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Letter from Vietnam: heydays of doi moi

Vietnam is enjoying its day in the sun. The economy is in rude health, with growth at its highest in a decade. Core inflation remains low and its external balances are improving.

Manufacturing has been the star under the doi moi policy that started 32 years ago. Resembling parts of Russia’s perestroika and China’s economic liberalisation, Vietnam is shifting from a centrally-planned economy to a market-oriented one while keeping its political structure largely intact.

It has been integrating itself more deeply with the global economy and is growing in importance in major international supply chains. Made-in-Vietnam smartphones, textiles and electronics are increasingly making their way to the US, Europe, China and the rest of Asia.

A hungry consumer market awaits Vietnamese and foreign companies

Demographics also played its part. Vietnam has a domestic market of 95 million, with half its population under the age of 35 and a large workforce upbeat about their future. Incomes are rising, the growing middle class is spending and a hungry consumer market awaits Vietnamese and foreign companies.

At a pivotal juncture

The clutter of motorbikes, hoardings and construction sites was all around me during a recent visit to Ho Chi Minh City, my first to Vietnam. And I experienced the typical sight and sound of daily life - severe traffic congestion. Currently, a driver can take nearly two hours to tame a 12-kilometre gridlock in the city.

But I was unshaken by the bumpy roads in Vietnam. Instead, I’m seeing a virtuous cycle take root. As long as the government continues to open up markets and industries, maximising market-based financing, including ‘equitisation’, or privatisation in local parlance, this will engender interest from foreign investors.

And change is evident everywhere, most significantly, the stock market. Nearly 20 years ago, there were only two listed companies, with a market capitalisation of 986 billion dong (US$43million in current value). Now, the domestic securities market has reached US$191 billion in total value, equivalent to 95% of 2016’s GDP.

Alongside strengthening macroeconomic fundamentals, the sizzling market has also benefited from the ‘equitisation’ process. Last year, foreign investors bought US$1.5 billion of Vietnamese shares.

Admittedly, for those looking to invest, the market isn’t as cheap as before. However, when stacked against Vietnam’s attractive longer-term economic prospects and earnings potential of companies, valuations still appear to have plenty of room for upside.

A pioneering moment

Vietnam’s government has confirmed its intention to continue promoting the private economy while recognising the importance of private companies to economic development.

In our view, regulatory trends are also moving in the right direction, with gradual relaxation of foreign ownership rules for companies and the launch of a new securities law, given the government’s overarching aim for Vietnam to reach emerging market status by 2021.

Amid the favourable conditions, formal retail is relatively undeveloped and I’m keeping a close eye on this sector.

The hungry consumer

Urban Vietnam is emerging into a fast-growing society. Domestic demand is accelerating for products spanning real estate, food and beverage and telecommunications services.

Food preferences of the Vietnamese are evolving as disposable incomes rise. Vietnam’s food and beverage sector is forecast to grow 16% through to 20191. What is significant in this growth is the rise in consumer sophistication, alongside the demand for healthier products.

A bright spot for this trend is the dairy industry. On average, a Vietnamese consumes 15kg of dairy products a year, compared with neighbouring Thailand (34kg) and China (26kg)2.

Consumer dynamism

With retail sales rising 10.9% to 2017’s record US$130 billion3, Vietnam’s middle class is unleashing its spending power. I see room for growth given the low penetration of organised retail.

Vietnam makes one of every 10 smartphones produced across the world4. Domestically, there are nearly 120 million mobile phone subscribers5. The segment is reporting good growth.

Overall, investing in any emerging market is not without its risks. For now, we’re riding on the wave of Vietnam’s new economic boom.

  1. ‘Vietnam sees flourishing food and beverage industry’, Vietnamnet Bridge, 16/04/2018.
  2. Vinamilk’s corporate presentation, Q4 2017
  3. ’Vietnam retail sales hit record US$129billion’, InsideRetail Asia, 11/01/2018
  4. ”Vietnam’s manufacturing miracle: lessons for developing countries’, Brookings Institution, 17/04/2018
  5. ”Vietnam phone exports to China skyrockets in Q1”, Xinhua, 17/04/2018