Emerging Markets: Investing in Vietnam

Posted December 10, 2007

"Vietnam is just bubbling with young, willing workers, who've gotten a small taste of the good life with the first wave of Western companies pouring funds into the country. And now they want more." — Stephanie Grimmett

by Stephanie Grimmett

Baltimore — (TFN) Don't take this as an ad for Vietnam, but it is. I've been pushing the idea that Vietnam will be the next booming Asian market since the Chinese scandals started hitting the press more than six months ago. And now other financial news services are finally jumping on board. Welcome, fellas, nice of you to join me.

First things first, Vietnam is cheaper than China. Labor costs in Vietnam are about half the equivalent to the country's large and none too friendly neighbor. The Vietnamese dong is pegged to the dollar, just like the Chinese yuan. But the dong runs at about 15,000 to $1. And with 3,000 dong having the purchasing power of $1 in the country, that gives American companies twice the value for their money than they have in China.

Second, Vietnam has a younger workforce. Median age in the country is 25 years old. As China's babyboom generation (yep, they have one of those, too) moves out of the work world, it has very few young people to replace them, which is what happens when you enforce a "one child per couple" law.

Vietnam provides the global economy's most prized commodity: Cheap Labor

But Vietnam is just bubbling with young, willing workers, who've gotten a small taste of the good life with the first wave of Western companies pouring funds into the country. And now they want more.
Vietnam joined the World Trade Organization a year ago, making all of that cheap labor even more accessible to U.S. companies. Factories are popping up in new industrial districts and former rice patties all over the country. And without the rough terrain or vaste swaths of unusable lands that China has (remember the Gobi desert and, well, all of Tibet?), Vietnam is finding it much easier to electrify and modernize its country.

Don't get me wrong, you'll still see the classic images you think of when you hear the name Vietnam. Farmers still walk their oxen-led carts to market, and such, but the younger generation is moving out of those thatch huts you envision and into the cities, embracing the country's newfound capitalism with abandon.

And as a result, Vietnam's stock market is booming. Yes, I realize that "stock market" sounds absurd in reference to a country that didn't even have private ownership 20 years ago. But in case you haven't heard of it, Vietnam is home to the Ho Chi Minh Stock Exchange (HCMSE). Feel free to let out a grown over that one, even though it's named for the country's largest city and not the communist revolutionary.

Unlike China, Vietnam welcomes foreign investment in its stock exchange. And it has become a haven for Japanese and other Asian investors. Only trouble is, Vietnam has quota rules for its companies, meaning only a small percentage of a company can be owned by foreigners. And those quotas are quickly met whenever a new company enters the market.

It's a logical point of self-protection in a country that's new to the idea of publicly traded companies, let alone the complexities of international business. But it means that the only real way to get your hands on shares in Vietnam is to go there in person. This is lucky for all of those bored Japanese investors who are tired of their own waning markets. They can take a quick jaunt over the ocean and find a percolating new economy to jump into, but it does limit the availability of investment opportunities for those of us on the far side of the globe.

Investment options

You can find Vietnamese investment funds on some European exchanges. And the HCMSE just signed a cooperation deal with the London Stock Exchange, which is planning to draw companies from Vietnam onto its boards in the next year. When that happens, all the world, or maybe just the lucky few who know about Vietnam's economic future, will rejoice.

As of yet, we're still ahead of the game just knowing that Vietnam has a stock market and public companies. But with costs rising in China, the Vietnamese will soon have their day, or decade, in the sun. And we'll be here to give you the best advice on when and where to get your profits from the next great emerging market.

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