Vietnam - Investing (VNM)

Ian Bremmer, President of the Eurasia Group, a global political risk research and consulting firm wrote a bullish article about Vietnam (The Rise of Vietnam) in Foreign Policy last week.  Having previously read Bremmer's book The J Curve: A New Way to Understand Why Nations Rise and Fall as well as some other articles I have been pretty impressed by his insights into global affairs and business.

I have been keeping an eye on Vietnam for many month's, ever since Van Eck launched the Market Vector's Vietnam ETF in August 2009.  Market Vectors does a good job of introducing targeted ETFs for investors seeking a very focused international exposure.  Typically these ETFs are unique, such as with their Russia ETF (RSX), Brazil Small Cap ETF (BRF) and Poland ETF (PLND).  Given the risks of investing in emerging and frontier markets I held off on investing in the Vietnam ETF until I could learn more and get a better idea of how it trades (not surprisingly, it's volatile).  VNM has risen from 26 to 32 in a short time, only to fall below 24 (chart).

Vietnam
Vietnam has a population of 88.6 million, a median age of 27.4 and the GDP per capita (PPP) is $2,900 for 2009 (China's is $6,500).  2010 GDP growth is 6%.  56% of the labor force works in agriculture, however, "agriculture's share of economic output has continued to shrink from about 25% in 2000 to about 21% in 2009."  The government is communist (more like Chinese Communism though).  (Source: CIA World Factbook)

Vietnam ETF (as of Jan 31, 2010):
Ticker:  VNM
Net Expense:  0.99% (with waiver)
AUM:  $113 million
Holdings:  31
P/E:  21.79   P/B: 2.47
Sector Breakdown:  Financials (45%), Energy (23.6%) and Industrials (16.7%).
Market Cap:  Large ($6B+) 12.8%, Medium ($1.5 to 6B) 41.2% and Small (<$1.5B) 46%
Data: Market Vectors Website

VNM is obviously risky and very focused - it offers single country exposure, with nearly half of its investments in small cap firms and a concentration in Financials and Energy (69%).  It has a similar P/E vs. Emerging Markets (EEM's P/E = 21.74 as of 2/26/2010).  VNM has underperformed EEM in the last year and 6 months, but is ahead in the last 3 months.

Below are a few points about Vietnam which have struck me:
1.  Intel Investment
In 2006 Intel announced a $300 million investment in Vietnam - "the largest American investment in Vietnam ever by a non-oil company (BizWeek). The reasons many international companies select Vietnam include its low cost skilled labor and diversification beyond China. 

2.  Demographics
Anywhere from 50 to 65% of the country is under the Age of 30 - a favorable long term demographic trend as opposed to many other countries (ie Japan) which have/will have a huge percent of older people. Given the large number of young people in Vietnam, they do not remember the Vietnam war (75% born after the war).  In fact, America is surprisingly popular in Vietnam (8/10 Vietnamese have a positive view of America according to the video:


3. Growth
Among the Economist's list of 12 highest GDP growth countries, only three can be easily invested with using ETFs.  #2 China (8.6% GDP growth), #9 India (6.3%), and #12 Vietnam (6.0%).  The others include such countries Congo, Uzbekistan and Madagascar... The workforce is young, they work hard, value education and are entrepreneurial. You can see some good examples in the video below:


4.  Risks
There are plenty of risks including stability, infrastructure, corruption and inflation.  For example, in November 2009, Vietnam devalued its currency by 5% (article) and in February 2010 they devalued it again by 3.4% (article).

5. Ian Bremmer Article

The title is obviously positive "The Rise of Vietnam" and so are many of the points he makes.

-For Vietnam "the new buzzword is stability"

-They are "seeing a spike in interest (particularly from Japan, South Korea and the multilateral institutions) in Vietnam's export infrastructure."

-"Japanese and Korean investors, in particular, are looking toward Vietnam to hedge their bets on China. Given the uncertainty surrounding Thailand's industrial policy (exemplified most dramatically by the ongoing controversy over work at Map Ta Phut, the country's most important petrochemical hub), and the political volatility that's likely to follow the death of Thailand's king, Vietnam has never looked sunnier."