Vietnam: cheap stocks make it country of now

Some of the world’s cheapest equities are in Vietnam. The south-east Asian country’s benchmark index is trading at a its lowest valuation in a decade. That gives investors a reason to get serious about this long-overlooked market.

A soaring dollar has left the Vietnam Stock Index down nearly 30 per cent this year, trading at less than 10 times forward earnings. It is one of the worst performing among regional peers. Its blue-chips include real estate and tech conglomerate Vingroup, which has fallen 37 per cent this year.

There is plenty of potential. The economy is expected to grow at the fastest pace in Asia this year. The population is growing and young. More than 70 per cent of Vietnamese people are under the age of 35. GDP per capita is just $3,694, less than one-third of China’s figure. This leaves ample room for growth.

Vietnam has been one of the biggest beneficiaries of the US-China trade war. US groups have moved suppliers to Vietnam to dodge US tariffs and blacklists for operating in China.

Apple already sources a proportion of its popular AirPods earphones from Vietnam. It is also testing watch and laptop production there. Exports to the US grew more than a quarter in the year to September, reflecting the shift. Pandemic lockdowns in China have reduced its manufacturing dominance.

Vietnamese growth has been impressive. The economy expanded 13.7 per cent in the third quarter, after growth of 7.8 per cent in the previous quarter. As travel normalises globally, tourism, which accounts for about a tenth of the economy, should give those numbers a further boost. Vietnam’s quasi-socialist market economy has helped it rapidly slash its poverty rate from 17 per cent to below 5 per cent in the span of just 10 years.

But it has downsides. Moving capital out of Vietnam is complicated. Exchange controls limit foreign currency outflows.

This has partly been why Vietnam has been the country of the future for much longer than investors have hoped. But at today’s valuations, the risks are attenuating.