3 Things to Know before Investing in Vietnam September 17, 2018

3 Things to Know before Investing in Vietnam

Vietnam’s economy has come a long way. The developing country faced multiple obstacles through the years, going through wars and crises. Despite numerous hardships, the Vietnam market has gained growth momentum, becoming an investment destination for many. Just take a look at the Vietnam Index, which has outperformed its Asian peers for the past 5 years despite the recent correction (Table 1).

Table 1: Index Total Return 5 yrs
Index Currency Total Return (%) Annualized Return (%)
Vietnam Ho Chi Minh VND 138.56 18.98
Thailand THB 49.27 8.34
Jakarta Composite IDR 58.85 9.69
Hang Seng HKD 52.72 8.83
Straits Times SGD 24.97 4.56

Source: Bloomberg

As the trade war between China and the United States disrupts global trade, Southeast Asian nations like Vietnam stand to gain from the turmoil. Manufacturing giants behind many of the world’s notable consumer electronics products are preparing to move their operations away from China to Southeast Asia; driven primarily by rising operating costs. South Korea’s electronics giant Samsung and Japanese manufacturer Olympus have closed plants in Shenzhen. Both companies were reported to be transferring operations to Vietnam.1

In this article, we have compiled details on the Vietnam market, together with the market’s investment merits and why it may be attractive for you, as an investor.

1. Overview and History

Before declaring its independence in 1945, Vietnam was under Chinese rule for a significant part of its history, following which it was part of French Indochina from 1887, before coming under Japanese Occupation in the Second World War.

Shortly after achieving independence, the country was embroiled in a full-fledged war between the North (with Communist support) and South Vietnam (with French and U.S. backing). The war proved to be devastating, leading to a million casualties and a communist victory over the South Vietnamese government when conflict ended in 1975.

In the aftermath of the war, the country’s inflation rate skyrocketed to almost 900 percent. A US embargo cut Vietnam off from a majority of global trades during that period. To make matters worse, Vietnam’s communist land reforms led to widespread food shortages. By the 1980s, Vietnam was as poor as Ethiopia.

Things started to change in 1986 thanks to a series of economic reforms. Private enterprises were permitted, leading to a jump in economic growth that transformed Vietnam from one of the poorest countries on earth to one of Asia’s most-promising emerging markets.

Since 1990, Vietnam has achieved the second-fastest rate of economic growth in the world with an average annual rate of 6.77%; just behind China.2

3 Things to Know before Investing in Vietnam

2. Current Economic Landscape

Vietnam’s growth has powered some extraordinary changes. For example, in 1993, over half the population lived on less than US$2 a day. Now, less than 3 percent of Vietnam’s population suffers that fate, according to the World Bank.3 2017’s GDP growth of over 6% makes Vietnam one of the fastest-growing economies in Asia. Meanwhile, inflation is expected to clock in around a very manageable 4.6% in 2018.

3 Things to Know before Investing in Vietnam

The government is taking steps to improve the business environment, by loosening foreign ownership limits on stocks and real estate and improving bank regulations. The banking sector, long viewed as one of the economy’s weakest links, is also getting stronger, with non-performing loans falling from 7.1% of total loans in 2017, to a forecasted 5.8% in 2018, according to Moody’s credit rating agency.4

The government is also culling inefficient state-owned enterprises (SOEs) from its system. The number of SOEs in Vietnam dropped from 6,000 in 2001 to just 700 in 2016. Looking ahead, the government plans to divest itself from 406 SOEs between 2017 and 2020.

According to a recent report from professional services firm PricewaterhouseCoopers (PwC), Vietnam is set to be one of the fastest-growing economies over the next few decades. PwC estimates that it will see average annual growth rate of around 5.3% through 2050.
That might not sound like much, but it is double the projected growth rates in the US, UK, Japan and France.5

Here are 3 potential catalysts that we believe will help Vietnam sustain its growth in the years ahead, making the country an ideal investment destination for you.

3. Three Drivers of Growth

I. Population Demographics

Economic growth comes from two sources: Population growth and productivity growth.

Shifting demographics in part drives economic growth. While population growth is falling in many major economies like China and Japan, potentially resulting in a reduction in the labour pool and weakening productivity over the long term, it is forecasted to rise in other parts of the world like Vietnam.

With 45% of the population under 30 years old, Vietnam’s economy has strong reason to be optimistic.6 Booming labour force participation will serve as a catalyst for higher productivity and economic growth.

ii. Low Labour Costs

Vietnam’s low labour costs mean it is able to attract jobs from countries like China, where labour costs have been rising. Vietnam’s minimum wage per month, at US$180, is a fraction of that in other countries within the region like China (US$355) and Indonesia (US$246).7 Due to the low cost of labour, Vietnam has become a big exporter of electrical equipment, electronics, coffee and apparel.

iii. Growing Middle Class and Increasing Consumption

Vietnam’s retail market is the fastest growing in Southeast Asia, driven by rapid urbanization and a growing middle class population. Vietnam has recently surpassed Thailand as the second largest retail market within the region, just behind Indonesia.

