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Look through volatility to reap Vietnam’s rewards

Biotech trust Trump benefit may be shortlived

Christopher Akers, Investors’ Chronicle, September 1 2022:

Investing in frontier markets means putting your money into economies whose exchanges are considered to be even less developed than emerging markets. The risks, from less liquid trading to limits on the foreign ownership of companies, reflect this. But if you can tolerate these risks, investing in frontier market equities can deliver strong growth and diversification.

One of the largest frontier markets is Vietnam, which made up almost a third of the MSCI Frontier Markets index at the end of July. Vietnam’s economy has transformed over the past few decades into a high growth, dynamic, manufacturing powerhouse. Secular trends which have driven progress include high levels of foreign direct investment with, for example, recent announcements of more investments from Lego, Apple (US:AAPL), and Samsung (KR:005930). Increasing urbanisation, a growing middle class and wealthier consumer base, and technological progress have also driven progress.

A key growth driver is state infrastructure spending. Huge levels of government investment are set to be deployed over the next five years on projects such as highways and ring roads…

And the country’s latest economic figures are enough to make governments of developed countries green with envy. As developed countries contended with anaemic growth and potential stagflation, Vietnam’s economy grew by 7.7 per cent in the second quarter of this year. And while western economies sweat over soaring prices, Vietnam’s year-on-year consumer price index inflation was 3.1 per cent in July.

Ways to get exposure to this market include investment trusts Vietnam Enterprise Investments, VinaCapital Vietnam Opportunity Fund, and VietNam Holding (VNH). These trusts have posted heady returns over three and five years, but their performance has been weaker over the past 12 months in what has been a volatile market…

The trusts are all trading on double-digit discounts to net asset value (NAV). As they have good records of outperforming the MSCI Vietnam index, this perhaps surprising unpopularity suggests that if you invest in them you could be well positioned to benefit from the country’s potential future promotion to emerging markets status. QuotedData senior analyst Matthew Read said that the discounts “should narrow over time as investors understand the market and these vehicles better”.

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