Unlocking Vietnam: Investing in a Modernizing Economy
February 21, 2024
Watch Time 3:14 MIN
JP Lee: My name is JP Lee, I'm a product manager at VanEck. Very happy to have Steven Schoenfeld from MarketVector Indexes with me today. And we're going to be talking about Vietnam, what the opportunity is there and how to invest. Stay tuned.
Vietnam’s Powerful Economic Story
Steven Schoenfeld: Vietnam is one of the most dramatic transformations of a very impoverished country that survived a war, heading rapidly into a middle income economy. It's got a young and dynamic population rapidly moving into the middle class. It has signed a number of trade deals and it has a significant amount of foreign direct investment coming into the country.
What many investors don't realize is Vietnam is more of a domestic demand story than even export. So while the export and internationally facing part of the economy keeps growing, this country of 100 million plus has a huge domestic market and that market is modernizing. The population is moving up the education curve, the consumption curve. And if you look at the leading stocks in the country, the majority of them are heavily domestic exposure.
Vietnam is still a communist country by governance, but it has increasingly developed a capitalist economy, an equity and fixed income market that operates on international standards, attracts foreign investment as well as local investment. You have IPOs of both state-owned companies and family-owned companies, and increasing interest both by foreign investors and local investors.
Currently, Vietnam is considered one of the more advanced frontier markets by most global index providers, including ourselves, MarketVector. It has many characteristics of an emerging market, including number of companies and size, but it still has some operational constraints, legal constraints that it needs to get through in order to be formally graduated.
A number of index providers, including FTSE, are considering it for 2024 or 2025. But certainly by the end of the decade, it will become an emerging market, in my opinion. And when that happens, it will attract significant foreign investor flows. As investors have shied away from allocation to China, many are looking for a robust and dynamic allocation and Vietnam could very much serve that role.
JP Lee: The VanEck Vietnam ETF, ticker VNM, provides access to local, domestically-focused Vietnamese companies. As we've gone over, Vietnam is a compelling investment story with a number of different tailwinds supporting economic growth. And what's important here is that the top holdings in VNM generate the majority of the revenue from Vietnam, meaning that VNM investors are getting actual exposure to the local economy.
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An investment in the Fund may be subject to risks which include, but are not limited to, special risk considerations of investing in Vietnamese issuers, foreign securities, emerging and frontier market issuers, foreign currency, depositary receipts, real estate sector, consumer staples sector, financials sector, basic materials sector, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, issuer-specific changes, non-diversified and index-related concentration risks, all of which may adversely affect the Fund. Emerging and frontier market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Small- and medium-capitalization companies may be subject to elevated risks.
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PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
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