“It’s going to be business as usual in Vietnam”
During a conversation with Mattias Martinsson, Chief Investment Officer of the frontier markets asset manager Tundra Fonder, Vietnam (VNM) was tabled as one of the firm’s four favorite frontier markets for 2017. The hype over Western protectionism affecting low-cost Asian (AAXJ) (VPL) (EEMA) manufacturing hubs such as Vietnam does not worry the investment firm. In fact, he brushed aside such fears, “We don’t really see a slowdown in Vietnam; rather we see business as usual,” Martinsson told Frontera.
He drew attention to Vietnam’s FDI (foreign direct investment) data for the last 10 years to drive home his point. The US accounts for just 8% of FDI flows into Vietnam. This seems minuscule when compared to the 67% accounted for by Taiwan, South Korea, and Japan together. So, “over the short to medium term, hopefully, other countries would compensate” for any trade drawback from Vietnam by western economies, Martinsson told Frontera.
For the long-run, however, there is concern about how this protectionist wave is going to affect the world (ACWI) (VTI) at large.
Sector and stock exposure
Asked about their equity exposure to Vietnam, Martinsson said, “We own Vinamilk; we think it’s still a strong investment.”
The firm leans towards consumer stocks, primarily mid caps, with some small caps as well. The company usually focuses on sectors that are expected to outgrow the economy as a whole.
Another of Tundra Fonder’s investments in Vietnam includes the largest auto retailer, Saigon General Service Company. The company has a market capitalization of around $60 million and commands about 10% of the market share in its industry. Tundra Fonder expects much higher automobile penetration levels in Vietnam going forward, which will translate to Saigon General Service seeing brighter days ahead.
“It’s reasonable to expect that the in about 10 years the market for automobiles would be very different in Vietnam. In total, you have 90 million people; 45 million bikes; and 4 million cars in the Vietnam. From about 240,000 cars a year currently, auto sales should touch 1.2 -1.5 million cars a year within the coming decade; almost the same penetration as China has today,” Martinsson told Frontera.
Tundra Fonder also expects banks such as the Military Commercial Joint Stock Bank (which is trading at a relatively lower 1.1 price multiple currently) as a safe bet for the financial services sector.
The asset manager is also invested in FPT Corp. from the IT sector, and cable producer Vietnam Electrical Equipment from the consumer sector.