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Sunday, February 4, 2007
Tom Dyson's note: Emerging markets are volatile and fully priced right now... so this weekend's idea is for adventurous investors with long-term horizons only.
Vietnam is offering huge potential to investors. Problem is, it's hard to invest in the country. Today, Martin Spring, godfather of South Africa's financial publishing industry, shows us how...
Vietnam is attracting increasing – some would say "frantic" – interest from international investors, lifting its stock market by 144% last year.
Government finances are healthy, public indebtedness is low, foreign trade balances are positive, the savings rate is high and rising – providing strong economic foundations. But perhaps the most exciting thing about Vietnam for international investors is that the country has so much future growth potential.
Annual GDP per person is still only $790, compared to Thailand's $3,420 and South Korea's $20,240. A survey made not long ago reported that semi-skilled workers cost only $73 a month to employ, compared to $375 in Thailand.
Although the stock market has exploded over the past year, reaching a market capitalization of about $14 billion now, it's still tiny compared to its regional neighbors.
Also, the market recently has corrected after peaking on euphoria over World Trade Organization membership, and now seems to offer an opportunity for investors who are able to live with the risks to place their bets.
Although foreigners can buy Vietnamese stocks, it isn't easy.
Firstly, you can only do so by opening a custodian account at a Vietnamese bank. To do that, you must go to Vietnam in person to have your birth certificate and passport notarized at your embassy or consulate there.
Secondly, there's a limit on the proportion of the stock of a listed company that may be owned by foreigners – 49% generally and 30% in the case of banks.
Thirdly, you must leave your invested capital in the country for at least 12 months. However after that, it may be freely exported, as dividends can be.
According to a recent count, only a few hundred of the many thousands of custodian accounts were held by foreigners – most of them individuals.
It's likely to get easier for foreigners to invest as the government has set a target of having 1,200 listed companies by 2010, compared to about 150 now.
There are already several hundred companies that, although not listed, are trading on the informal OTC (over-the-counter) market. They are former state enterprises that have been privatized. According to stockbrokers Saigon Securities, they are mostly profitable.
As most listed companies have many thousands of shareholders, there is a remarkable degree of transparency and pressure to raise accounting standards.
The largest companies, either listed or OTC-traded, are: FPT, the biggest telecoms and infotech company, with a market cap of $2 billion; Vietnam Dairy Product, the No. 1 in its field; PetroVietnam, in oil exploration; Sacombank; Vinh Son Song Hinh Hydropower; Cables & Telecom; and the KinhDo bakery.
Unfortunately there are few single-country funds for individual foreign investors seeking a stake in this new tiger economy.
The most reputable and successful seem to be the Dublin-listed investment trusts managed by Dragon Capital (Vietnam Enterprise Investments and Vietnam Growth) and by PXP Vietnam Asset Management (PXP Vietnam and Vietnam Emerging Equity). VinaCapital Investment Management has a similar trust, Vietnam Opportunity, listed in London.
Major investment banks also offer participatory notes, certificates reflecting their own holdings of Vietnamese shares.
As the Vietnam story gains traction, we'll see new instruments introduced, but for now, this is how you play Vietnam.
Editor's Note: Martin Spring is the godfather of personal finance in South Africa. He became deputy editor of South Africa's leading financial weekly in the 1960s and editor of its only competitor in 1971. He launched the daily newspaper The Citizen in 1976. After writing and publishing Martin Spring's Money Book and scripting two TV series on money craft, in 1980 he launched a newsletter called Personal Finance, which became the flagship of a successful publishing business.
Martin Spring sold his business in 2000 to an Internet publishing pioneer and now spends about half the year in the UK and the other half in Chiangmai, Northern Thailand, where his neighbor is the same well-known commentator often featured in DailyWealth's weekend edition, Marc Faber.