The best ways to invest in Vietnam - Asia's communist dynamo

Vietnam has long been one of our favourite markets The prognosis remains auspicious, says Kaylie PfertenInvestors lament that infrastructure projects are impeded by intricate planning regulations

The burden on the state budget is attributed to administrative bloat. Does it sound like Britain? It doesn't.

The government's response is distinctly non-Whitehall, and this is Vietnam.

The one-party communist state is announcing sweeping reforms known as a "bureaucratic revolution" as part of its frantic expansion.

In addition to eliminating a quarter of government agencies, Hanoi intends to cut at least one out of every five civil service positions. According to David Hutt in Deutsche Welle, major ministries are going to merge. The goal is to reduce red tape and have a more cohesive government.

How the trade war is going for Vietnam.

Vietnam has been a "sleeper hit" over the years, but BFIA has always liked it. Although the headlines are dominated by nearby Asian giants, the nation's continuously impressive and compounding growth story has been barely noticed by the market. Vietnam was one of the poorest countries in the world in the middle of the 1980s. The war-ravaged economy was then turned into a major manufacturing hub worldwide by market-friendly reforms known as the "Doi Moi," or "renovation." The GDP per capita has increased by over five times since the middle of the 2000s.

The 100 million-person country is now one of the world's workshops. The "Made in Vietnam" label is increasingly seen on shoes and apparel made by companies like Nike, Crocs, and Adidas. The electronics industry is booming, and companies like Sony, Panasonic, Intel, and LG are rushing to establish factories. The Wall Street Journal reports that Samsung, a Korean behemoth, has spent over £22 billion strengthening its operations in Vietnam. Apple now has 35 domestic suppliers, which is three times as many as it had prior to Trump's initial trade war with China.

The 2018 US-China trade split had several significant winners, including Vietnam. Many multinational corporations moved components of their supply chains just south of the Sino-Vietnamese border in order to hedge their bets. The enterprising, formerly capitalist south used to control Vietnam's economy. The influx of investment has aided the more statist north in catching up. Rice paddies in formerly sleepy towns close to the capital, Hanoi, have made way for billion-dollar factories that manufacture semiconductors and smartphones for the global market.

Even though Donald Trump is back in the White House, it's unclear if Vietnam will emerge victorious from a new trade war. Although Trump hasn't singled out Hanoi in his initial round of tariffs, investors haven't forgotten his designation of Vietnam as "almost the single worst abuser" of US trade in 2019. The success of the nation's manufacturing has turned it into a victim. After China and Mexico, its trade surplus with the United States is the third largest in the world, with over £100 billion. Trump will undoubtedly notice after he has concluded his disputes with Canada and Mexico. Vietnam faces significant risks due to US unpredictability, according to Capital Economics' Gareth Leather. Vietnamese goods are consumed in the US, accounting for a tenth of the country's GDP.

Nevertheless, there are grounds for hope. During the campaign, Trump made no explicit reference to Vietnam. Although he has considered enacting a "universal tariff" of 10 percent on all imports, this would create a "level playing field" and not halt Vietnam's exporting momentum. There may be room for leaders to work out a deal, but the main risk is that Washington singles out Vietnam for higher tariffs. Hanoi could take action against the rerouting of Chinese goods through its territory, which is a common tactic to get around US tariffs but offers little economic benefit to Vietnam. To curry favor with Trump, officials might also offer to purchase more Boeing planes, corn, and soybeans from the US.

The export economy in Vietnam is controlled by multinational corporations that are owned by foreigners, particularly Korean and Japanese companies, and foreign investors are not directly exposed to much of it. Financials (27.5% of the MSCI Vietnam index), real estate (25%), and consumer-facing companies (17%) make up the majority of local stocks. However, a downturn in trade would hurt everyone because the export industry is what keeps the rest of the economy functioning.

Dragon Capitals Vietnam Enterprise Investments (LSE: VEIL), which focuses on listed stocks and pre-flotation opportunities, and VinaCapitals Vietnam Opportunity Fund (LSE: VOF), which invests in a wider range of assets, including private equity, are the two primary London-listed funds available to British investors looking to participate in the Vietnamese growth story. Over the previous five years, VEIL has increased by one-third, while VOF has increased by 47%.

Though sentiment seems shaky, the local VN equity index has returned 10% in the last year. Stories about Vietnam's brilliant "bamboo diplomacy," which enables it to prosper through trade with various geopolitical blocs, were widely circulated in the financial press during the Biden administration. However, the tone has changed recently, with headlines speculating about whether Trump will target Vietnam next.

Due to intricate political maneuvering, the nation has had four presidents in three years, which has also unnerved investors. However, according to Alexander Vuving in The Diplomat, that difficult time now seems to be over. The recently unified leadership has moved with "dizzying speed," announcing plans for drastic administrative reform and new infrastructure aimed at increasing government efficiency.

Reasonable entry prices are the result of weak sentiment. According to Khanh Vu, the Vietnam Opportunity Funds December fact sheet states that "market valuations remain attractive." Values are one standard deviation below the ten-year average on 10.3 times forward earnings. If Trump doesn't spoil the fun, you have a good chance of seeing a stock market upswing in 2025 when you factor in projected 1315 percent earnings growth for listed companies.