure to listed Vietnamese shares or companies operating in the country and listed elsewhere include:
- Platinum Asia Select – 1.96% exposure to Vietnam
- CFS Wholesale Asia Share – investing 14.5% in “Other Asia”
- CFS Emerging Markets – 68.4% Asia
Speak with your adviser before investing to see whether a small exposure to this area is right for you.
We had a great holiday in this wonderful vibrant country and I would encourage anyone interested in exploring Asia to have Vietnam on their list to visit.