Why investors should put Vietnam on the radar

May 03, 2019 15:56
Since 2014, Vietnam’s real GDP has expanded by more than 6 percent per year. Photo: Bloomberg

Most Hongkongers are familiar with Vietnam as a neighboring country and, increasingly, a tourist destination.

Many of my friends have visited the seaside city of Da Nang for leisure, and they travel to Ho Chi Minh City and Hanoi mostly for business. Professional investors pay attention to tourist and business trip destinations because the growth of inbound travel is often a sign of economic development.

At the very least, tourist destinations mean that transportation links have been established and personal security has reached an acceptable level. Often, the rise of these cities is accompanied by the development of amenities such as international brand hotels and retail outlets that serve the influx of international travelers.

Harder, colder economic statistics do support this view. Vietnam's economy has consistently expanded since 1980, which was the last time it experienced a negative real GDP growth. Since 2000, the country’s real GDP has expanded by at least 5.2 percent per year, and since 2014 the growth has been above 6 percent.

Vietnam has been a major beneficiary of globalization as multinational companies often establish factories and other supply chain operations in the Southeast Asian nation. Some companies develop capability in Vietnam to diversify their supply chains, while other companies see it as a major hub. Several listed Hong Kong entities have operations in Vietnam.

On a purchasing power parity basis, the per capita GDP of Vietnam reached US$6,000 in 2015. Usually, at this level of GDP development, a modern middle class will quickly develop. In Asia, over the last 50 years, we have seen the middle class emerge from Japan, then the "Asian Tigers", and then China. Vietnam is already well on its way.

Thus, inbound trade serving international brands to locals will also develop, and other Asian operators, with deeper knowledge of the local culture, often hold a competitive advantage over other multinational operations. For example, a Hong Kong company listed on the Hong Kong Stock Exchange owns and operates the largest convenience chain in Vietnam.

Vietnam, along with other Southeast Asian countries, has a young and growing population. As of 2016, its population stands at 94.6 million. This compares with 52 million in 1979, when the first census was taken after the country's reunification. The median age in Vietnam is 30.4 years old, which compares favorably with the major East Asian economies. In Hong Kong, it's 43.2 years old and in Japan, 47.3 years old.

Ho Chi Minh City, with 8.6 million people, has the highest population among Vietnamese cities, while Hanoi comes second with over 7 million. In total, the country's urban population is more than 32 million. That's more than four times the population of Hong Kong and about 1.3 times that of Taiwan. But since the urbanization ratio is still below 35 percent, we expect Vietnam’s urban population to continue to grow.

Vietnam is part of the growing ASEAN community. As of 2018, the total population of the ten member states of ASEAN is over 651 million, or close to half of China’s or India’s population. Its combined GDP, at about US$3 trillion, is larger than that of India.

The average Human Development Index of ASEAN is over 0.701, meaning the bloc as a whole is developed. We expect the region to maintain its growth rate and provide diversification opportunities for investors in Hong Kong.

We believe Vietnam is worth considering for growth investment. Granted, some of the more exciting projects are in the direct investment universe and may not be accessible for all investors. However, selected Hong Kong and Singapore listed companies have major exposure in Vietnam, and through these companies, investors can gain exposure in the country.

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Chief Investment Officer, Admiral Investment Ltd.