Hanoi skyline. Vietnam has seen strong economic growth this year, according to One Asset Management.
Vietnam, an emerging market with one of the fastest growing rates in the world, has attracted significant foreign investment.
The country’s stock market often offers a high return on investment, while the nation is not expected to suffer from the high inflation and rising interest rates that are plaguing developed countries, raising the possibility that these nations could soon enter a recession.
In August, as stock markets in the developed world fell, Vietnam’s equity markets rallied more than 4% on continued capital inflows and government stimulus measures. Vietnam’s monetary policy is relatively moderate, especially compared to developed countries.
There are four key factors contributing to strong economic growth and attracting investors to Vietnam, making it one of the few countries that offers high yields, investment firm One Asset Management (ONEAM) said.
First of all, Vietnam’s economy has continued its robust expansion despite the pandemic. Most recently, second-quarter GDP rose 7.7% year-on-year, accelerating from 5% in the previous quarter.
A recovery in consumption and the service sector after the country reopened late last year contributed to this growth. ONEAM analysts believe that GDP growth could increase to 6.1-6.5% for 2022.
Second, data from Vietnam’s Ministry of Planning and Investment indicates that foreign direct investment (FDI) has bolstered the country’s reserves.
Third, the land reform policies, such as land valuation based on market prices and restrictions on agro-industrial land not exceeding 20 hectares per factory, have been welcomed, the broker said. The policy is designed to ensure land benefits the vast majority of the population, not just the wealthy.
The government has also introduced various infrastructure projects to ensure more efficient tax collection.
Finally, the Vietnam Stock Exchange revised its securities trading regulations by shortening the settlement date from two days to 1.5 days, which ONEAM said should facilitate the launch of more sophisticated products in the future.
ONEAM recognizes that short-term investors still need to exercise caution when investing in Vietnam, particularly as the local stock market can be negatively impacted by regional volatility.
Long-term investors, meanwhile, are advised to “accumulate or use a DCA investment strategy” as market analysts adjust their views.
DCA, or dollar cost averaging, is the practice of allocating a set amount of money for investments at regular intervals, usually less than a year (monthly or quarterly). DCA is generally used for more volatile investments like stocks or mutual funds rather than bonds or certificates of deposit.
ONEAM believes that the Vietnamese stock market has a chance to develop at the same level as other Asian stock exchanges in the future.
WealthMagik, a private online wealth management service, has compiled a list of five outstanding Vietnamese equity funds:
Principal Vietnam Equity Fund A (PRINCIPAL VNEQ-A) with a return of 75.8% over the past year. The minimum purchase value is 1,000 baht.
One Vietnam Equity Fund (ONE-VIETNAM-RA) with a return of 65.4% over the past year. The minimum first-time purchase is 5,000 baht.
United Vietnamese Opportunity Fund (UVO) with a return of 61.6% over the past year. No minimum purchase is required.
K-Vietnam Equity Fund (K-VIETNAM) with a return of 58.3% over the past year. The minimum purchase value is 500 baht.
Krungsri Vietnam Equity Fund-A (KFVIET-A) with a return of 54.7% over the past year. The minimum purchase value for new investors is 2,000 baht.
above Workers sort a fresh catch on the Vietnamese island of Ly Son, northeast of the central Vietnamese province of Quang Ngai. AFP
Chaiyaporn Nompitakcharoen, executive vice president of Bualuang Securities (BLS), has advice for investors during this time of turmoil in global stock markets amid concerns about rapid US interest rate hikes, high inflation and fears of a global recession.
BLS recommends novice investors take this opportunity to start building “safe stocks” for long-term returns. These include investments in “ETF (Exchange Traded Fund) investment funds with investment policies based on domestic indices” and depositary receipts (DR) as well as foreign stocks based on foreign ETF funds.
“Investing in these assets is suitable for newcomers who focus on the long term,” said Mr. Chaiyaporn.
BLS recommends investing in DR “E1VFVN3001”, whose underlying securities are ETFs based on the VN30 index. It invests in the country’s 30 largest stocks and highly liquid companies on the Ho Chi Minh Stock Exchange.
He said that in late 2018, BLS was among the first to predict that Vietnam’s economy would continue to grow strongly. The nation’s GDP is expected to grow at an average rate of 6-7% per year over the next 3-5 years based on export growth and strong FDI flows into the country, Mr Chaiyaporn said.
BLS recommends DR “DIAMOND” with the trading code “FUEVFVND01”, whose underlying assets are DCVFMVN DIAMOND ETF (FUEVFVND). He invests in the VN DIAMOND Index on the Ho Chi Minh Stock Exchange.
CHANCES AND RISKS
Earlier this month, South Korean conglomerate Lotte unveiled a project to build a 60-story mall, offices and other facilities on a 50,000-square-meter lot in Ho Chi Minh City. The $900 million complex marks a fresh start for the company overseas after it was forced out of the Chinese market five years ago due to geopolitical tensions.
At the groundbreaking ceremony for the project on Sept. 7, Lotte chairman Shin Dong-bin said the group will expand its investments in Vietnam, noting that the country’s population of around 100 million people, with an average age of 33 years tends to be young.
Lotte considers Vietnam “the country with the highest growth potential in Asia,” he said. The group operates 15 large supermarkets and 270 fast food restaurants as well as department stores and hotels in Vietnam. A total of 19 Vietnam-based subsidiaries employ more than 10,000 people.
After South Korea and Japan, Vietnam will become Lotte’s third-largest market, where the group companies will focus their resources, the company said.
Despite Lotte’s optimism, the World Bank pointed to heightened risks threatening Vietnam’s recovery prospects, including slowing growth or stagflation in key export markets, further commodity price shocks, ongoing disruptions in global supply chains and the emergence of new Covid-19 variants.
Domestic challenges include ongoing labor shortages, the risk of higher inflation and heightened risks in the financial sector.
“In the short term, the focus on the budgetary front should be on implementing the recovery and development package and expanding targeted social safety nets to shield the poor and vulnerable from the effects of the fuel price shock and rising inflation. said the bank in its Aug. 8 economic update for Vietnam.
In the financial sector, close monitoring and strengthening of reporting of non-performing loans and provisions and the adoption of an insolvency framework would be recommended, the bank said.
“If upside risks to inflation materialise, with core inflation accelerating and CPI rising above the government’s 4% target, the central bank should be ready to move towards tightening monetary policy to address inflationary pressures through rate hikes and tighter liquidity to suppress provision,” the report said.