The middle class and wealthy segments in Vietnam are poised to grow by 88% between 2010 and 2020. Together with a growing population in urban areas, along with an average age of 30 years, these factors provide powerful demographic tailwinds to support a consumption boom. Indeed, retail sales grew by 10.7% in the 1st half of 2018, with non-discretionary spending growing at a higher rate than discretionary spending; driven primarily by the food and beverage sector. With relatively low GDP per capita compared to neighbouring countries, this trend looks set to continue as GDP catches up to its peers.

Next, we will look at 2 Vietnam Large-Cap stocks that could benefit from the above 3 drivers:

I. Vietnam Dairy Products JSC (VNM VN Equity)

Vinamilk (VNM) is the largest dairy company in Vietnam with over 50% market share. With more than 40 years of expertise, Vinamilk has established a prominent brand name for its portfolio that includes liquid milk, powdered milk, yogurt, condensed milk and other beverages; produced and distributed through its extensive nationwide network.

Given Vietnam’s relatively low dairy consumption per capita of 21 kg, which considerably trails other Asian peers like Thailand (28 kg), China (31 kg), Japan (74 kg) and South Korea (76 kg), there is plenty of potential for growth as GDP and consumer diets catch up.8

VNM capitalises heavily on its extensive distribution network, especially in rural areas, as dairy consumption is poised for rapid growth owing to lower penetration rates compared to urban areas.

VNM’s dominant scale advantage is being cemented on the back of successful product launches, a dominant marketing budget and market share gains, especially in liquid and powdered milk.

II. Hoa Phat Group JSC (HPG VN Equity)

Hoa Phat Group (HPG) is Vietnam’s largest steel producer with 24% and 29% market share in the construction steel (current designed capacity of two million tons per year) and steel pipes respectively. Other minor businesses include industrial manufacturing, real estate development and animal feed production.

A sustainable, growing property market and strong domestic infrastructure demand from urbanisation fuel demand for construction materials. Coupled with the Vietnamese Government’s protectionist measures for its domestic steel industry, this will help the company maintain its strong financials. With strong operating margins versus its competitors, we believe HPG is well-positioned to profit from the growing demand for construction materials.

Key figures for VMN VN and HPG VN:

Ticker VNM VN Equity HPG VN Equity
Last Price VND 156,500 VND 39,650
Market Cap (USD) 10.6 BN 3.18 BN
P/E 23.78 x 9.01 x
P/B 8.72 x 2.31 x
Consensus TP VND 165,525 VND 48,168
Upside to TP 5.8% 21.5%
Total Buy Calls 1 9
ROE 35.7% 4.7%
Div Yield 2.97% NA
Op Margin 22.39% 20.84%
Net Profit Margin 20.17% 17.34%

Source: Bloomberg data as of 30th Aug 2018

Vietnam – Beneficiary of a Trade War?

Investment guru Mark Mobius, one of the grandfathers of emerging markets, recently told CNBC that he thinks some of the big beneficiaries of the Sino-US trade war will be countries like Bangladesh and Vietnam.9 With the US and China slapping tariffs on each other’s products, the prices of these products are expected to rise. For example, garments from China exported to the US will become more expensive, prompting US companies to look for cheaper sources of garment manufacturing. This is where countries like Vietnam will stand to benefit.

Investors seeking long-term exposure on a broad spectrum of large cap Vietnam equities may consider an Exchange Traded Fund (ETF) tracking the VN30 index such as the VFMVN30 ETF Fund. The VN30 Index has a market capitalization of USD 44.2BN and accounts for 76% of the Ho Chi Minh Stock Exchange’s (HOSE’s) total market cap. Investing in an ETF will also allow you to gain exposure to stocks that have hit the foreign ownership quota where foreign investors are not able to enter buy trades. You can refer to this link for more information on this ETF.

Ticker E1VFN30 VN Equity
Last Price 15,950
Market Cap (USD) 184.8 M
P/E 15.3 x
P/B 2.8 x
Dividend Yield (%) 2%
Number of Holdings 30
Beta 1
Standard Dev 21.6
Sharpe Ratio 1.4

Source: Bloomberg data as of 30th Aug 2018

Start Trading in the Vietnam Market through Phillip Securities

As you can see, there is much potential for gain by trading in the Vietnam market, and Phillip Securities is making this market easily accessible to you!

Continuous trading runs from 10:00am to 3:30pm (Singapore Time) daily for the Vietnam market. Find out more information on trading in the Vietnam Market here.

Open an Account.

Information is accurate as of 30 August 2018



These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you


This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  


Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com