I figured I would do another one of these emerging economies posts. Countries are just so interesting! Let’s go with Vietnam this time.
Vietnam has already had a few years with good amounts of foreign investment to develop, as opposed to Myanmar which is only just now really opening up investment in it’s country. However, like Myanmar it’s corruption is holding itself back in a number of ways. Luckily, the workforce is pretty educated, with 93% literacy.
Vietnam has engaged in trade liberalization since the early 2000’s. It became a member of the World Trade Organization in 2007. It has shifted from a highly centralized and planned economy to a socialist-oriented market economy. Currently. Deep poverty, defined as the percent of people living on 1$ a day, has greatly decreased due in part to the equitable economic policies of the government.
Interestingly, Information Technology and High-Tech industry now forms a large and quickly growing part of Vietnam’s economy.
The government of Vietnam has recently shown support for its own start-up ecosystem. Vietnam aims to develop as a country into middle-income status by 2020. The “socialist republic” structure of government seems happy to meddle directly with countries which can cause problems with it’s stock market.
There is some good news. Vietnam is still classified as a frontier market by index constructors and it creates a huge difference in investors perceptions when viewing how a market is classified. The amount of institutional money invested in these frontier markets is tiny compared with emerging markets.
An emerging market sounds like an exciting proposition and suggests a growing economy, whereas a frontier market seems more risky to investors. If this is your mindset, you should be happy to learn that Vietnam is widely expected to be bumped up from frontier to emerging market status at some point in the near future. This upgrade should open up a lot of investment and therefore you might want to consider increasing your exposure to the Vietnamese market.
The best ways to increase exposure to Vietnam would be the emerging market indexes that of course, include some Vietnamese equity. One that has direct exposure and focuses solely on Vietnam is “The Market Vectors Vietnam ETF” (VNM). While the ETF hasn’t done well since its inception, some of the holdings have done very well. I plan on further analyzing some of their more promising holdings.
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