Vietnam is set to become the fastest-growing economy in Asia this decade. Curious about the reasons behind this growth and how to invest in Vietnamese companies? #whatstrending addresses some of the most trending questions/topics on the markets for investors. Designed to be educational, expect to get factual information on what is driving sectors and stocks listed on SGX, featuring insights from professionals in the community.

Today, we hear more from Mint Finance, a Singapore based research and consulting firm offering nuanced and deep insights on global macro and its impact on EM and Vietnam equities, futures, and ETFs. Pranay Yadav, Senior Research Analyst, shares his thoughts on the catalysts for Vietnam equities, particularly its potential reclassification as an emerging market.  

Vietnam’s Market Reforms and Reclassification

Q: What is the difference between a frontier and emerging economy and why will Vietnam benefit from a reclassification?

From Pranay Yadav, Senior Research Analyst, Mint Finance:

Emerging and frontier markets are classifications by index providers like FTSE and MSCI. Frontier markets are generally smaller, less liquid, and come with higher political and economic risks.

A country's classification determines if its equities are included in popular indices used by global investors. If Vietnam is reclassified from Frontier to Emerging market, it would join prominent emerging market indices, increasing its exposure to global investors.

Recent market reforms in Vietnam have aimed at easing regulations for foreign investors, including the requirement for companies to publish information in English and the removal of pre-funding requirements. With political uncertainties nearly resolved, Vietnam has a strong chance of reclassification soon. The upcoming FTSE index decision on October 8 is one to watch.

The World Bank estimates that Vietnam’s reclassification could trigger inflows ranging from USD 5 billion to USD 200 billion over this decade.

Vietnam’s Fundamental Investment Case

Q: Why should someone consider investing in Vietnam?

From Pranay Yadav, Senior Research Analyst, Mint Finance:

The investment case for Vietnam rests on two main factors: strong domestic economic growth and significant foreign investment. In Q2 2024, Vietnam's economy grew by 6.93%, outpacing most Asian peers. The IMF projects Vietnam’s GDP growth from 2025 to 2029 will exceed key emerging markets like India and China, and nearly double that of advanced economies such as the US, EU, and UK.

A key driver of this growth is Vietnam’s thriving manufacturing sector, bolstered by friendshoring and the China Plus One strategy. Major global companies like Samsung, Intel, Canon, and Foxconn have invested billions in building manufacturing bases in the country.

Vietnam’s "bamboo diplomacy" has allowed it to serve as a neutral alternative to China for Western nations, while maintaining strong ties with China and India.

In the first seven months of 2024, FDI in Vietnam rose by 8.4% to USD 12.55 billion. Investment pledges, indicating future inflows, grew by 10.4% year-on-year to USD 18 billion. Strong FDI in high-tech manufacturing is expected to continue, supported by these significant pledges.

Additionally, the forward P/E for Vietnam equities is currently lower than the trailing P/E, indicating that these equities may be undervalued based on growth expectations for the next year.

Vietnam’s Recent Underperformance

Q: How have Vietnam equities performed in the past 12 months?

From Pranay Yadav, Senior Research Analyst, Mint Finance:

Vietnam equities measured through the FTSE Vietnam 30 Index are 6.5% lower over the past year while the SGX iEdge Vietnam 30 Sector Cap index has declined by 12.67%. While the recent rebound over the past month has improved returns, the YTD performance remains underwhelming. 

The underperformance of Vietnam equities this year can be attributed to several factors, including a slowdown in global demand, elevated inflation both domestically and globally, political instability, and supply chain disruptions.

Many of the previous headwinds are now easing, replaced by tailwinds such as increased foreign direct investment, robust GDP growth, and the potential reclassification of Vietnam as an emerging market. With political uncertainty nearing its end and substantial foreign investment pledges planned for the coming year, Vietnam equities are set for a strong recovery. Recent inflows into the CGS Vietnam ETF signal growing investor interest.

Since August 6, the recovery in Vietnam equities has driven a 5% gain in the CGS Vietnam 30 Sector Cap ETF, outperforming broader emerging market indices. The upcoming election next month is likely to further boost gains as political uncertainty subsides.

Investing in Vietnam

Q: How can investors obtain exposure to Vietnam equities?

From Pranay Yadav, Senior Research Analyst, Mint Finance:

Investing in individual Vietnam equities can be risky and requires thorough financial due diligence. For broader exposure to the economy and its largest companies, investors can look to indices like the Vietnam 30 Index, which includes the 30 largest companies, including diversified conglomerates like Vingroup and Masan Group. 

The iEdge Vietnam 30 Sector Cap Index covers key sectors of the economy, with significant exposure to real estate investment, food and beverage production, and investment services. It also offers diversified exposure to manufacturing and industrial sectors (e.g., electrical products, construction materials, metals, transportation, and chemicals), helping to reduce sector-specific risks, such as the current slowdown in the steel industry. 

SGX provides various instruments for accessing the iEdge Vietnam 30 Sector Cap index. For short-term trades and tactical positions, SGX FTSE Vietnam 30 Index ("FVN") futures offer greater capital efficiency. For long-term buy-and-hold strategies, the CGS Vietnam 30 Sector Cap ETF offers a simple, passive investment option.

The index recently signalled a bullish MA crossover, suggesting the market could be at a turning point, especially with the potential reclassification and the political overhang clearing up.

To read more about Vietnam’s equity market, please click here to read the research note in full on Smartkarma.

For more insights on macro developments and its impact on various asset classes including Singapore listed assets, follow Mint Finance.

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