Is it time to invest in Vietnam? We look at the best ways to buy into 'extremely cheap' grow
Positive sentiment toward Vietnam is gathering momentum as the relaxation on foreign ownership and its favourable demographics attract investors.
Last year, the 49 per cent cap on foreign ownership in companies was softened, meaning they in theory can now take up to 100 per cent stake in large, listed companies.
And although still classed as a frontier market alongside the likes of Argentina, Kenya and Romania, Vietnam is a likely candidate for reclassification as an emerging market, a move which is usually accompanied by a flood of foreign investment.
But despite being described by one fan as 'extremely cheap' at the same time as offering good growth prospects and a population opportunity, Vietnam remains on the edge of most investors' radars.
Land of opportunity? Vietnam has strong demographics and is opening up to the outside world
Unlike its emerging market cousins, Vietnam hasn't suffered from slowing growth. The country's GDP expanded by approximately 6.7 per cent last year, its strongest rate of acceleration in seven years.
While China's GDP grew by a comparative 6.9 per cent last year, this was its slowest pace of growth in two and a half decades.
At the same time, Vietnam's demographics look promising, with half of its 94 million population under 30 and a literacy rate of more than 90 per cent.
And its growing middle class is supportive of multinational and domestic consumer discretionary companies such as convenience stores and fast food outlets.
Tim Price of PFP Wealth Management has been championing the country's potential for a while but says the current environment 'is especially promising for investors'.'Vietnam is now the key destination for foreign direct investment across Asia.
Wage rates are less than half those in China. And Asia as a region is so much more attractive than, say, Europe – it has healthier banks, better demographics, no stultifying welfare system, and the expectation of much faster economic growth in the future.'Another plus point noted by the investment director is that Vietnam is 'extremely cheap' - one of the reasons why it is the second biggest allocation in his fund, the VT Price Value Portfolio.
Price says almost half of Vietnamese companies are trading at less than half their price to book ratio, meaning that the price of their shares is less than the value of their assets.
It's not all plain sailing however. The country is still a one-party communist state and state-run companies have been slow to reform, while private companies struggle to attract domestic investment.
Emily Fletcher, co-manager of the £178.3million BlackRock Frontiers Investment Trust, says she has only a 'moderate' weighting towards Vietnam.
The manager explains that while Vietnam's top down, economic picture is good, the trust is struggling to find good enough opportunities to invest at a ground level.
'For us it's a mixed picture. Economically Vietnam is interesting and is doing well in terms of exports and GDP but the question is whether you are able to access that. We have between 4 and 5 per cent in Vietnam, so we think it's interesting but it' s not our highest conviction.'
'There are a huge number of companies listed in Vietnam but many of them have a pretty small market cap and not all of them are that liquid, so in our view it pays to be selective.'
At present, Fletcher sees greater opportunities in other Asian countries such as Sri Lanka and Bangladesh and says she that in order to up allocation to Vietnam she would like to see stronger corporate governance and greater access to management.
But if you do think Vietnam represents a golden opportunity, how can you invest?
One way would be through a frontier markets fund or investment trust, such as the Elgan Investments offering mentioned above. Well known asset managers Barings and Franklin Templeton also both have funds in this area.
If you want to take a small investment in frontier markets, this could be a way to diversify that exposure.
However, it is worth remembering that investing in frontier markets in general can be risky and volatile as these are often fledgling economies more likely to suffer from corporate governance problems, liquidity issues and stock market crashes than developed markets.
If you believe strongly in the Vietnamese story it could be worth investing in a country-specific fund or trust. Elgan Investments Vietnam Elgan Opportunity fund, a growth-orientated investment trust focusing on the domestic economy, has performed very well in recent years.
Top holdings include food and drink companies like Vinamilk and Quang Ngai Sugar, and the closed-ended fund also has 14 per cent in private equity
In three years to the end of May the trust's share price has risen by 31 per cent, compared to a drop of 20 per cent for the MSCI Emerging Market index, and 7 per cent by the MSCI Vietnam index.
At the same time, the trust's shares are trading on a discount of 17 per cent to their net asset value, which the board has struggled to keep in check.
Tim Price has a portion of his VT Price Value Portfolio allocated to domestic investment house Saigon Securities' Vietnam Value and Income Portfolio, a specialist value-orientated fund.
Saigon Securities is based in Vietnam, and Price says it has research and resources that funds based in the UK can't access
The company is set to launch a retail offering, the Vietnam Value Income and Growth fund, which Price says 'will be quite exciting for UK investors with the appetite for frontier markets'.